Back on 8/1/2013, after doing my due diligence, I was ready to invest in Sprouts Farmers Market (SFM) on its first day of trading. However, SFM opened at $35/share, a whooping 94% premium above the IPO’s priced shares at $18 (the expected range was $14 to $16), and I backed off. That day, Sprouts realized a Mt. Everest high 123% gain - a debut that outdid the likes of LinkedIn 109% and Noodles & Co. 104%. Since then, I’ve kept Sprouts on the back burner. But recently, I took a look see when Sprouts pulled back to under $30/share with a P/E in the low 40s and forward P/E in the high 20s, which are more acceptable and tolerable at Himalayan base camp levels where I can breathe without an oxygen mask.
RETAIL FOOD INDUSTRY BACKGROUND
Today, the U.S. supermarket industry is huge ($620.2 billion in 2013 according to Progressive Grower), intensely competitive and highly fragmented. The industry includes conventional supermarkets, super-centers, warehouse grocery stores, military commissaries and limited-assortment and natural/gourmet-positioned supermarkets. According to Natural Foods Merchandiser, a leading trade publication for the natural foods industry, in 2013, natural and organic product sales through retail channels accounted for $89.4 billion, or 14.35% of the supermarket industry total.
Not surprisingly, Whole Foods holds a substantial market share of the $89.4 billion natural and organic sales, as shown in the following table.
2013 Sales % of total (billion $) Whole Foods (WFM) $12.917 14.4% Sprouts Farmers Market (SFM) 2.438 2.7% The Fresh Market (TFM) 1.329 1.5% National Grocers (NGVC) 0.430 0.5% Subtotal 17.114 19.1% Total Sales: Natural/Organic $89.400 100.0%
Whole Foods combined with 3 other major companies - Sprouts, The Fresh Market and National Grocers - account for almost 20% of the natural and organic total sales. However, the line between natural and organic retailers and all others is becoming more and more blurred as conventional supermarkets, such as Kroger and the merged Albertsons/Safeway, and others like Walmart and Trader Joe’s crash the scene.
Recently, share prices of the four natural and organic companies have pulled back significantly, and I decided to revisit this sector, looking for any investment opportunities.
NATURAL & ORGANIC FOOD RETAILERS
Latest 10K Business Statements
“Whole Foods Market is the leading retailer of natural and organic foods, the first national “Certified Organic” grocer, and uniquely positioned as America’s Healthiest Grocery Store™. The Company incorporated in 1978, opened the first Whole Foods Market store in 1980, and is based in Austin, Texas. We completed our initial public offering in January 1992. Our Company mission is to promote the vitality and well-being of all individuals by supplying the highest quality, most wholesome foods available. Since the purity of our food and the health of our bodies are directly related to the purity and health of our environment, our mission is devoted to the promotion of organically grown foods, healthy eating, and the sustainability of our entire ecosystem. Through our growth, we have had a significant and positive impact on the natural and organic foods movement throughout the United States, helping lead the industry to nationwide acceptance over the last 36 years. We have one operating segment, natural and organic foods supermarkets. We are the largest retailer of natural and organic foods in the U.S. and the 7th largest public food retailer overall based on 2013 sales rankings from Progressive Grocer.”
“Sprouts Farmers Market operates as a healthy grocery store that offers fresh, natural and organic food that includes fresh produce, bulk foods, vitamins and supplements, grocery, meat and seafood, bakery, dairy, frozen foods, body care and natural household items catering to consumers’ growing interest in eating and living healthier. Since our founding in 2002, we have grown rapidly, significantly increasing our sales, store count and profitability. With 198 stores in 12 states as of February 26, 2015, we are one of the largest specialty retailers of fresh, natural and organic food in the United States.
The cornerstones of our business are fresh, natural and organic products at compelling prices (which we refer to as “Healthy Living for Less”), an attractive and differentiated shopping experience, and knowledgeable team members who we believe provide best-in-class customer service and product education.
