Sprouts Farmers Market (SFM) is expected to report largely in-line Q2 results, though its Q3 guidance could come in below consensus expectations due to weak grocery demand and potential produce-related headwinds, Oppenheimer said in a report Tuesday.

The firm expects Q2 comparable sales to decline 1% and earnings per share of $1.34, "in line" with consensus estimates.

Sprouts is scheduled to report its Q2 results on July 29.

Oppenheimer said soft grocery demand is likely to persist into July and consumer concerns related to the Cyclospora outbreak could create additional pressure on the company's produce category. It also incorporated the risk of more aggressive promotional activity aimed at driving customer traffic into its forecasts.

Sprouts has stepped up efforts to deliver greater value through in-store pricing initiatives and digital offerings. However, it remains to be seen whether those measures will meaningfully improve comparable sales later this year, which Oppenheimer said would be important for the bullish investment case.

The company's discounted valuation and attractive long-term store expansion prospects despite the near-term headwinds, according to the note.

Oppenheimer has a perform rating on Sprouts Farmers Market.