Grocery store chain Sprouts Farmers Market (NASDAQ:SFM) reported Q1 CY2024 results beating Wall Street analysts' expectations, with revenue up 8.7% year on year to $1.88 billion. It made a non-GAAP profit of $1.12 per share, improving from its profit of $0.98 per share in the same quarter last year.

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"We were pleased with our impressive financial results this quarter, with strength in comparable store sales, traffic, and ecommerce," said Jack Sinclair, chief executive officer of Sprouts Farmers Market.

Playing on the secular trend of healthier living, Sprouts Farmers Market (NASDAQ:SFM) is a grocery store chain emphasizing natural and organic products.

Grocery Store

Grocery stores are non-discretionary because they sell food, an essential staple for life (maybe not that ice cream?). Selling food, however, is a notoriously tough business as grocers must deal with the costs of procuring and transporting oftentimes perishable products. Plus, the costs of operating stores to sell everything from raw meat to ice cream and fresh fruit are high. Competition is also fierce because grocers and other peers such as wholesale clubs tend to sell very similar brands and products. On the bright side, grocery is one of the least penetrated categories in e-commerce because customers prefer to buy their food in person. Still, the online threat exists and will likely increase over time rather than dwindle.

Sales Growth

Sprouts is larger than most consumer retail companies and benefits from economies of scale, giving it an edge over its competitors.

As you can see below, the company's annualized revenue growth rate of 5.5% over the last five years was weak , but to its credit, it opened new stores and grew sales at existing, established stores.

This quarter, Sprouts reported solid year-on-year revenue growth of 8.7%, and its $1.88 billion in revenue outperformed Wall Street's estimates by 1.9%. Looking ahead, Wall Street expects sales to grow 7.2% over the next 12 months, a deceleration from this quarter.

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Same-Store Sales

Same-store sales growth is a key performance indicator used to measure organic growth and demand for retailers.

Sprouts's demand within its existing stores has generally risen over the last two years but lagged behind the broader consumer retail sector. On average, the company's same-store sales have grown by 3.1% year on year. With positive same-store sales growth amid an increasing physical footprint of stores, Sprouts is reaching more customers and growing sales.

In the latest quarter, Sprouts's same-store sales rose 4% year on year. This performance was more or less in line with the same quarter last year.

Key Takeaways from Sprouts's Q1 Results

The company reported same store sales above expectations, leading to a revenue and ultimately an EPS beat. We were also impressed by Sprouts's optimistic earnings forecast for next quarter and the full year, which beat analysts' expectations. Zooming out, we think this was a great quarter that shareholders will appreciate. The stock is up 4.5% after reporting and currently trades at $67.15 per share.

Sprouts may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.