What Happened in the Stock Market Today

By Markets Fool.com

Stocks spent most of the day in negative territory on Wednesday before rising to a near-flat finish. By the closing bell, the Dow Jones Industrial Average(DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) indexes had each posted minor losses of less than a tenth of a percentage point.

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Today's stock market

Index

Percentage Change

Point Change

Dow

(0.06%)

(12)

S&P 500

(0.01%)

N/A

Data source: Yahoo Finance.

Still, a few stocks logged big price swings despite that flat overall market. Major movers on Wednesday included Western Digital (NASDAQ: WDC) and Sprouts Farmers Market(NASDAQ: SFM)

Western Digital sees stronger growth ahead

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Western Digital shares spiked 12% higher after the data storage specialist announced upgrades to its sales and profit outlooks as part of an investor presentation. Revenue is now projected to be $4.5 billion, up from the prior $4.45 billion goal. Earnings received a much bigger boost and are now seen coming in at about $1.05 per share versus the $0.90 target set in late July.

Image source: Getty Images.

The company said that a broader hardware portfolio, boosted by the acquisition of SanDisk, is extending its reach into more markets, which is why sales are proving surprisingly strong. Meanwhile, the new flash storage products are producing higher-margin sales. In fact, Western Digital sees gross margin coming in at 33%, compared to the 32% it last forecast.

Shareholders understandably celebrated the improving operating trends that suggest the industry may finally be gaining strength. They'll have to wait until Western Digital announces its complete results next month to review important details on sales volumes, pricing, and competitive activity. Yet given the sharply improving profit picture, Wednesday's stock bounce doesn't seem overly optimistic, especially since it only put shares back to levels they last saw in late July.

Sprouts Farmers Market lowers its outlook

Sprouts Farmers Market slumped by 14% after the organic-focused grocery chain lowered its 2016 guidance. Sales growth is expected to be significantly slower, with comps of 2% rather than the 4% it targeted in early August. Earnings growth will be muted as well, ticking up to $0.85 per share as opposed to the $0.93 per share that executives saw as likely just one month ago.

Image source: Getty Images.

Management blamed food price deflation for part of the shortfall, as grocery price trends are in negative territory for the first time since 2009. Sprouts isn't alone in this challenge. Kroger (NYSE: KR) cited the same issue as its expansion pace was recently cut in half. That retailer is likely to discuss the latest pricing trends in detail when it posts its earnings results on Friday, Sept. 9.

Yet Sprouts painted a grim picture on its retailing niche that implies a sharp change over just the last few months. "Competitive landscape and industry dynamics have prompted heavy promotions across the industry, adversely impacting retail deflation and traffic generation," executives said in a press release. Sprouts has navigated through tough operating environments like this in the past, which is likely why the management team approved a new stock buyback plan to coincide with this operating news. While a weakening industry will hurt results this year, it's no cause to abandon a long-term investing thesis.

That said, the grocery business is facing challenges that threaten to lower sales growth and profitability for most participants. Sprouts has a bit further to fall, given its higher priced offerings. The retailer's 30% gross profit margin, compared to Kroger's 22%, could dip as low-cost rivals jostle to fight for its market share in the quarters ahead.

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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool owns shares of Western Digital. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.