After a rough Q2, Sprouts Farmers Market shows sign of a comeback

This has not been the best time for Sprouts Farmers Market. The specialty grocer has faced a more cautious shopper, ongoing cyclospora concerns and continued economic uncertainty.

It all came to a head during second quarter earnings when Sprouts reported a 1% decline in comparable-store sales even though there was a 5% increase in sales thanks to new store openings.

Same-store visits also took a cut in Q2, according to new data from Placer.ai. They dropped over 4% before rebounding somewhat in Q3 to a decrease of 0.1%. However, both July and August posted same-store gains (both at 0.7%) before there was a drop in September of 1.7%. Still, it’s a healthy shift from a second quarter that saw same-store visits drop as much as 4.7% in June.

Overall visits also posted healthy gains in July (6.2% increase year over year) and August (5.7%) and they even rose 2.4% in September, according to Placer.ai.

Digging into the data for Sprouts’ four largest markets—California, Texas, Florida and Arizona—shows that the stabilization was far from uniform.

Same-store visits grew 1.1% year over year in California—Sprouts’ largest market by far—and 2.2% in Florida. In Arizona and Texas, by contrast, visits slipped 0.6% and 3.2%, respectively.

Sprouts’ relatively affluent customer base should, in theory, cushion it from economic uncertainty, even as higher-income consumers grow more cost-conscious. But in California and Florida, where same-store visits grew, the median household income (HHI) of Sprouts’ captured markets is only about 8% above the statewide median, compared with 12.8% in Arizona and 20.1% in Texas. So why would Sprouts hold up better where its shoppers sit closer to the local norm?

The answer may lie in what a Sprouts trip means locally. In California and Florida, where its shoppers lie closer to their state’s median income, a natural and organic grocer may read less as an indulgence and more as a regular part of the grocery mix, and regular purchases tend to be hard to cut. Sprouts’ efforts to strengthen local sourcing may reinforce that fit, closely tailoring the store to the community around it.

When budgets tighten, those shoppers may stay put, and some may even migrate to Sprouts from pricier specialty stores. In Texas, on the other hand, where Sprouts’ shoppers sit further upmarket, the same trip may look more like a splurge.

Among Sprouts’ four largest markets, Q3 visits held up best where its shoppers most closely tracked their state’s income. That fit may matter even more as Sprouts continues its push into the Northeast and lays the groundwork for its first Midwest stores.