Sprouts Farmers Market More Than Doubles On First Day (SFM)
The stock market apparently likes the food market.
Sprouts' share price jumped 123 percent to close at $40.11 after entering the trading arena with an offering price of $18. The Wall Street Journal reported that this was the largest first day bump for a U.S.-listed IPO since March 2011.
Even before underwriters begin buying shares, the company raised $333 million. The money will help the company begin some adventurous expansion plans hinted at by Doug Sanders, Sprouts CEO. Saying he thinks the U.S. could eventually support 1,200 Sprouts locations, Sanders said the company plans to expand the number of stores at a rate of 12 percent annually over the next five years.
As for the competition, Whole Foods Market (NASDAQ: WFM), co-chief executive, Walter Robb told The Wall Street Journal, "They will have more money now and more appetite for growth, but so do we." Robb added that Whole Foods had been competing with Sprouts for many years.
Sprouts’ business strategy is simple. It entices shoppers with competitively priced quality produce, then makes its profit on packaged foods and other products they buy while there.
Investor’s Business Daily pointed out that public interest in organic food offerings is on the rise, helped by trends such as juicing diets, which have increased sales of produce. The result has been consistent growth, not only for natural food companies like Sprouts and Whole Foods, but also traditional store such as Wal-Mart Stores (NYSE: WMT), The Kroger Co. (NYSE: KR), and Safeway (NYSE: SWY), all of whom have added shelf space for natural and organic products as well as vegan and gluten-free foods in recent years.
While Sprouts is gearing up to be a national player on the organic and natural foods stage, Whole Foods feels as if it is already there. Reporting a 19 percent bump in Q3 earnings, which exceeded analysts’ estimates by a penny, according to Investors Business Daily, the company has seen revenue and EPS growth in the double-digits for every quarter since March 2009.
Related: Whole Foods Falls After Q3 Report
The Wall Street Journal reported that Brian Yarbrough, consumer analyst at Edward Jones said, "Whole Foods is the only national player, and no one has the customer service and store environment that they do."
Sprout’s isn’t intimidated. Playing organic David to Whole Foods’ Goliath seems to be about where CEO Sanders wants to be.
"We're in the early innings of this,” Sanders told The Wall Street Journal, “and there's a lot of room for expansion across the country."
Phoenix-based Sprouts currently operates 163 stores primarily in the Southwest.
At the time of this writing, Jim Probasco had no position in any mentioned securities.
Latest Ratings for SFM
|Dec 2014||Longbow Research||Initiates Coverage on||Underperform|
|Sep 2014||Barclays||Initiates Coverage on||Overweight|
|Sep 2014||Piper Jaffray||Initiates Coverage on||Neutral|
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