<div id="readability-page-1"><div>Investors now have lower expectations for Sprouts Farmers Markets , but they might have reduced their expectations too much. It now looks like Sprouts will report much weaker results in 2026 than it did in 2025. Consumers are concerned about high grocery prices, and wealthier shoppers are shopping at dollar stores to save money. So, Sprouts doesn't expect strong comps in the short term, but it is still planning to keep building new stores.In Q1 2026, Sprouts said it opened 6 stores in the first quarter and it plans to open more than 40 stores in 2026. The company had 477 stores at the beginning of the year, so if its store count rises to 517 stores by the end of the year, that's an 8.4% annual growth rate. Sprouts' guidance calls for flat comps and overall revenue growth in the 4.5% to 6.5% range in 2026, which is lower than that, though. And the company also posted -1.7% comps in Q1 2026.But while Sprouts might post weak comps in the short term, its business model still makes it a very profitable grocery store. Sprouts can sell health food for relatively high prices because its customers are willing to pay extra to avoid unhealthy ingredients. Its merchandise is more highly curated than the food at traditional grocery stores, and Sprouts also stocks products from new health-food brands that aren't available elsewhere. As a result, Sprouts has relatively high gross margins for a grocery store, but it's also worth comparing this store to other stores using other efficiency metrics.Sprouts Comes Out Ahead on Profit Per Square FootIt might be helpful to compare Sprouts to another health-food store, Natural Grocers (NGVC), as well as the traditional grocery store Kroger (KR). All three of these stores have provided their annual 10-K reports for 2025, so here are links to the reports for Sprouts, Natural Grocers, and Kroger, respectively.Sales per square foot is one way to measure a grocery store's efficiency. Kroger's total square footage was 180 million at the end of 2025, and its 2025 revenue was $147.6 billion, so its sales were $820 per square foot. Natural Grocers, which is a smaller chain that operates small stores, had total square footage of 2.74 million in 2025 and $1.33 billion in revenue. So, Natural Grocers had sales of $2,060 per square foot. And Sprouts had square footage of 13.0 million and revenue of $8.81 billion in 2025, so it had sales of $678 per square foot in 2025.So, Sprouts has lower sales per square foot than some of its peers. Natural Grocers is an outlier on this metric because of the way its business model works, but Sprouts also fell behind Kroger on this metric and that's more significant.But if you consider profit per square foot instead, Sprouts comes out ahead. With net profit of $524 million in 2025, Sprouts achieved a profit of $40 per square foot. Natural Grocers' net profit was $46.4 million for the year, so its profit per square foot was $17. And Kroger's net profit was $3.199 billion, so its profit per square foot was $18.Sprouts Isn't The Leader On Cash Flow Per StoreIt's also worth considering how much cash flow each Sprouts store generates. In 2025, Sprouts reported operating cash flow of $716 million. Since it had 477 stores, the average store generated $1.50 million in cash flow. Kroger had 2,697 supermarkets at the end of 2025 and reported operating cash flow of $7.31 billion, so its average store generated $2.71 million in cash flow. And Natural Grocers reported $55.3 million in cash flow and had 169 stores at the end of its fiscal year, so its average store generated $327 million in cash flow.Sprouts Comes Out Ahead on Profit Per EmployeeIt's also worth considering the productivity of Sprouts' employees. Sprouts had 36,000 employees at the end of 2025. In its report, the store didn't provide separate counts for full-time and part-time employees. Natural Grocers had 4,250 employees, including part-time employees. And Kroger had 403,000 employees in total. So, Sprouts generated revenue of $245,000 per employee in 2025. Natural Grocers' revenue per employee was $313,000 and Kroger's revenue per employee was $366,000. Sprouts didn't score very high on revenue per employee, either.But the situation is different if you consider profit per employee. In fiscal 2025, Sprouts reported net profit of $524 million, so its profit per employee was $14,555. Natural Grocers' profit that year was $46.4 million, so its profit per employee was $10,918. And Kroger reported $3.199 billion in net profit in 2025, which results in a profit per employee of $7,938.High Margins Are The Key HereIf you look at revenue or cash flow metrics, Sprouts isn't performing better than other grocery stores. But it looks like Sprouts isn't trying to maximize revenue or cash flow, it's trying to maximize its profit, and its stores are a lot more profitable than other grocery stores' locations. In Q1 2026, Sprouts' gross margin was 39.4%, which was down from 39.6% in Q1 2025, but that's still very high compared to other grocery stores' gross margins.Sprouts is now planning to build smaller stores that are likely to have fewer employees as it continues its expansion, so even if these stores generate less revenue, they could still be as profitable as its older stores. This decision could make metrics such as cash flow per store look worse, though.Sprouts' New Stores Are Growing Faster Than Its Older OnesSprouts is currently expanding even though its comps are negative, so it's worth considering whether the new stores will be as profitable as its older stores. CFO Curtis Valentine talked about this topic on the Q1 2026 earnings call. According to the CFO, Sprouts' last three or four vintages still have positive comps, so the new stores' sales are still rising even though the older stores' sales are falling. And this statement provides evidence that Sprouts' weak recent comps might be a short-term issue.ConclusionSprouts' premium appears to be based on its ability to maintain higher gross margins than other grocery stores and its continued expansion. This company doesn't stand out on some other efficiency metrics, but that might not be as important. Sprouts' gross margin only decreased slightly in Q1 2026 and it sounds like the company expects stable full-year margins, so it should remain more profitable than other grocery stores. And Sprouts' new stores have positive comps, so new locations won't erode Sprouts' margins either and its earnings should continue to rise. So, in the long term, this could still be a growth stock that's currently trading at an unusually low valuation because of weak recent results.</div></div>

Despite short-term headwinds like weak comps and consumer price sensitivity, Sprouts Farmers Markets justifies a growth premium through its profitable business model. While sales per square foot lag peers Kroger and Natural Grocers, Sprouts leads in profit per square foot ($40 vs $18/$17) and profit per employee ($14,555 vs $7,938/$10,918). The company plans to open over 40 new stores in 2026, aiming for an 8.4% store count increase and 4.5%-6.5% revenue growth, leveraging high margins from curated health foods.

Sprouts' New Stores Still Justify a Growth Premium