SFM vs. OLLI: Which Retail Stock Offers Better Upside for Now?

Core Insights - Consumers are becoming more selective in their spending, benefiting value-focused retailers like Sprouts Farmers Market, Inc. (SFM) and Ollie's Bargain Outlet Holdings, Inc. (OLLI) [1] Summary of Sprouts Farmers Market (SFM) - SFM is experiencing headwinds with slowing comparable sales, shrinking basket sizes, and margin normalization, leading to a forecast of flat to 2% comparable-store growth for Q4 fiscal 2025 [2][4] - Comparable-store sales growth was 5.9%, below management's expectations and significantly lower than the previous quarters' growth of 10.2% and 11.7% [2] - Consumer behavior is shifting, particularly among middle-income and younger shoppers, leading to thinner basket sizes and limiting average unit retail (AUR) growth [3] - Management anticipates gross margin expansion to slow to 20 basis points in Q4, following previous expansions of 60, 90, and 130 basis points [4] - SFM is focusing on product innovation, customer experience, and targeted marketing, with plans to launch about 7,000 new products in 2025 [5] - The company is enhancing its omnichannel strategy, resulting in a 21% year-over-year increase in e-commerce sales, which now account for 15.5% of total sales [6] - Store expansion remains strong, with nine new openings in Q3 and a total of 464 locations, aiming for 37 openings in 2025 [7] Summary of Ollie's Bargain Outlet (OLLI) - OLLI is posting solid sales gains driven by loyal shoppers and brand closeouts, with a strong distribution network and a high-performing loyalty program [9][10] - The loyalty program, Ollie's Army, has over 16 million active members, contributing over 80% of total sales and driving a 5% increase in comparable store sales [11] - OLLI's merchandising strategy focuses on brand-name closeouts, allowing it to consistently offer recognized brands at attractive prices, enhancing customer loyalty [12] - The company is expanding its distribution infrastructure to support future store count increases, reducing long-term logistical risks [13] - OLLI aims to have over 1,300 stores, achieving a compound annual growth rate (CAGR) of 9.5% from 388 stores in fiscal 2020 to 559 stores in fiscal 2024 [14] Financial Performance and Valuation - The Zacks Consensus Estimate for SFM indicates year-over-year growth of 14.2% in sales and 40.5% in EPS, with a current EPS estimate of $5.27 [15] - OLLI's consensus estimates show year-over-year increases of 16.4% in sales and 16.5% in EPS, with an unchanged EPS estimate of $3.82 [16] - Over the past year, SFM shares have declined by 45.2%, while OLLI shares have gained 23.9%, reflecting differing operational momentum and market perceptions [19] - SFM is trading at a forward price-to-sales (P/S) multiple of 0.85, while OLLI's forward P/S multiple is 2.61 [19] Investment Outlook - OLLI is viewed as better positioned for investors seeking upside, benefiting from a favorable closeout environment and a highly engaged customer base, while SFM faces challenges with slowing sales and margin pressures [20]