Sprouts Farmers' Store Push: Smart Move or Cannibalization Risk?

Sprouts Farmers Market, Inc.’s SFM plan to open at least 35 new stores in 2025 highlights an aggressive yet calculated growth push. During the second quarter, it opened 12 locations, bringing its total count to 455 across 24 states, with management confident in a pipeline of more than 130 approved sites. These stores are performing well, delivering strong top and bottom-line results under the V6 format. The success of these new units appears to be pure growth rather than cannibalization.

Recent openings in regions such as Florida and the Mid-Atlantic have gained traction, illustrating how the refreshed V6 format is resonating across varied markets. Importantly, stores opened last year are now contributing to comparable sales with encouraging results, suggesting that Sprouts Farmers’ model is holding up well as the base broadens. The expansion strategy appears deliberately measured to limit overlap while extending reach into underpenetrated regions like the Midwest and Northeast.

To mitigate cannibalization risk, Sprouts Farmers is maintaining geographic discipline, focusing on new territories while ensuring stores remain within 250 miles of a distribution center to preserve freshness and efficiency. Its approach to expansion reflects a balance between scale and selectivity, supported by an evolving supply chain designed for regional agility.

As the company nears 500 locations, the challenge will lie in preserving store productivity and differentiation. For now, Sprouts Farmers’ execution indicates that expansion is translating into incremental growth rather than internal competition.

What the Latest Metrics Say About Sprouts Farmers

Sprouts Farmers, which competes with Walmart Inc. WMT and Target Corporation TGT, has seen its shares decline 6.6% over the past year against the industry’s growth of 10.1%. While shares of Walmart have rallied 30.5%, Target has declined 38.7% in the aforementioned period.
 

From a valuation standpoint, SFM's forward 12-month price-to-sales ratio stands at 1.11, higher than the industry’s ratio of 0.24. SFM carries a Value Score of B. Sprouts Farmers is trading at a discount to Walmart (with a forward 12-month P/S ratio of 1.17) but at a premium to Target (0.39). 
 

The Zacks Consensus Estimate for Sprouts Farmers’ current financial-year sales and earnings per share implies year-over-year growth of 15.7% and 41.9%, respectively. 
 

Sprouts Farmers currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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