Firing on All Cylinders: Sprouts (NASDAQ:SFM) Q2 Earnings Lead the Way

As the Q2 earnings season wraps, let’s dig into this quarter’s best and worst performers in the non-discretionary retail industry, including Sprouts (NASDAQ:SFM) and its peers.

Food is non-discretionary because it's essential for life (maybe not those Oreos?), so consumers naturally need a place to buy it. Selling food is a notoriously tough business, however, as the costs of procuring and transporting oftentimes perishable products and operating stores fit to sell those products can be high. Competition is also fierce because the alternatives are numerous. While online competition threatens all of retail, grocery is one of the least penetrated because of the nature of the product. Still, we could be one startup or innovation away from a paradigm shift.

The 8 non-discretionary retail stocks we track reported a decent Q2. As a group, revenues beat analysts’ consensus estimates by 0.8% while next quarter’s revenue guidance was 1.1% below.

Inflation progressed towards the Fed’s 2% goal at the end of 2023, leading to strong stock market performance. On the other hand, 2024 has been a bumpier ride as the market switches between optimism and pessimism around rate cuts and inflation, and while some non-discretionary retail stocks have fared somewhat better than others, they have collectively declined. On average, share prices are down 3.5% since the latest earnings results.

Best Q2: Sprouts (NASDAQ:SFM)

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

Sprouts reported revenues of $1.89 billion, up 11.9% year on year. This print exceeded analysts’ expectations by 3.2%. Overall, it was a very strong quarter for the company with optimistic earnings guidance for the full year and a solid beat of analysts’ earnings estimates.

"Sprouts saw outstanding second quarter results, thanks to exceptional teamwork and strategic focus,” said Jack Sinclair, chief executive officer of Sprouts Farmers Market.

Sprouts pulled off the biggest analyst estimates beat and fastest revenue growth of the whole group. Unsurprisingly, the stock is up 17.6% since reporting and currently trades at $99.55.

Is now the time to buy Sprouts? Access our full analysis of the earnings results here, it’s free.

Costco (NASDAQ:COST)

Designed to be a one-stop shop for the suburban consumer, Costco (NASDAQ:COST) is a membership-only retail chain that sells groceries, apparel, toys, and household items, often in bulk quantities.

Costco reported revenues of $58.52 billion, up 9.1% year on year, in line with analysts’ expectations. It was a very strong quarter for the company with an impressive beat of analysts’ gross margin estimates and a narrow beat of analysts’ earnings estimates.

The market seems happy with the results as the stock is up 8.6% since reporting. It currently trades at $884.51.

Is now the time to buy Costco? Access our full analysis of the earnings results here, it’s free.

Weakest Q2: Dollar General (NYSE:DG)

Appealing to the budget-conscious consumer, Dollar General (NYSE:DG) is a discount retailer that sells a wide range of household essentials, groceries, apparel/beauty products, and seasonal merchandise.

Dollar General reported revenues of $10.21 billion, up 4.2% year on year, falling short of analysts’ expectations by 1.5%. It was a weak quarter for the company with underwhelming earnings guidance for the full year.

Dollar General had the weakest performance against analyst estimates in the group. As expected, the stock is down 35% since the results and currently trades at $80.41.

Read our full analysis of Dollar General’s results here.

Grocery Outlet (NASDAQ:GO)

Due to its differentiated procurement and buying approach, Grocery Outlet (NASDAQ:GO) is a discount grocery store chain that offers substantial discounts on name-brand products.

Grocery Outlet reported revenues of $1.13 billion, up 11.7% year on year, surpassing analysts’ expectations by 2.4%. Taking a step back, it was a strong quarter for the company with an impressive beat of analysts’ earnings estimates and a solid beat of analysts’ gross margin estimates.

Grocery Outlet delivered the highest full-year guidance raise among its peers. The stock is down 7% since reporting and currently trades at $17.24.

Read our full, actionable report on Grocery Outlet here, it’s free.

Target (NYSE:TGT)

With a higher focus on style and aesthetics compared to other large general merchandise retailers, Target (NYSE:TGT) serves the suburban consumer who is looking for a wide range of products under one roof.

Target reported revenues of $25.45 billion, up 2.7% year on year, in line with analysts’ expectations. More broadly, it was a very strong quarter for the company with an impressive beat of analysts’ gross margin estimates and a solid beat of analysts’ earnings estimates.

The stock is up 4.2% since reporting and currently trades at $150.48.

Read our full, actionable report on Target here, it’s free.

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