Key Points
Sprouts' growth is set to accelerate in the second half of 2026.
Management sees a path to over 1,000 stores, up from less than 500 today.
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Shares of Sprouts Farmers Market (NASDAQ: SFM) rallied this past week after the supermarket chain lifted its full-year profit outlook.
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Store count growth drives free cash flow production
Sprouts' net sales rose 4% year over year to $2.3 billion in its fiscal first quarter, which ended on March 29. The organic grocer opened 6 new locations during the quarter, bringing its total to 483 stores across 25 states.
However, sales at established locations fell. Comparable sales at stores open for at least 15 months declined by 1.7%.
Sprouts is reducing prices to make its offerings more affordable for budget-strained consumers facing higher energy and other costs. The retailer also lapped some difficult comparisons. The prior-year quarter's sales benefited from a strike at a rival's stores.
All told, Sprouts generated $137 million in free cash flow. That, combined with its more than $250 million in cash reserves, enabled Sprouts to return $140 million to shareholders via stock buybacks.
Plenty of room for further expansion
Sprouts expects full-year net sales growth of 4.5% to 6.5% in 2026, driven by at least 40 store openings. The company also projects operating income of $675 million to $695 million and earnings per share of $5.32 to $5.48.
Looking further ahead, management sees the opportunity to more than double Sprouts' store count to over 1,000 locations.
"We remain confident in our long-term potential and expect sequential improvement in the business throughout 2026 as we reaccelerate growth," CEO Jack Sinclair said.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Sprouts Farmers Market. The Motley Fool recommends the following options: long January 2028 $75 calls on Sprouts Farmers Market and short January 2028 $85 calls on Sprouts Farmers Market. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
