LOGINSprouts reported Q4 results showed sales up +18%, comp-sales up +11.5%, and gross margin up +160 bps. The sales increase was well ahead of Advan’s +15.4% estimate* (+/- 130 bps T4Q Moe, 96% T8Q correlation) although Advan’s estimate did correctly forecast a beat vs consensus**. E-commerce grew at a much stronger +37% rate, which added 300bps to the comp growth; additionally, a larger basket size contributed to comp-growth. Those two led to the outperformance versus our estimate. (E-commerce is being stimulated by the added Uber Eats, which has yet to anniversary.) Guidance for Q1 was a +10-11% comp-sales increase, or an implied +15% sales increase (when considering store expansion and the calendar), also ahead of Advan’s +13.7% current estimate; we believe the same two drivers are again behind the stronger rate. (One can find our earnings preview and view of the industry that we wrote about last week here.)
Listening to the earnings call reveals that Sprouts merchants (affectionally called “foragers”) thrilled and delighted Sprouts shoppers resulting in an inflection from “negative” to an increase in items in their baskets (or UPTs in industry lingo). For context, outside of the club channel, grocery-lead retailers have widely suffered lower UPTs due to consumers cherry-picking promotions, etc., and households seeking out strong private label values at Trader Joe’s, Aldi, Costco, etc. For retailers and merchants, one of the most significant measures of success is getting a bigger basket size. Sprouts’ foragers delivered the goods. CFO Curtis Valentine said, “As we have seen throughout the year, the strongest performance was in categories with the most differentiation.”
CEO Jack Sinclair described how Sprouts is succeeding, “Our target customers seek differentiated attribute-driven healthy products. We believe these customers represent $200 billion of the $1.6 trillion food-at-home market. By maintaining our focus on their needs, we have established ourselves as a leader in trend forward health and specialty products. This focus includes all aspects of our business, offering healthy products and practicing responsible sourcing are fundamental to our purpose to help people live and eat better... In 2024, we (this is the foragers), introduced approximately 7,100 new items including more than 300 new products under the Sprouts brand, such as grass-fed meat balls, organic pasture raised eggs and the new Real Root line of premium health and beauty products… And we continue to get better at helping our target customers find the right products for them. We ended the year with the company's best customer service scores, thanks to a service-orientated culture embodied by our store team members.”
*Utilizing Advan’s revenue forecasting model. ** Advan’s model is optimized to forecast the correct beat or miss direction more than the absolute level.
