Sprouts Farmers Market 1Q22 results were less than hoped for as the Sprouts lost roughly one item in their average basket as its customers cut back due to higher inflation and increased out-of-home spending, something that Publix, Weis Markets, and Costco are not experiencing.
- One thing that may be happening is that higher retail gasoline prices appear be incenting customers to shop at retailers that offer fuel rewards. When this was brought up on Sprouts' earnings call, the company did not dismiss it. In the past, Costco has said that a quarter of the visits to its pumps also coverts to in-store visits. As shown in Placer, trips to Costco, Safeway, and other grocer fuel stations are up massively Y/Y.
- Sprouts comparable store sales increased +1.6% due higher traffic. Ticket was down despite low-double-digit inflation due to fewer items on average in the basket. However, the average basket size above $40 still remains well above the pre-pandemic level of $31. On the level of price competition in the market, they characterize the environment as "rational." Moreover, CEO Jack Sinclair shared "I don't think we're seeing a dramatic change in trade down [by the consumer]."
- Management now sees full-year sales growth in the +4% range versus its prior outlook calling for +4%-6% growth, with comparable store sales flattish for the remainder of the year. Gross margins are to stay flat as the company passes through cost increases. Flattish comps imply pretty substantial declines in the 2-year and 3-year CAGRS (-10% and -2%, respectively).
- EBITDA margins of 9.3% for Q1 were stable Y/Y; however, they will likely be down slightly next quarter due to expense deleverage.
- The company reiterated its plans to open 15-20 new locations this year and that it was getting the necessary equipment for those builds.