Healthy Living for Less. We offer high-quality, fresh, natural and organic products at attractive prices in every department. Consistent with our farmers market heritage, our offering begins with fresh produce, which we source, warehouse and distribute in-house and sell at prices we believe to be significantly below those of other food retailers. In addition, our scale, operating structure and deep industry relationships position us to consistently deliver “Healthy Living for Less” throughout the store. Based on our experience, we believe we attract a broad customer base, including conventional supermarket customers, and appeal to a much wider demographic than other specialty retailers of natural and organic food. We believe that over time, our compelling prices and product offering convert many “trial” customers into loyal “lifestyle” customers who shop Sprouts with greater frequency and across an increasing number of departments.”
“The Fresh Market is a growing specialty grocery retailer focused on creating an extraordinary food shopping experience for our customers. Since opening our first store in 1982, we have offered high-quality food products, with an emphasis on fresh, premium perishables and an uncompromising commitment to customer service. We seek to provide an attractive, convenient shopping environment while offering our customers a compelling price-value combination. As of January 25, 2015, we operated 169 stores in 27 states across the United States.”
“Natural Grocers is an expanding specialty retailer of natural and organic groceries and dietary supplements. We focus on providing high-quality products at affordable prices, exceptional customer service, nutrition education and community outreach. We strive to generate long-term relationships with our customers based on transparency and trust by: (a) selling only natural and organic groceries and dietary supplements that meet our strict quality guidelines—we do not approve for sale grocery products that are known to contain artificial colors, flavors, preservatives or sweeteners or partially hydrogenated or hydrogenated oils; (b) utilizing an efficient and flexible small-store format to offer affordable prices and a shopper-friendly retail environment; and (c) enhancing our customers’ shopping experience by providing free science-based nutrition education to help our customers make well-informed health and nutrition choices.”
Company Product Sales Mix, Store Size, Store Total & Comparable Store Sales Growth
The following data reveal how the above business statements have been executed in their existing stores.
Whole Sprouts Fresh National Foods Market Grocers 2014 PRODUCT SALES MIX o Perishables 66.8% 50.8% 65.4% o Non-Perishables 33.2% 49.2% 34.6% o Grocery 67.0% o Dietary supplements, 23.0% o Body care, pet care 10.0% AVERAGE STORE SIZE o Gross sq. ft. (000s) 38 21 o Selling sq. ft. (000s) 25-28 10 TOTAL STORES (a) 6/2/2015 417 205 168 96 FY 2015 169 FY 2014 399 191 151 87 FY 2013 362 167 129 72 FY 2012 335 148 59 FY 2011 311 103 49 FY 2010 299 43 39 FY 2009 284 40 33 FY 2008 275 36 COMPARABLE Whole Sprouts Fresh National STORE SALES GROWTH Foods Market Grocers 2015 2.9% 2014 4.3% 9.9% 3.2% 5.6% 2013 6.9% 10.7% 5.7% 10.8% 2012 8.7% 9.7% 5.4% 11.6% 2011 8.5% 5.1% 5.0% 4.9% 2010 7.1% 2.3% 5.0% 2.1%
Note (a) includes Whole Food stores throughout the U.K., Canada and 42 U.S. states.
Investors here must know if a company is and will continue winning over more customers, especially if its stock is expensive. While all four companies have responded well to their customer base demands (like providing more fresh produce shown above), same store sales growth is the key metric. [For those unfamiliar with this term, go to this website for a definition: http://www.investopedia.com/terms/s/samestoresales.asp ] For traditional grocers, same store sales growth above 3% is an excellent achievement. Some analysts, however, suggest the bar should be higher for natural & organic food retailers, but provide no percentage and no backup reasons. The leader Whole Foods is a likely candidate to set the bar, but the company has not been able to consistently sustain a growth percentage level.
