Sprouts Farmers Market (SFM) Q3 2025: Private Label Hits 25%, Loyalty Rollout Targets Basket Pressure

October 29, 2025 | By EarningsIQ Research

SFM’s Q3 delivered double-digit earnings growth, but comp sales deceleration and consumer caution forced a reset of expectations. Private label penetration, loyalty program rollout, and self-distribution investments are now central levers as the business navigates high prior-year comparisons and shifting spend patterns. Forward focus is on margin stability and customer engagement as SFM leans harder on innovation and store expansion to offset macro headwinds.

Summary

• Loyalty and Personalization: Full national rollout of Sprouts Rewards aims to boost frequency and basket size.
• Private Label Momentum: Sprouts brand now exceeds 25% of sales, with hundreds of new SKUs planned.
• Margin Management Priority: Cost discipline and self-distribution offset top-line softness amid consumer pressure.

Performance Analysis

Sprouts Farmers Market posted another quarter of earnings outperformance, with EBIT and EPS both up sharply year-over-year, driven by gross margin gains and disciplined SG&A management. Sales growth was led by a 5.9% comp and new store contribution, but management acknowledged that comps moderated more rapidly than forecast as the quarter progressed, falling short of internal targets. E-commerce penetration climbed to 15.5% of sales, up 21% year-over-year, signaling sustained digital adoption across customer cohorts.

Traffic remained positive and accounted for approximately 40% of comp growth, but the primary headwind was a decline in basket size as middle-income and younger demographic segments pulled back on discretionary spend. Gross margin expanded by 60 basis points, primarily on improved shrink and ongoing supply chain initiatives, while SG&A leverage offset new store growth costs. Store expansion remained robust, with nine net openings in the quarter and a pipeline of 140 approved sites supporting the company’s 10% unit growth ambition for 2027.

• Customer Spend Shifts: Basket contraction, not traffic loss, drove comp deceleration as shoppers managed end-of-basket spend.
• Private Label Acceleration: Sprouts brand sales outpaced core business, now representing a quarter of revenue.
• Cash Flow Strength: $577M operating cash flow year-to-date enabled self-funded capex and $342M in share repurchases.

While operational metrics were solid, the business faces a tougher macro and competitive backdrop, with management signaling caution on near-term comps and margin normalization into Q4.

Executive Commentary

Strategic Positioning

1. Loyalty Program Rollout and Data Activation

The full national launch of Sprouts Rewards, SFM’s loyalty platform, is a centerpiece of the personalization strategy. Management emphasized early signs of increased shopping frequency and higher sales per customer in pilot geographies, with the expectation that deeper customer data will enable more targeted offers and drive engagement. As frequency is lower than conventional grocers, the ability to personalize incentives and product recommendations is viewed as a lever for comp stabilization in 2026 and beyond.

2. Private Label and Innovation Pipeline

Sprouts brand, SFM’s private label, now accounts for over 25% of sales, reflecting both consumer trade-down and unique product innovation. Unlike traditional national-brand-equivalent strategies, Sprouts brand focuses on differentiated, attribute-driven offerings—organic, plant-based, and unique flavors—to attract health enthusiasts. Hundreds of new SKUs are planned annually, with a robust pipeline of 7,000 new products for 2025, aiming to sustain growth and margin expansion.

3. Store Expansion and Market Penetration

Unit growth remains a core pillar, with 37 new stores expected in 2025 and more planned for 2026. The expansion into the Midwest and Northeast is progressing smoothly, supported by accelerated site approvals and strong new-store performance. Management is not pausing store openings despite near-term consumer softness, citing robust new store comps and a healthy pipeline as evidence of brand demand and white space opportunity.

4. Supply Chain Control and Self-Distribution

Transition to self-distribution in fresh meat and seafood is underway, following availability challenges with third-party suppliers. Four distribution centers have already transitioned, improving fill rates and delivery frequency. The initiative will be completed by Q2 2026 with a new Northern California DC, reducing out-of-stocks and supporting margin stability.

