Dive Brief:

• Sprouts Farmers Market saw same-store sales jump 4.6% in the third financial quarter, according to a company release. Net sales hit $1.2 billion, a 16% increase from the same period a year ago, while net income rose 32% to $31 million.
• Driven by increased promotional activity, gross profits increased 19% to $346 million, delivering a gross profit margin of 28.7% — an increase of 60 basis points compared to the year-ago period.
• Sprouts raised its full-year guidance for the third straight quarter, estimating net sales growth of 14.5% to 15% and diluted earnings per share of $0.98 to $0.99. "We'll continue to accelerate strategic priorities that will enhance our business — from product assortment to the digital experience to customer service," CEO Amin Maredia said in the release. "These, coupled with our technology investments to drive efficiencies, will provide the flexibility to make future investments where needed to ensure Sprouts is well-positioned for the future."

Dive Insight:

When Sprouts Farmers Market posted strong results in this year’s first financial quarter — at a time when U.S. retailers were still mired in price deflation — it was clear the discount natural and organic grocer had a resilient model. Now, with the cloud of deflation mostly lifted, Sprouts has continued to build momentum, proving its model is a real winner at a time of unprecedented industry disruption.    

The company’s 4.6% same-store sales growth is outstanding, and indicates that the retailer is drawing new shoppers to its locations. Sprouts operates in some very competitive markets, including Atlanta, Dallas and Denver, so this is a very good sign.

The results are a testament to consumer demand for natural and organic products, as well as Sprouts’ recent strategic moves. The company, which does around 60% of its sales in produce and other perishable items, has increased its private label selection to around 12% of total sales. Sprouts has also rolled out an enhanced deli program that includes grab-and-go sandwiches, soups and other prepared items. The grocer, whose stores average 30,000 square feet, wants to be a meal destination for consumers.

The company plans to accelerate these programs and introduce new ones, as well. Next year, for instance, Sprouts plans to introduce a revamped website that promotes its value message and includes more information about store products, including private label. 

Sprouts CEO Amin Maredia has also credited online ordering and delivery with helping grow brand awareness for the company. It’s the largest grocery partner for Amazon Prime Now, offering delivery in several metropolitan markets. During an industry conference this summer, Maredia said delivery has extended Sprouts’ market reach beyond the five to seven-minute radius that shoppers are typically willing to travel to reach one of its stores. This has provided incremental gains in the form of added sales and new customers. It’s also provided the grocer with valuable consumer data.

“[Delivery] is offering the strategic benefit of extending our trade area beyond what most customers like to shop in terms of driving distance,” Maredia told investors in September.

Sprouts has ambitious growth plans. It’s putting more stores in states along the East Coast, including North Carolina and Florida, and recently announced its first location in Maryland. Sprouts currently operates around 250 stores and plans to grow by around 30 locations per year. The company envisions 1,200 locations, Sprouts CFO Brad Lukow noted at the recent conference.

“Clearly we have a long runway of profitable growth ahead of us,” said Lukow.

There are challenges ahead. Sprouts' movement into the mid-Atlantic region places it in a hotly contested market where discounters Aldi and Lidl, which will win on price, are ascendant. Whole Foods-Amazon could also cut into Sprouts’ business as that partnership develops. Data collected the week Amazon assumed ownership of Whole Foods, when it kicked things off with a round of price cuts, showed Sprouts had the highest customer defection rate behind Trader Joe’s.

For now, at least, Sprouts is on very solid footing. Its operational strength and growth prospects have made it a much-discussed acquisition target. But according to sources interviewed by Food Dive, along with analysts recently quoted by Supermarket News, there doesn’t appear to be a clear match among large-scale grocers.