Over the recent five-year period, Sprouts has realized excellent same-store sales growth that have far exceeded the corporate financial target of 6%, and, now in the 9% to 11% range, Sprouts is at the very top far above its brethren. With a store foot print much smaller than Whole Foods, Sprouts has rapidly increased its store count from only 36 in 2008 to 205 today with future plans to expand eastward from its U.S. Southwest concentration across the U.S sunbelt to the U.S. East Coast.
Whole Foods’ same store sales growth peaked at 15% in FY 2002 and, subsequently, declined to an awful minus 3% in FY 2009 and, after rebounding to 8.7% in 2012, has realized a significant downward trend to 4.3% for FY 2014. After reporting a disappointing same store sales growth this past May and due to competitors assaulting its market share, Whole Foods announced plans to start a sister chain of smaller stores that will be aimed at younger shoppers and will have lower prices and cost less to operate; their primary target is Trader Joe’s which has been a thorn in their side over the years.
Both The Fresh Market and National Grocer have also increased their store count, but recently have realized significant declines in same store sales growth.
I first take a look at margins, cash flows and ROIC-WACC spreads to ascertain if the companies are creating value and making money.
In the table below, all four companies show an increasing margin trend. However, the entry and expansion of the big boys (Wal-Mart, Kroger and Albertsons/Safeway) in the natural and organic food arena have already begun to exert pressure on the margins of the four companies. For example, Wal-Mart, knowing that 91% of their shoppers prefer buying organic products from affordable brands, is attracting more customers and expanding organic items by advertising that customers can save 25% on its organic products compared to national brands. This price war creates havoc for natural and organic food retailers because it forces them to make “price investments”, i.e., selling their products at lower prices in order to remain competitive. Price investments, in turn, put a lot of pressure on their gross margins.
One way to increase margins is taking the low cost private label route. For example, Sprouts chooses not to carry most of the traditional, national branded consumer packaged goods generally found at conventional grocery retailers and focuses on expanding low cost private label products in their overall product portfolio. The company has brought 60 new products and reached 1,600 items under the private label umbrella. The company believes that their private label products build and enhance the Sprouts brand and allow them to distinguish themselves from competitors, promoting customer loyalty.
WHOLE SPROUTS FRESH NATIONAL FOODS MARKET GROCERS MARGINS GROSS % 2015 (ttm) 35.48 29.63 33.92 29.04 2014 35.54 29.83 33.92 29.10 2013 35.84 29.75 34.09 29.20 2012 35.52 29.55 33.98 29.45 2011 34.99 28.12 33.11 29.25 2010 34.83 29.00 32.77 29.58 2009 34.29 32.09 29.18 2008 34.03 30.44 OPERATING % 2015 (ttm) 6.61 6.64 7.36 4.80 2014 6.58 6.73 5.91 4.66 2013 6.84 5.72 5.52 4.43 2012 6.36 3.94 7.64 3.57 2011 5.42 -2.33 7.48 2.80 2010 4.86 1.66 4.20 3.98 2009 3.54 6.16 4.03 2008 4.13 4.64 PROFIT % 2015 (ttm) 4.05 3.59 3.45 2.71 2014 4.08 3.63 3.59 2.59 2013 4.27 2.11 3.36 2.45 2012 3.98 1.09 4.83 1.98 2011 3.39 -2.48 4.64 1.32 2010 2.73 0.94 2.35 1.94 2009 1.83 5.71 1.72 2008 1.44 2.43
In the following table, all four companies have strong ROIC numbers, and their current ROIC-WACC spreads (EVA) indicate that all four are creating excellent value for shareholders.
