Investors lost faith in Sprouts Farmers Market Inc. (SFM) as its shares fell nearly 7% after the company announced the pricing of an underwritten public offering of its shares by some major shareholders.
A major stockholder, Apollo Global Management LLC, together with several other shareholders, is selling off almost 15 million shares of the company’s common stock for $30 per share.
Apollo owns around 11 million of the total shares. The proceeds from the offering, scheduled to close on Aug 18, will go to the selling shareholders in full.
Based on 2014 Zacks Consensus earnings estimate of 68 cents, the stock is trading at 44.6x, which shows that the stock is already trading at quite a premium. However, given the competitive scenario of the retail sector, this premium price is not justified. Hence, analysts are of the opinion that investors probably apprehend a share crash resulting in a sell-off. Investors also reportedly suspect a possibility of further inside trading.
Last week, Sprouts Famer announced Second quarter fiscal 2014 earnings results. Despite harsh winter and tough retail conditions in the second quarter of fiscal 2014, the organic food retailer posted earnings of 20 cents, up 43% year over year. Earnings also beat the Zacks Consensus Estimate by 11.1% on the back of strong sales. Management raised its fiscal 2014 guidance anticipating better performance in the second half of the year.
However, the modest performance by mention rank was marred by the company’s announcement of the public offering.
Based in United States, Sprouts Farmers sells natural and organic food and operates through 182 stores in 10 states. However, the organic and natural food business is becoming overcrowded with the entrance and expansion of an increasing number of companies such as The Kroger Co. (KR), Whole Foods Market Inc. (WFM) and Wal-Mart Stores Inc. (WMT).
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