Wedbush: Momentum 'Slowing' At Sprouts Farmers Market

In a report published Friday, Wedbush analysts maintained a Neutral rating on Sprouts Farmers Market Inc SFM, while reducing the price target from $38 to $33, after the company reported disappointing 1Q results. SFM reported its quarterly EPS at $0.01, significantly short of the Wedbush and consensus estimates of $0.26. In the report Wedbush noted, "The company indicated it experienced unfavorable deflation in produce in the second half of 2Q (~100 bps), unfavorable weather (~50 bps), and ~100 bps of impact from port strike. The company experienced gross margin pressure as it lapped a strong year ago produce season, but also faced some impact of increased consumer focus on produce sales as well as earlier y/y new store opening impact." Sprouts Farmers Market projected its 2Q comp store sales at 5.5-6.5 percent. Although the company reiterated its FY15 guidance of 20-22 percent sales growth and EPS of $0.84-$0.87, it reduced its inflation expectation from 2-3 percent to of ~1 percent. "SFM noted it experienced increased consumer penetration on value-oriented produce offerings which hurt gross margin. Ongoing proliferation of value-oriented healthier-for-you offerings may lead to increased consumer cherry picking of food retailers into the foreseeable future, a negative for our entire grocer group," the analysts said.