Sprouts Farmers vs. Target: Which Retail Stock Holds More Promise Now?
Both retailers are navigating a changing consumer landscape shaped by inflation, value-driven behavior and shifting shopping habits. Sprouts Farmers focuses on disciplined growth and a specialized retail experience, while Target leverages its scale and broad assortment to drive traffic. Let's dive deep into the stocks to determine which stands out as the better bet today.
The Case for Sprouts Farmers
Sprouts Farmers' commitment to providing fresh produce and health-oriented products aligns with the increasing consumer demand for healthier food options. The overall market for natural and organic food at home, which SFM targets, is estimated to be around $290 billion within the total $1.6 trillion spent on food at home. Its private-label products continue to gain traction, accounting for 24% of total sales, with 300 new items launched last year, fostering customer loyalty. This supports SFM's full-year 2025 guidance, which includes net sales growth of 12% to 14%.
To strengthen customer relationships, SFM has initiated the rollout of its new loyalty program, which is already showing positive signs. Piloted in 35 stores in late 2024, the program achieved sign-ups and scan rates above targets. A broader launch begins in the second half of 2025, starting in Arizona. Sprouts Farmers also began self-distributing fresh meat and seafood through its distribution centers. This move provides greater control, enhances freshness and optimizes existing supply-chain capacity.
SFM aims to open at least 35 new stores in 2025, targeting approximately 10%-unit growth, backed by a solid pipeline of 120 approved sites and more than 85 signed leases. Its new small-box format (23,000 sq. ft.) supports efficient, lower-risk expansion. These locations generate approximately $13 million in first-year sales and grow 20-25% over four years, delivering cash-on-cash returns in the low-to-mid 30% range by year five. Management sees 'plenty of white space' to expand the footprint to 1,000+ stores over time.
Sprouts Farmers has adopted a multi-channel strategy with significant investments in digital infrastructure, online ordering and delivery. Collaborations with Uber Eats, DoorDash and Instacart have enhanced its digital reach, with e-commerce now representing 15% of total sales, marking a 28% year-over-year increase in the first quarter of 2025.
The Case for Target
Target is leveraging its strong brand presence, diverse product portfolio and expanding e-commerce capabilities, alongside a growing store footprint, to solidify its market position and drive sustainable growth. The retailer has adeptly navigated evolving consumer preferences by expanding its offerings across both discretionary and essential categories. By prioritizing innovation and integrating AI technology, the company is laying a solid foundation for long-term success.
To support this growth, the company plans to open more than 20 new stores and remodel several existing locations in fiscal 2025. Complementing its physical expansion, Target's investments in same-day delivery, curbside pickup and personalized digital services continue to enhance customer convenience and loyalty. Digitally originated comparable sales rose 4.7% year over year in the first quarter of fiscal 2025, reflecting a more than 35% jump in same-day delivery powered by Target Circle 360 and continued momentum in Drive Up.
Target's third-party marketplace, Target Plus, saw impressive growth in the first quarter, with a 20% increase in Gross Merchandise Value ('GMV'). The platform added hundreds of new partners, driving both traffic and online conversions. As Target sets an ambitious goal of reaching $5 billion GMV by 2030, this marketplace will play a crucial role in expanding its product offering and increasing consumer engagement.
Despite these strategic efforts, Target has issued a cautious outlook for fiscal 2025. It now expects a low-single-digit decline in sales compared with its earlier forecast of 1% growth. It now foresees adjusted earnings in the band of $7.00-$9.00 per share, down from its prior forecast of $8.80 to $9.80.
Target's first-quarter performance highlighted mounting challenges as both sales and earnings fell short of expectations. The company faced continued pressure from weakening consumer demand and declining store traffic. Comparable sales declined sharply, driven by softness in in-store performance. Margins contracted due to increased markdowns and higher costs tied to digital fulfillment and supply-chain expansion.
SFM vs. TGT: How Do Estimates Stack Up?
The Zacks Consensus Estimate for Sprouts Farmers' earnings per share (EPS) for the current and next fiscal years has increased by 42 cents and 40 cents, reaching $5.08 and $5.69, respectively, over the past 60 days. This suggests year-over-year growth rates of 35.5% and 12%, respectively. (See the Zacks Earnings Calendar to stay ahead of market-making news.)
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Target's EPS for the current and next fiscal years has fallen by $1.03 and $1.01 to $7.51 and $8.07 over the past 30 days.
Image Source: Zacks Investment Research
SFM vs. TGT: A Look at YTD Stock Performance
Shares of Sprouts Farmers have advanced 27.4% year to date against Target's decline of 29.6%.
SFM vs. TGT: A Dive Into Stock Valuation
Sprouts Farmers is trading at a forward 12-month price-to-earnings (P/E) ratio of 30.18, below its one-year median of 31.28. Meanwhile, Target's forward P/E ratio stands at 12.32, below its median of 14.45.
SFM vs. TGT: Which Is a Better Bet Now?
When compared with Target, Sprouts Farmers emerges as the stronger bet in the current retail landscape. SFM's focused execution, disciplined expansion strategy, margin resilience and alignment with rising demand for health-conscious and specialty grocery options give it a distinct edge. While Target continues to invest in innovation and omnichannel capabilities, it remains vulnerable to discretionary spending pressures. SFM sports a Zacks Rank #1 (Strong Buy) at present, while TGT currently has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank stocks here.
Zacks Names #1 Semiconductor Stock
It's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.
With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.
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