5. Margin Management and Capital Allocation

Disciplined cost control and margin management remain at the forefront, with stable EBIT margin guidance despite softer comps. SFM continues to invest in automation, inventory management, and indirect cost reduction. Share buybacks remain opportunistic, with $966M still authorized, and management signaled willingness to increase repurchases if the share price remains depressed.

Key Considerations

This quarter marks a transition from outsized pandemic-era gains to a more normalized, competitive, and cautious consumer environment. SFM’s resilience will be tested by its ability to drive loyalty engagement, maintain innovation, and leverage its differentiated positioning without sacrificing margin discipline.

Key Considerations:

• Basket Size Pressure: Comp moderation was driven by smaller baskets, not traffic loss, as middle-income and younger shoppers spent less on discretionary items.
• Loyalty Data Ramp: Full rollout of Sprouts Rewards is expected to enable more precise promotions and drive higher engagement, but will require time to build actionable data history.
• Store Expansion Unabated: Management is maintaining aggressive new store growth targets, betting on brand strength and geographic white space even amid softer comps.
• Margin Levers in Place: Investments in self-distribution, inventory management, and cost control are intended to offset margin pressure from top-line volatility.
• Competitive Watch: SFM is closely monitoring pricing dynamics in produce, particularly in Texas, but is not seeing material share loss to Amazon/Whole Foods or national grocers.

Risks

Persistent consumer caution, especially among middle-income and younger cohorts, could prolong basket pressure and delay comp recovery. Aggressive store expansion risks cannibalization if demand softens further. Competitive intensity in produce and natural/organic categories, especially from regional players and Amazon/Whole Foods, could force margin-dilutive promotions. Supply chain disruptions and fill rate challenges, particularly in natural and organic SKUs, remain a risk until self-distribution is fully implemented.

Forward Outlook

For Q4 2025, SFM guided to:

• Comparable sales growth of 0% to 2%
• Earnings per share between $0.86 and $0.90

For full-year 2025, management maintained guidance:

• Total sales growth of approximately 14%
• Comp sales of approximately 7%
• EBIT of $675M to $680M and EPS of $5.24 to $5.28

Management highlighted several factors that will shape near-term performance:

• Challenging prior-year comparisons, especially in Q4 and first half of 2026
• Focus on margin stability, with gross margin expected up slightly and SG&A pressure managed through cost initiatives

Takeaways

SFM is navigating a reset from pandemic-era tailwinds to a more competitive, value-sensitive landscape. The company’s ability to leverage loyalty data, private label innovation, and supply chain control will be critical for sustaining growth and margin stability.

• Comp Recovery Hinges on Engagement: The loyalty program and data-driven personalization will be key to reversing basket pressure and driving repeat visits.
• Margin Flex Remains: Investments in supply chain and cost discipline provide levers to protect EBIT even as comps moderate.
• Store Growth as a Hedge: Aggressive unit expansion is both an opportunity and a risk, depending on macro and competitive dynamics in new and existing markets.

Conclusion

SFM’s Q3 2025 underscores the transition to a more normalized growth environment, with management betting on loyalty, innovation, and disciplined expansion to offset consumer and competitive headwinds. Margin management and capital allocation discipline will be tested as comps reset and the company leans on its differentiated model to sustain outperformance.

Industry Read-Through

The quarter’s results highlight a broader trend in natural and organic retail: as pandemic-era demand fades, differentiation via private label, loyalty, and operational control becomes essential. Competitors relying on undifferentiated product or lagging in digital and loyalty are likely to cede share, while those with robust innovation pipelines and data-driven engagement can better weather consumer caution. Margin expansion through supply chain control and disciplined SG&A will be critical sector-wide as volume growth slows and promotional intensity rises.

SFM Consumer Staples Grocery Private Label Loyalty Store Expansion Margin Management Supply Chain