Dive Brief:

• Sprouts Farmers Market posted net sales of $1.2 billion, a 15% increase over the same period a year ago, according to a company release. Net income was $41 million, a 10% jump over last year.
• Same-store sales increased 1.4% while two-year same-store sales grew 5.5%. The company, which raised its earnings guidance last quarter, raised its outlook again, estimating net sales growth of 13% to 14% on the year and a comp-store sales increase of 1.5% to 2%.
• "Sprouts' accelerating comp sales and strong top-line growth during this competitive grocery environment demonstrates the power of our brand," Amin Maredia, chief executive officer of Sprouts Farmers Market, said in the release. "Strategic initiatives focused on product innovation, online customer engagement and knowledgeable customer service are driving new store productivity and customer loyalty."

Dive Insight:

Sprouts’ earnings and sales increases point to the growing power of its brand, as well as the strong demand for natural and organic products among U.S. consumers. While some specialty operators — most notably Whole Foods and The Fresh Market — are struggling, discount chains like Sprouts, as well as regional and independent players with loyal followings, are performing very well right now.

Sprouts CEO Amin Maredia credited online consumer engagement with driving top-line growth for the company. The grocer has partnered with Amazon to offer one- and two-hour home delivery in cities such as Dallas, Los Angeles, San Diego and Denver. Last month, Sprouts and Amazon extended their partnership to the Atlanta market where the company operates more than a dozen stores and plans to increase its footprint in the coming years.

The company also is seeing growth through product innovation and updated services. Sprouts’ private label lineup continues to expand, accounting for more than 10% of all sales, according to executive estimates laid out earlier this year. Sprouts is updating its prepared food offerings to keep pace with consumer demand. An enhanced deli program, which the grocer began testing back in 2015 has seen positive results, and this year Sprouts plans to roll the program out to 50 of its new and existing stores. The program includes freshly made soups, salads, juices and entrees available in full-service cases.

Sprouts also credited in-store service with improving sales and enhancing customer loyalty. Stores typically staff between 100 and 130 associates, a company spokeswoman recently told Food Dive, and has recently increased its investments in wages and benefits.

The natural and organic grocer raised its guidance again on the year and plans to open 32 stores, bringing its total to nearly 300 locations. The chain is moving into competitive markets like North Carolina and Florida, where it hopes to stand out against a slew of conventional operators.

However, questions linger regarding a possible acquisition and the impact of an Amazon-Whole Foods merger. Analysts have pegged Sprouts as an acquisition target, with speculation heating up following Amazon’s $13.7 billion offer for Whole Foods back in June. Reports claimed Albertsons approached Sprouts earlier this year, but noted the two sides couldn’t come to an agreement. Certainly, the fast-growing chain remains an attractive target in a high-growth segment of the industry, though its recent success may put it out of range for some potential bidders.

Whole Foods under Amazon, meanwhile, could prove to be a competitive threat to Sprouts, particularly if the struggling organic and natural foods pioneer is able to bring down its prices.  In addition, there are questions over how the merger might impact Amazon’s online partnership with Sprouts. The recent Atlanta market expansion indicates it’s still business as usual for the two companies, but running a competitor’s online shopping platform may prove problematic for Amazon.

At a recent financial conference, Brad Lukow, Sprouts’ chief financial officer, confirmed that both sides remain committed to the partnership for the time being, but noted if either Amazon or Sprouts decided to dissolve the relationship, they would give the other plenty of notice.