Sprouts Farmers Market LLC (SFM:US), the organic grocery chain backed by Apollo Global Management LLC, more than doubled on its first day of trading, the biggest gain for a U.S. initial public offering in more than two years.
The shares surged to $40.11 at the close in New York. The 123 percent increase was the biggest first-day gain for an IPO larger that $65 million priced in the U.S. since Qihoo 360 Technology Co.’s debut in March 2011, according to data compiled by Bloomberg. Phoenix-based Sprouts raised $333 million in its initial public offering yesterday, pricing the shares at $18 each, above the marketed range of $14 to $16.
The IPO benefited from increasing consumer confidence that’s spurring interest in companies that benefit from increased spending. Cyclical consumer companies such as Norwegian Cruise Line Holdings Ltd. and fast-casual restaurant chain Noodles & Co. have completed about $4 billion in U.S. IPOs in 2013, on pace to raise the most this year since at least 1999, data compiled by Bloomberg show.
“Investors like the story, they like the space -- obviously there’s a lot of momentum in natural and organic,” Sprouts Chief Executive Officer Doug Sanders said during an interview. “Consumers today are wanting to feel better about the food they eat, and they want to make sure they don’t pay too much.”
The grocer is targeting the U.S. Southeast for store growth and next year will open a location in Atlanta, Sanders said. Sprouts will open 20 new stores in 2014 and is forecasting 12 percent annual unit growth and 15 percent annual sales growth going forward, he said.
Sprouts, which has increased sales at a compound annual rate of more than 17 percent since 2008, operates more than 160 stores in eight states and has targeted 13 more states for expansion, Sanders said in an online presentation to investors before the IPO.
That growth was sustained even as consumers’ willingness to spend remained choppy since the financial crisis. Consumer confidence in the U.S. fell slightly in July, after surging earlier this year to the highest in more than five years, according to the Conference Board’s index, spurred by increases in personal wealth tied to higher property values and stock portfolios.
At the midpoint of the proposed IPO range, Sprouts was valued at about 29 times estimated 2014 earnings, according to marketing information for the sale obtained by Bloomberg News. At the IPO price, the company has a market value of $2.6 billion, or about 34 times, according to data compiled by Bloomberg. That’s more expensive than larger peer Whole Foods Market Inc.
Whole Foods traded at 32 times 2014 earnings as of yesterday, data compiled by Bloomberg show, and Natural Grocers by Vitamin Cottage Inc. (NGVC:US) traded at a multiple of 57 times (NGVC:US). Both companies are named as competitors in Sprouts regulatory filings. Fresh Market Inc., the Greensboro, North Carolina-based grocer that completed its IPO in 2010, traded at 28 times next year’s estimated earnings.
Demand for natural foods in the U.S. is increasing, Whole Foods Co-CEO Walter Robb said during an interview on Bloomberg TV today.
“The market for fresh, healthy food continues to grow,” he said.
Sales at U.S. supermarkets and grocery stores are projected to increase 0.8 percent a year for the next five years and reach about $538.3 billion in 2018, according to an April report from researcher IBISWorld Inc. in Santa Monica, California. Kroger Co. (KR:US) has the most U.S. market share, followed by Safeway Inc., the report shows.
Sprouts and existing owners sold 18.5 million shares for $18 each, according to a statement yesterday. The stock is listed on the Nasdaq Stock Market under the symbol SFM.
Following the IPO, about 13 percent of the company is publicly traded. Apollo, which retained a 45 percent holding, is the largest shareholder. Goldman Sachs Group Inc., Credit Suisse Group AG and Bank of America Corp. led the offering.
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