Why Sprouts Farmers Market, Inc. Stock Dropped 12% in May

Image source: Sprouts Farmers Market.

What:Shares ofSprouts Farmers Market, Inc. slipped last month, falling 12% according to data from S&P Global Market Intelligencebecause of a disappointing earnings report.

So what:Reporting first-quarter earnings on May 5, the stock fell 7% as the organic grocer reported weaker-than-expected sales. In an otherwise strong quarter, the company said revenue improved 16% to $993.2 million, short of analyst estimates at $1.01 billion. Comparable sales were solid, increasing 4.8%, and on the bottom line, earnings per share improved 20% to $0.30, better than the consensus by a penny.

CEO Amin Maredia said "the results reflect strong engagement with the brand," adding that the company remains positioned for continuing growth. Considering the struggles ofWhole Foods Marketand other peers in the organic space, Sprouts' consistent same-store sales growth looks even more impressive.

Now what:Investors may have also been turned off by the company's lowered sales guidance since it now sees comparable sales growth of 4%-5% and overall revenue growth of 17%-19%, though the company said that was primarily due to a lower inflationary environment as prices on commodities like beef and dairy have come down.

Toward the end of the month, the launch of 365 by Whole Foods Market also emerged as a potential threat to Sprouts as the lower prices at 365 are more in line with Sprouts', but the stock price seemed unaffected by the opening of Whole Foods' new chain. Looking ahead, Sprouts has successfully weathered competition fromKroger and other chains that have invaded the organic space, and it looks poised to keep up its solid growth. Last month's drop offers a good entry point for new investors.

The article Why Sprouts Farmers Market, Inc. Stock Dropped 12% in May originally appeared on Fool.com.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Whole Foods Market. 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.