Sprouts Farmers vs. Costco: Which Retail Stock Holds More Promise Now?

Sprouts Farmers Market, Inc. SFM and Costco Wholesale Corporation COST may differ in scale and strategy, but both are key players in the retail landscape. SFM, with a market capitalization of approximately $15.6 billion and more than 440 stores, specializes in fresh, natural and organic foods tailored to health-conscious consumers. On the other hand, Costco boasts a substantial market capitalization of approximately $414.2 billion, operating on a membership-based warehouse model that focuses on selling bulk goods at discounted prices across various categories, including groceries, electronics and household essentials. The company manages a network of 908 warehouses globally, including 625 in the United States and Puerto Rico.Both companies are navigating an evolving retail environment shaped by inflation, shifting consumer values, and a heightened focus on affordability and quality. While Sprouts Farmers emphasizes curated assortments and disciplined expansion within its niche, Costco leverages its scale, pricing power and loyal member base to drive steady traffic. Let’s dive deep into the stocks to determine which stands out as the better bet today.The Case for Sprouts FarmersSprouts Farmers' commitment to providing fresh produce and health-oriented products aligns with the increasing consumer demand for healthier food options. The overall market for natural and organic food at home, which SFM targets, is estimated to be around $290 billion within the total $1.6 trillion spent on food at home. Its private-label products continue to gain traction, accounting for 24% of total sales. This supports SFM’s full-year 2025 guidance, which includes net sales growth of 12% to 14%.To strengthen customer relationships, SFM has initiated the rollout of its new loyalty program, starting with Arizona. Piloted in 35 stores in late 2024, the program achieved sign-ups and scan rates above targets. Sprouts Farmers also began self-distributing fresh meat and seafood through its distribution centers. This move provides greater control, enhances freshness and optimizes existing supply-chain capacity. SFM aims to open at least 35 new stores in 2025, targeting approximately 10%-unit growth, backed by a solid pipeline of 120 approved sites and more than 85 signed leases. Its new small-box format (23,000 sq. ft.) supports efficient, lower-risk expansion. These locations generate approximately $13 million in first-year sales and grow 20-25% over four years, delivering cash-on-cash returns in the low-to-mid 30% range by year five. Management sees “plenty of white space” to expand the footprint to 1,000+ stores over time.Sprouts Farmers has adopted a multi-channel strategy with significant investments in digital infrastructure, online ordering and delivery. Collaborations with Uber Eats, DoorDash and Instacart have enhanced its digital reach, with e-commerce now representing 15% of total sales, marking a 28% year-over-year increase in the first quarter of 2025.The Case for CostcoCostco’s resilient business model, built around its membership-based structure, continues to be a key driver of growth. High membership renewal rates — 92.7% in the United States and Canada and 90.2% worldwide — along with efficient supply-chain operations and bulk purchasing power, enable Costco to offer competitive prices that foster customer loyalty. This strong model has helped Costco succeed, even during economic downturns.Members pay an annual fee for access to Costco’s warehouses, where they enjoy substantial discounts on a wide range of products. This system not only ensures a steady revenue stream but also creates a sense of value and exclusivity. In the third quarter of fiscal 2025, membership fee income increased 10.4% year over year, supported by a recent fee increase that contributed about 4.6% growth during the quarter. The company ended the quarter with 79.6 million paid household members, a 6.8% rise from the previous year.Costco continually adapts to market trends and consumer preferences. The company frequently updates its product lineup to include a mix of everyday essentials and unique, high-demand items. Through market analysis and customized offerings, Costco has expanded its presence both domestically and internationally. In fiscal 2025, the company plans to open 27 new locations (24 net new), bringing its global warehouse total to 914. Digitization also plays a key role in Costco’s expansion. E-commerce comparable sales rose 14.8% in the third quarter, reflecting growing online demand. Costco Logistics saw a 31% increase in items delivered, driven by the success of big-ticket product categories. The recent launch of a Buy Now, Pay Later program in partnership with Affirm is another step toward enhancing convenience and flexibility for members. For the five weeks ended July 6, 2025, e-commerce comparable sales jumped 11.5%. That said, some challenges linger. Currency headwinds and potential tariffs on key imports could pressure margins. Additionally, as consumers become more cautious with spending, demand for non-essential items has softened — a potential drag on discretionary sales.SFM vs. COST: How Do Estimates Stack Up?The Zacks Consensus Estimate for Sprouts Farmers’ current financial-year sales and EPS implies year-over-year growth of 13.6% and 35.5%, respectively. The consensus estimate for EPS for the current fiscal year has been stable at $5.08 over the past 30 days.  Image Source: Zacks Investment ResearchThe Zacks Consensus Estimate for Costco’s current fiscal-year sales and EPS calls for year-over-year growth of 8.1% and 11.6%, respectively. The consensus estimate for EPS for the current fiscal year has fallen by 9 cents to $17.97 over the past 30 days.  Image Source: Zacks Investment ResearchSFM vs. COST: A Look at YTD Stock PerformanceShares of Sprouts Farmers have advanced 25.6% year to date compared with Costco’s modest gain of 1.9%.  Image Source: Zacks Investment ResearchSFM vs. COST: A Dive Into Stock ValuationSprouts Farmers is trading at a forward 12-month price-to-earnings (P/E) ratio of 29.42, below its one-year median of 31.32. Meanwhile, Costco’s forward P/E ratio stands at 47.29, below its median of 50.76. Image Source: Zacks Investment ResearchSFM vs. COST: Which Is a Better Bet Now?When compared with Costco, Sprouts Farmers appears to hold more near-term promise. While Costco’s scale, loyal membership base and operational efficiency remain strengths, its premium valuation and sensitivity to discretionary demand may limit short-term upside. In contrast, Sprouts Farmers is benefiting from strong momentum in the health-focused grocery segment, disciplined expansion and growing digital engagement. Its ability to deliver targeted growth with operational control and strategic clarity positions it well to capitalize on shifting consumer preferences. For investors seeking a balance of growth potential and focused execution, Sprouts Farmers appears better positioned right now. SFM carries a Zacks Rank #2 (Buy) at present, while COST currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Higher. Faster. Sooner. Buy These Stocks NowA small number of stocks are primed for a breakout, and you have a chance to get in before they take off.At any given time, there are only 220 Zacks Rank #1 Strong Buys. On average, this list more than doubles the S&P 500. We’ve combed through the latest Strong Buys and selected 7 compelling companies likely to jump sooner and climb higher than any other stock you could buy this month.You'll learn everything you need to know about these exciting trades in our brand-new Special Report, 7 Best Stocks for the Next 30 Days.Download the report free now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Costco Wholesale Corporation (COST): Free Stock Analysis Report Sprouts Farmers Market, Inc. (SFM): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks