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Sprouts Farmers Market Inc SFM

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Morningstar’s Analysis

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Sprouts’ Optimization Efforts Remain a Work in Progress, but the Shares Present an Opportunity

Zain Akbari, CFA Equity Analyst

Analyst Note

| Zain Akbari, CFA |

Our $25.50 per share valuation of no-moat Sprouts should not change much after it posted third-quarter results (profitability tracking ahead of our full-year targets despite tepid sales) and initial expectations for 2022 (lackluster sales, margin); a time value of money-related adjustment should offset a softer near-term outlook. We expect a challenging long-term environment (mid-single-digit top-line growth rates and adjusted EBITDA margins, on average, over the next decade), but believe the shares offer value to patient investors.

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Company Profile

Business Description

Sprouts Farmers Market is an American specialty grocer offering a health-oriented assortment that focuses on fresh and naturally derived products. Its offerings are especially focused on produce, which constituted around 22% of sales in fiscal 2020. Founded in 2002, the chain is most heavily concentrated in California, which accounted for over one third of its 362 stores as of the end of fiscal 2020. All of the company’s operations are in the United States, with its stores largely located in the southern half of the country. The firm sells roughly 20,000 products (of which nearly 25% are organic), with private-label products accounting for about 16% of sales in fiscal 2020. Perishable items accounted for 57% of fiscal 2020 sales.

5455 East High Street, Suite 111
Phoenix, AZ, 85054
T +1 480 814-8016
Sector Consumer Defensive
Industry Grocery Stores
Most Recent Earnings Sep 30, 2021
Fiscal Year End Jan 2, 2022
Stock Type Aggressive Growth
Employees 33,000