Evercore ISI has taken Sprouts Farmers Market (SFM) off its Tactical Underperform List after the grocery chain reported fourth-quarter results for fiscal 2025 that outperformed the firm's near-term expectations.
Sprouts posted a comparable store sales increase of 1.6% in the quarter, above Evercore ISI's 0.8% projection. The company also reported adjusted earnings per share of $0.92, beating Evercore ISI's $0.88 forecast and topping the consensus view of $0.89.
Even with the quarter's upside surprises, Sprouts shares continue to trade near their 52-week low of $64.75 and have declined roughly 60% over the past year. An InvestingPro analysis cited within company commentary indicates the stock is trading at a price-to-earnings ratio of 13.18, which the analysis characterizes as low relative to near-term earnings growth.
Operationally, the fourth quarter contained troubling signals. Customer traffic turned negative during the period, and gross margin fell by 10 basis points year-over-year. Evercore ISI had anticipated a modest improvement in gross margin, but weaker-than-expected shrink performance weighed on the results, according to the firm.
Looking ahead, Sprouts' outlook for the first half of the fiscal year points to a likely low single-digit decline in comparable store sales and a contraction in EBIT margin. Evercore ISI noted that this near-term guidance aligns with its review of Second Measure data.
Evercore ISI originally placed Sprouts on its Tactical Underperform List on February 10, 2025. From the time that trade was instituted through the firm's release of the fourth-quarter results, the stock had risen roughly 2%.
Analyst target prices and perspectives on Sprouts have shifted in recent weeks, reflecting divergent views on near-term demand and competitive pressures. UBS reduced its price target to $75 from $108 while retaining a Neutral rating, commenting that Sprouts' valuation has moved lower amid broader headwinds in consumer health. Evercore ISI cut its price target to $83 from $130 but maintained an Outperform rating; the firm also added Sprouts to its Underperform TAP List, indicating a potential downside of 8-12% into the company's upcoming earnings announcement. Jefferies lowered its target to $105 from $110 while keeping a Buy rating and pointed to increased competitive pressure from Amazon's expansion of Whole Foods as well as moderating food inflation as factors that could constrain Sprouts' sales momentum.
These analyst actions illustrate differing assessments of Sprouts' near-term trajectory - some firms have reduced expectations on valuation and demand, while others continue to see upside potential despite recent operational strains. The company's fourth-quarter beats on sales and EPS were offset by traffic declines and slight margin erosion, and management's guidance for the first half signals a period of softening sales and compressed profitability.
Key financials and operational notes:
- Comparable store sales: +1.6% in Q4 fiscal 2025 (vs. Evercore ISI estimate of 0.8%).
- Earnings per share: $0.92 (vs. Evercore ISI estimate $0.88; consensus $0.89).
- Gross margin: down 10 basis points year-over-year; traffic turned negative in the quarter.
- First-half outlook: likely low single-digit comp sales decline and EBIT margin contraction; view consistent with Second Measure data per Evercore ISI.