WHOLE SPROUTS FRESH NATIONAL FOODS MARKET GROCERS ROIC 2014 19.01% 13.51% 21.61% 14.25% 2013 19.83% 9.90% 20.14% 15.30% 2012 18.59% 9.29% 31.49% 15.43% 2011 14.24% 32.22% 13.68% 2010 12.00% 15.54% 38.61% 2009 7.66% 64.46% 2008 7.87% 06/05/15 ROIC 18.87% 14.02% 21.21% 14.64% WACC 9.21% 2.31% 4.23% 5.85% EVA 9.66% 11.71% 16.98% 8.79% ROE 15.00% 17.04% 19.80% 15.50% P/E (ttm) 24.22 40.39 25.98 35.32 FWD P/E 21.15 27.47 16.42 30.09 P/B (mrq) 3.63 6.03 4.58 5.04 P/S (ttm) 0.97 1.44 0.89 0.95 FCF/share (ttm) 2.48 0.19 1.23 0.25 Cash (mrq) 776.00M 177.72M 89.35M 7.24M Total Debt 63.00M 379.53M 32.95M 25.23M Debt/Equity 1.4% 51.3% 9.5% 23.3% Current ratio 1.40 1.75 1.24 1.25 Market Cap 14.4B 4.46B 1.60B 0.548B 52-wk high 57.57 38.45 42.12 35.00 6/5/15 Price 40.18 29.12 33.00 24.37 52-wk low 36.08 26.86 29.31 15.89 IPO offer/open Nov 5, 2010 $22/25 Jul 25, 2012 $15/18 Aug 1, 2013 $18/35
Currently, the stock prices for all four companies have pulled back significantly. Sprouts high P/E raises eyebrows, but, after a trade start at a 123% premium back in August 2013, Sprouts’ P/E has significantly dropped from 126.23 for Qtr Sep-13 to the current 6/5/15 P/E of 40.39 as Sprouts has realized strong growth in same store sales and revenue.
SPROUTS P/E QTR. REVENUE (million $) 6/5/15 40.39 Mar-15 48.93 857.51 Dec-14 48.27 734.59 Sep-14 44.72 766.41 Jun-14 58.43 743.81 Mar-14 78.33 722.61 Dec-13 101.13 608.24 Sep-13 128.67 633.61
Furthermore, Sprouts forward P/E of 27.47 indicates a continuance of this downward trend.
Next are the financial metrics that this board places a lot of importance.
REVENUE Whole Change Sprouts Change Fresh Change National Change (million $) Foods YoY YoY Market YoY Grocers YoY 2015 (ttm) 14,950 3,100 1,780 573 FY 2015 1,753 16% FY 2014 14,194 10% 2,967 22% 1,512 14% 521 21% FY 2013 12,917 10% 2,438 36% 1,329 20% 431 28% FY 2012 11,699 16% 1,795 62% 1,108 13% 336 27% FY 2011 10,108 12% 1,106 114% 980 265 17% Jan-2011 (a) 78 FY 2010 9,006 12% 517 6% 974 227 10% FY 2009 8,032 1% 488 206 FY 2008 7,954 NET INCOME Whole Change Sprouts Change Fresh Change National Change (million $) Foods YoY YoY Market YoY Grocers YoY 2015 (ttm) 605 111 62 16 FY 2015 63 24% FY 2014 579 5% 108 110% 51 -21% 13 28% FY 2013 551 18% 51 163% 64 25% 11 59% FY 2012 466 36% 20 51 141% 7 90% FY 2011 343 39% -27 21 4 -21% Jan-2011 (a) 3 FY 2010 246 67% 5 -2% 23 4 25% FY 2009 147 28% 5 4 FY 2008 115 EPS Whole Change Sprouts Change Fresh Change National Change (diluted) Foods YoY YoY Market YoY Grocers YoY 2015 (ttm) 1.66 0.72 1.27 0.69 FY 2015 1.30 24% FY 2014 1.56 6% 0.70 89% 1.05 -21% 0.60 28% FY 2013 1.47 17% 0.37 131% 1.33 24% 0.47 57% FY 2012 1.26 30% 0.16 1.07 143% 0.30 88% FY 2011 0.97 35% -0.28 0.44 0.16 -20% Jan-2011 (a) 0.06 FY 2010 0.72 67% 0.08 0% 0.48 0.20 25% FY 2009 0.43 0.08 0.16
Note (a): TFM changed their FY ending from December to January.
