7. Sprouts Farmers Market Inc. (NASDAQ:SFM)
Year-to-Date Performance as of October 2: 130.66%
Number of Hedge Fund Holders: 35
Sprouts Farmers Market Inc. (NASDAQ:SFM) is a supermarket chain, offering a wide selection of produce, bulk foods, meat, seafood, and prepared foods, with a focus on healthy and sustainable options. It also carries a selection of natural and organic products, including vitamins, supplements, and personal care items, with a commitment to quality, freshness, and affordability.
The company has expanded its reach through e-commerce partnerships with Uber Eats, DoorDash, and Instacart, driving a 30% surge in online sales. E-commerce now accounts for 14% of total sales. The company’s strategic focus on operational efficiency, including strategic store locations and a new store format, has contributed to its success.
Cymbiotika, a new supplement line introduced in the Innovation Center, successfully educated customers about its benefits. The private-label brand, Sprouts, also expanded with over 200 new products in the first half of the year, outperforming the company’s overall sales growth. Private-label brands accounted for 22% of sales during the quarter.
The company grew its sales by 11.89% in Q2 2024 as compared to the year-ago period, driven by a 6.7% increase in sales from existing stores and the opening of new locations. Management expects total revenue to grow by 9-10% at the year-end, with same-store sales increasing by 4-5%. The company plans to open approximately 35 new stores by Q4.
Sprouts Farmers Market Inc. (NASDAQ:SFM) also fully repaid a $125 million loan and used $104 million to repurchase 1.6 million shares of stock. It now has $15 million remaining under its $600 million stock buyback program. The company is well-positioned to capitalize on opportunities like the successful Cherry Festival in Q2, leveraging marketing and operations to drive industry growth. Such strides prepare it for long-term growth.
FPA Queens Road Small Cap Value Fund stated the following regarding Sprouts Farmers Market, Inc. (NASDAQ:SFM) in its Q2 2024 investor letter:
“Sprouts Farmers Market, Inc. (NASDAQ:SFM) is a natural grocer with great merchandising and best-in-class gross margins.19 The company has attractive returns on capital, great new store economics, and they are accelerating their unit growth from 12 stores a year to 35 stores in 2024 on a base of roughly 400 stores. Over the past year, the stock has performed well after reporting strong operating results and from a low initial valuation. The stock price jumped when the company reported 2023Q4 results and gave strong 2024 guidance on February 22, 2024. We have maintained our position and allowed it to appreciate. Although SFM’s share price has increased faster than bottom line results, we believe SFM still trades in the “range of reasonableness” for a high-quality, non- cyclical franchise that can reinvest capital at attractive rates of return.”
