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Sprouts comps up 12.8%, but Whole Foods sinks stocks

Shares of Sprouts Farmers Market, The Fresh Market and other specialty grocers tumbled Wednesday following a weaker-than-expected earnings report from Whole Foods Market, which some saw as a sign of increasing competition in the natural and organic space.

After the market closed, Phoenix-based Sprouts posted same-store sales gains of 12.8% for its fiscal first quarter, which ended March 30, and said net income nearly doubled for the period. Its stock was down nearly 12%, however, and shares of The Fresh Market fell more than 10%. Fairway and Natural Grocers by Vitamin Cottage were both down as well. 


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Shares of Whole Foods fell 18.81%, reflecting analysts’ concerns about the Austin, Texas-based company's weaker outlook as it invests more in price while continuing to open new stores at a rapid clip.

“The competitive landscape was much more benign [a few years ago], with little overlap on the niche grocery front and far less on the conventional/discount/club side of the equation,” said Chuck Grom, an analyst with Sterne Agee, New York.

“The recent proliferation across channels — with heavy moves by Sprouts, Trader Joe’s and Costco into organics, which makes it even tougher to get the cross-over shopper — had us concerned, [but] we were always of the view Whole Foods could internally fund its price investments via sourcing, buying leverage, shrink, private brands, etc. [while] holding firm its current gross profit margin rate in the 35% to 36% level,” he said. “Clearly, that assumption was too optimistic in retrospect.”

Sprouts, meanwhile, posted net income of $33.7 million on a revenue gain of 26%, to $772.6 million. EBITDA, adjusted for some one-time items, was $77.5 million, up 49% over the first quarter of 2013, which Sprouts attributed to “higher sales, improved gross profit margins and the resulting operating leverage.”

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