For FY years 2013 and 2014, Sprouts has clearly outperformed the others, showing the highest percentage of growth in annual revenue, net income and EPS.
COMPETITION & GROWTH
Whole Foods pioneered the natural and organic food segment that it still dominates, but recently investors worry that it could lose more share to specialty retailers such as Sprouts, Fresh Market, National Grocers and Trader Joe’s, as well as mainstream retailers such as Kroger, Albertsons (which merged with Safeway) and Wal-Mart Stores.
IMO, the most formidable competitor in the natural and organic arena is Trader Joe’s which has successfully gone head-to-head with Whole Foods over the years. Trader Joe’s substantially outpaces its competitors in sales per square foot as shown in following table from research reports in 2014:
Average Sales per Sq. Ft. TRADER JOE’S $1,723 WHOLE FOODS 937 Publix 552 Kroger 496 SPROUTS 490 FRESH MARKET 443 Harris Teeter 442 NATURAL GROCERS 419 Roundy’s 393 Weis Markets 335 Ingles 325
At a whopping $1,734 sales per square foot, Trader Joe’s sells almost twice as much as Whole Foods and leaves Sprouts, Fresh Market and Natural Grocers behind in the dust. Trader Joe’s currently has 446 stores with an average size between 8,000 and 12,000 square feet versus Whole Foods’ 400 stores with an average gross area of 38,000 square feet.
Here’s the geographic distribution by State for Whole Foods, Sprouts, Fresh Market, National Grocers and Trader Joe’s.
Company Whole Sprouts Fresh National Trader Location Foods Market Grocers Joe’s California 79 84 0 172 Texas 28 35 6 13 16 Arizona 11 29 4 14 Colorado 20 27 34 7 Oregon 8 8 12 New Mexico 4 6 5 3 Nevada 5 5 1 7 Utah 5 5 2 2 Montana 4 Idaho 1 3 1 Nebraska 2 3 2 Wyoming 2 Washington 8 1 21 Florida 25 40 15 N. Carolina 12 19 9 Virginia 10 13 14 Georgia 10 7 12 7 Illinois 24 9 21 Tennessee 5 2 8 2 S. Carolina 4 7 3 Ohio 6 6 6 Alabama 1 3 6 Indiana 3 5 2 New York 16 4 21 Pennsylvania 10 4 10 Maryland 9 4 8 Louisiana 5 4 1 Kentucky 2 3 4 New Jersey 13 3 11 Connecticut 9 2 7 Wisconsin 2 2 3 Kansas 4 3 2 8 1 Arkansas 1 2 2 Oklahoma 3 7 1 5 Iowa 1 1 1 Mississippi 1 1 N. Hampshire 1 1 2 Massachusetts 30 1 18 Michigan 6 6 Minnesota 6 8 Missouri 2 2 5 D.C, 4 2 Rhode Island 3 1 Maine 1 1 Vermont 1 Delaware 1 Hawaii 3 Total 400 215 166 95 446
Privately-held Trader Joe’s is a formidable competitor in this arena. Renowned for its quirky personality and unique products, Trader Joe’s is a chain of specialty grocery stores at 446 locations in 39 states and Washington, D.C. The company will open soon 11 new stores at the following locations: 1 store in Birmingham, Alabama; 3 in Texas (2 in Dallas and 1 in Houston); 2 in Florida (Davie & Ft. Lauderdale); 1 in Grand Rapids, Michigan; 2 in Washington (Shoreline & Spokane); and 1 in Tulsa, Oklahoma. Store sizes average between 8.000 and 12,000 square feet that support and carry fewer than 4,000 items, about which 80% are private label. The company’s greatest edge over conventional chains is the fact that consumers cannot get its items anywhere else. This unique positioning serves as a powerful marketing tool and is effective at insulating the company from competition. According to Supermarket News data, Trader Joe’s 2013 sales were at $11.3 billion, compared to the leader Whole Foods at $12.9 billion.
