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QS Research · Michael Burry's Scion Capital analyst template · 2006

Sprouts Farmers Market, Inc. (SFM)

As of 2026-11-02 · 12/15 boxes filled from SEC filings and market data

Conclusion: LONG

Conviction medium · base case +32% · downside -10% · upside +40%

I use section 13's TTM EBITDA base, not a normalized average, because revenue never fell 10% and current TTM earnings are still solid. At a 7.5x base multiple on TTM EBITDA of $844.7M (N14), equity is (7.5 * $844.7M) + $228.7M cash = $6.56B, divided by 92.23M shares (N5) gives $71.2 per share, +32% from $53.92 (N1). A 5.0x downside multiple gives $48.3, -10.5%; an 8.0x upside gives $75.7, +40.5%. The long rule is met because the base case exceeds +30% and the downside is no worse than -25%, with the valuation already discounting negative comps and guidance cuts.

Key numbers

The 15 boxes

  1. ✓ 1. Long-form business notes

    Sprouts Farmers Market is a specialty natural and organic grocery retailer with fresh produce at the center of its stores. It generates revenue through perishables (57.0% of sales in FY2025) and non-perishables, with Sprouts Brand products reaching just over 25% of revenue. The business expanded from 362 stores and $6.47B revenue in the fiscal year ended 2021-01-03 to 477 stores and $8.81B revenue in the fiscal year ended 2025-12-28, while improving profitability and cash flow. Key changes include smaller-format stores, self-distribution of meat/seafood, digital/loyalty initiatives, and a refined target customer definition.

  2. ✓ 2. Competitive advantage

    Sprouts has a recognized brand and trade dress, and management claims a differentiated health-and-wellness offering that offers compelling value versus competitors. Its financials show rising revenue, gross profit, operating income and operating cash flow from the fiscal year ended Jan 2, 2022 through Dec 28, 2025, with positive net income each year. However, it faces many larger competitors and has concentration risks in produce sourcing and California store geography, so the advantage appears brand-led and not a clear cost moat.

  3. ✓ 3. 10-Q takeaways

    In Q3 FY2026 (thirteen weeks ended September 27, 2026), net sales rose 5% y/y to $2.3 billion on new stores, while comparable store sales fell 0.9%; gross margin contracted 0.5 pp to 38.2%, and net income/diluted EPS declined to $113.4 million/$1.21. Cash, cash equivalents and restricted cash fell to $231.3 million as the company continued buybacks; management guided Q4 FY2026/FY2027 margin pressure from affordability investments. The 10-Q included no material changes to risk factors.

  4. ✓ 4. Corporate governance
  5. ✓ 5. Overview of the prior 3 years of 8-K filings
  6. ✓ 6. Other significant filings
  7. ✓ 7. Chronology of significant news and events
  8. ✓ 8. Comparables valuation interpretation
  9. ✓ 9. Insider trading interpretation
  10. ○ 10. Earnings-call notes
  11. ○ 11. Impression of the shareholder letter
  12. ○ 12. Scuttlebutt overview
  13. ✓ 13. Valuation and risk/reward summary
  14. ✓ 14. Current price suppression and potential catalysts

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