Sprouts Guidance Cut Weighs On Natural Grocer Peers
The shares of Sprouts Farmers Market (SFM) are sinking after the company lowered its fiscal 2016 revenue and sales guidance. Research firm Oppenheimer responded to the news by cutting its price target on the shares and recommending that short-term investors avoid supermarket chains. Sprouts is a supermarket chain that specializes in natural and organic food.
GUIDANCE CUT: Sprouts cut its fiscal 2016 earnings per share guidance to 83c-86c from 92c-94c. Analysts' consensus estimate was 94c. The supermarket chain lowered its fiscal 2016 same-store sales outlook to up 1.5%-2.5% from up 3%-4%. Sprouts said that it cut its outlook due to increased discounts in the supermarket sector and "prolonged" food deflation. The stepped up discounts have adversely affected Sprout's traffic, the company stated.
OPPENHEIMER SURPRISED BY MAGNITUDE: The magnitude of Sprout's guidance cut is surprising, since the company updated its outlook only a few weeks ago, wrote Oppenheimer analyst Rupesh Parikh. Short-term investors should avoid grocery store chains, since their stocks could drop further and any gains by their shares may be "limited," wrote Parikh who cut the firm's price target on Sprouts to $20 from $25.
PRICE ACTION: In early trading, Sprouts tumbled 14% to $19.56. Other supermarket chains also retreated, with Whole Foods (WFM) falling 5.5% to $29 per share and Kroger (KR) dipping nearly 4% to $31.43.
Disclosure: None.