According to Consumer data from Simmons National Consumer Surveys from Experian Marketing Services, consumers for Trader Joe’s and Whole Food tend to have a higher education; are conscious of labels, ingredients, nutrition, and eating healthfully; interested in natural/organic products, gourmet foods, foreign foods, and the way food is presented; and concerned about environmental issues. At Whole Foods, the focus is premium quality and huge selection. At Trader Joe’s, the focus is a sharply edited assortment of great products at great prices. There is also a vast difference in their marketing thrusts. Whole Foods promotes the concept that by buying products at its stores, consumers are supporting not just organic foods, but a production model that benefits local farmers, people in third-world countries, and the environment. In contrast, the marketing thrust of Trader Joe’s is that it is here to make shopping fun—and has great products that it searched the world to find just for you, at prices that are a steal.
Whole Foods operates 400 stores across the U.S. in 42 states and Washington, D.C. with the highest concentration in California, almost 20%. Whole Foods’ long-term growth plans target 1,200 stores in the U.S. However, disappointing comparable same store sales growth and the onslaught of competitors that could adversely affect gross profit margins have raised worries that Whole Foods’ high-end grocery model is showing signs of faltering. This is more evident now that Whole Foods just announced a new store concept - the aforementioned above sister chain of smaller stores aimed at younger shoppers - that co-founder and co-CEO John Mackey related will be “hip, cool and tech-oriented” with lower prices and less costly to operate. Mackey emphasized that they see this as an “and” to their Whole Foods Market brand and not an “or.” Whole Foods underlying business still remains very strong.
Sprouts currently has 215 stores (includes those opening in the next few months) across 13 states with heavy store concentration in the U.S. Southwest with almost 40% located in California. Sprouts has aggressive plans to expand eastward across the U.S. sun belt to the East Coast and penetrate Whole Foods and Fresh Market’s turf in the Deep South, in particular, Florida. There is also more room for additional stores in California and Texas. For example, within the city of Los Angeles, there are only 3 Sprouts stores; two are in far outlying neighborhoods (Granada Hills and Woodland Hills) and only one in Central Los Angeles (Westwood adjacent to UCLA).
The Fresh Market now has 166 stores across 26 states with primary store concentration in the U.S. deep south with almost 24% in Florida. In March 2015, Fresh Market made a surprising decision to abandon California and shut down its 3 stores in Palo Alto, Santa Barbara and Laguna Hills. The company expects to open 19 new stores in or near existing eastern U.S. markets. Fresh Market anticipates sales growth of 9% to 11%, with comps rising 2% to 4%.
National Grocers operates 95 stores across 15 states with a concentration in the U.S. far west with almost 36% in Colorado. Interestingly, there are no stores in California. Management has outlined its belief that the U.S. market can support 1,100 Natural Grocers stores. This represents more than a 11-fold increase from current store levels. The company plans on expanding its base of stores by 20% per year for the foreseeable future.
Wal-Mart is a huge threat due its scale and customer base. Since its acquisition of Wild Oats, Wal-Mart has rapidly expanded both the selection and reach of its organic food brand. Organic products are sold in 3,800 U.S. stores, which carry at least 30 organic items and include 2,200 stores offering a selection of 70 items.
The Kroger Co. (KR), headquartered in Cincinnati, OH, is one of the world’s largest food retailers, with fiscal 2014 sales of $108.5 billion. Kroger Co. operates more than 2,625 supermarkets and multi-department stores (1,330 of which have fuel centers) across the country under regional banners including Kroger, Ralph’s, and Fry’s. Kroger is also making a play for the natural and organic food space and considers itself the second-largest player in this market after Whole Foods. For FY 2014, same supermarket sales was 4.2% for supermarkets with fuel centers and 5.2% for supermarkets without fuel centers.
