Sprouts and Natural Grocers Set to Outpace a Mostly Flat Grocery Market for 2023

Investors in 2023 might have found better returns in low-interest savings accounts than in the stocks of food retailing companies, except for a few exceptions including Sprouts Farmers Market and Natural Grocers by Vitamin Cottage.

Despite a late-year surge propelling stock indices higher, most publicly traded food retailers’ shares remained stagnant, with investors favoring technology, communications, and consumer discretionary stocks. The challenges faced by many food retailers in driving sales beyond inflation-related gains, coupled with increased competition and cost pressures, contributed to the subdued performance.

Some notable exceptions included Sprouts Farmers Markets, witnessing a substantial year-to-date share-price gain of about 52% by mid-day on December 15th, and Natural Grocers by Vitamin Cottage which also experienced double-digit growth, with a 67.8% gain for the year. In contrast, the majority of other food retailing share prices either remained flat or showed a decline for the year.

This performance contrasted with broader market indices, which saw gains of 21.3% for the S&P 500, 10.9% for the Dow Jones Industrial Average, and about 40.4% for the NASDAQ.

Sprouts Farmers Market’s success can be attributed to its rapid store expansion, effective marketing strategies, private label expansion, and store size reduction efforts. In the third fiscal quarter, Sprouts reported an 8% gain in sales and 3.9% comparable-store sales growth, contributing to a 7% increase in earnings per share.

Natural Grocers by Vitamin Cottage, specializing in natural and organic products, reported strong financial performance, with daily average comp-store sales growing 3.6% for the recently ended fiscal year.

Other food retailer stocks with positive gains for the year included Albertsons Cos. (up about 9.5%) and Walmart (up about 3.5%). Companies with flattish stock performance included Kroger Co., Ahold Delhaize, BJ’s Wholesale, and Grocery Outlet.

On the downside, United Natural Foods Inc. saw a significant drop of about 60%, and Dollar General faced a 47% decline. SpartanNash slipped about 25%, and Target’s share price was down about 12%. Dollar General, undergoing operational changes and supply chain improvements, reported a 1.3% decrease in same-store sales in its recent earnings call for the fiscal third quarter.