On 1/20/2015, Albertsons and Safeway Inc. merged into a privately held company that operates 2,230 grocery stores in 34 states and Washington D.C. The new company is comprised of three regions and 14 retail divisions, supported by corporate offices in Boise, ID, Pleasanton, CA, and Phoenix, AZ. Banners include Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Albertsons, ACME, Jewel-Osco, Lucky, Shaw’s, Star Market, Super Saver, United Supermarkets, Market Street and Amigos. This new company also plans to expand into the natural and organic food space.
Acquisitions and mergers are also possible.
Whole Foods co-founder John Mackey has been with the company since 1978 and currently is the Co-CEO.
Sprouts co-founder Shon Boney has been with the company since 2002 and served as CFO (2002-2005), CEO (2005-2012) and now is only a Board member. President and CEO Douglas Sanders has been with the company since its 2002 founding and was appointed to his present position in 2012.
Fresh Market founder Ray Berry has served as Chairman of the Board of Directors since he started the company in 1981 and served as President and Chief Executive Officer from 1981 until 2007.
Natural Grocers was founded by Margaret and Philip Isely in 1955, years before the first Whole Foods was opened in 1980. Natural Grocers is still in the hands of the Isely family, who make up half of the company’s board of directors. This generation of Iselys, which took the helm in 1998, began the expansion of Natural Grocers beyond a simple mom-and-pop concept. Kemper Isely, who serves as Chairman and Co-President with his brother Zephyr, joined the company as an employee at the age of 14 in 1977. The four Iselys on the board own a combined 37.6% of Natural Grocers, and all insiders own a combined 60% of shares outstanding. This level of insider ownership, coupled with ambitious plans for growth already under way, provides confidence that this management team is focused on the long-term success of the business.
Trader Joe’s is owned by a family trust set up by Theo Albrecht, one of the brothers behind the German discount chain ALDI. Its management is notoriously secretive about corporate business and financials.
It’s too bad my first choice Trader Joe’s is a privately-held company. If it ever goes public, the opening price will most likely skyrocket to record heights. Among the others, I still favor Sprouts Farmers Market (SFM), my choice back in August 2013. Sprouts is operating in the black, creating excellent value for stockholders, making money and increasing margins. Within the natural and organic food arena, Sprouts outshines Whole Foods, Fresh Market and National Grocers with the highest percentage of growth in comparable store sales, revenues, net income and EPS. Since its IPO, Sprouts’ high P/E has dropped significantly and appears on its way to lower levels with a forward P/E in the high 20s . Sprouts is positioned well to meet and, in some cases, exceed corporate guidance levels for 2015.
• Net sales growth (1): 20% to 22%
• Unit growth: 27 new stores
• Comparable store sales growth (2): 6% to 7%
• Adjusted EBITDA growth: 16% to 19%
• Adjusted net income growth: 18% to 22%
• Adjusted diluted earnings per share (3): $0.84 to $0.87
• Capital expenditures (net of landlord reimbursements): $100M - $110M
(1) On a 52-week to 52-week basis the Company expects total sales growth of 18% to 20%.
(2) Comparable store sales growth is on an equal 52-week to 52-week basis.
(3) Based on a weighted average share count of approximately 157 million shares for 2015.
The growing awareness, popularity and affordability of natural and organic foods have created a fierce competition for consumers among food retailers. Another way to invest in the natural and organic food sector is looking for well-run companies in its supply and distribution chain, which is being stretched by increasing demands. I’m also revisiting this area and looking at companies like United Natural Foods (UNFI), Hain Celestial Group (HAIN) and WhiteWave Foods (WWAV).
As always, conduct your own due diligence, especially since Sprouts Farmers Market, The Fresh Market and National Grocers are companies outside of Saul’s portfolio and TMF pay site safety nets.