It’s Time to Put More Real Money Into Whole Foods

Put together the vague perception of "disappointing" quarterly results, the impact of Superstorm Sandy, and ongoing macro uncertainty, and Whole Foods Market (Nasdaq: WFM  ) shares are well off their recent lofty highs. That's why I'm taking the opportunity to add more of the stock to the real-money Prosocial Portfolio I manage for Fool.com.

Whole Foods' most recent quarter boasted one huge reason that I'm willing to pound the table on this stock: sales. The organic grocer's total sales surged 24% to $2.91 million, and same-store sales exploded a staggering 8.5%. In the grocery industry, such figures are pretty incredible.

It's not like Whole Foods' profitability took a big hit, either. Fiscal fourth-quarter net income increased 49.4% to $112.7 million, or $0.60 per share. The grocer has even increased gross margin to 35.3% from 34.5%.

Granted, Whole Foods did announce that it's going to take a one-time charge related to uninsured losses incurred from Hurricane Sandy, and the first five weeks of its fiscal first-quarter sales were affected by the storm. However, given the ferocity of the superstorm, this isn't a Whole Foods-specific problem.

Whole Foods' long-term outlook remains intact; its social consciousness and innovative business model make it one of my favorite stocks. Meanwhile, the grocer has an enviable balance sheet in the current economic environment, with $1.06 billion in cold, hard cash, and a negligible $19 million in debt. It also announced a 43% dividend hike.

Whole Foods, which trades at 31 times forward earnings, may look too pricey to some, but it's far more appetizing than many other grocery stocks, given its long-term growth outlook and innovative business model.

Take beaten-down conventional rival SUPERVALU (NYSE: SVU  ) ; lately, its biggest selling point is that it may be bought out. This grocer is a casualty of the cutthroat industry, and has lost more than $2.5 billion over the last two fiscal years.

Another conventional grocer, Safeway (NYSE: SWY  ) , isn't a tantalizing industry innovator, either. It's got difficulties differentiating itself on the competitive landscape, and it's already plopped 1,466 stores on the map in the U.S. and Canada. Whole Foods is targeting 1,000 total stores over the long term, but right now, there are only 342 stores. That's a lot of growth ahead.

Like fellow Prosocial Portfolio stocks Hain Celestial (Nasdaq: HAIN  ) and Chipotle Mexican Grill (NYSE: CMG  ) , Whole Foods has been way ahead of the curve in fashioning its business for an emerging kind of foodie: the ethical consumer. These companies' offerings stretch beyond simply "healthy eating" (although that's a great trend in itself). The shoppers these companies cater to are also interested in factors like sustainable food sourcing and ethical supply chains.

Whole Foods is best in class at what it does, illustrating that positive value for consumers (and investors) goes far beyond simple price. Just look into its Whole Trade-certified products and you'll see what kind of bang consumers get for their buying buck. Whole Foods exemplifies the spirit of striving not only for healthy profits, but also for improved processes and innovations to make the world a better, healthier place.

I believe the future is as bright and strong as ever for Whole Foods Market's business. That's why I'm using current weakness to buy more shares of this super-positive grocer.

It's hard to believe that a grocery store could book investors more than 30 times their initial investment, but that's just what Whole Foods has done for those who saw the organic trend coming some 20 years ago. In this brand-new premium report on the company, we walk through the key must-know items for every Whole Foods investor, including the main opportunities and threats facing the company. We're also providing a full year of regular analyst updates to go with it, so make sure to claim your copy today by clicking here.


Read/Post Comments (5) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 07, 2012, at 2:05 PM, k2climber wrote:

    Are you concerned that insiders have decreased their holdings by roughly 93% in the past 6 months?

  • Report this Comment On December 09, 2012, at 3:02 PM, SkepikI wrote:

    Well, that tells you something about risk, doesnt it? Their price structure is high, but people seem to like them and their stores. We call them "Whole Paycheck". At the moment, a small local competitor, New Seasons (Portland OR area) is eating their lunch (pun intended) and drawing customers that might seek out whole paycheck for organic and local foods. Some of the other local retailers are improving their organic and local offers to steal customers. This IS a cutthroat business and They will have to do better and fight hard to stay even.... maybe easier in other regions, but I for one think their longer term prospects are not so golden.

  • Report this Comment On December 11, 2012, at 3:58 AM, JeffParrel wrote:

    Agree with you that Whole Foodsis far more appetizing than many other grocery stocks, given its long-term growth outlook and innovative business model.

    With food prices on the move to the North,

    http://seekingalpha.com/article/814491-wheat-price-forecast-...

    WFM is a BUY.

  • Report this Comment On December 11, 2012, at 9:23 PM, Darwood11 wrote:

    As was noted by Skepiki, there is a lot of competition. I and my spouse compare WFM to the other groceries in the area. That includes two large chains and several smaller "regional" stores, two butchers, a Trader Joe and a European Market. I'm not including WalMart superstores and several local groceries. There are too many to count, about 20 within easy driving distance and en route to the office, post office, banks, etc. Many have extensive organic foods selection, wine and beer, good to excellent deli sections, coffee bars, etc.

    We've concluded that we live in a wonderful area which is blessed with fantastic shopping and dining. That means we have great choices. I also think this has possibly altered the local WFM.

    I have concluded that my experience might not be typical. We know others who call WFM "Whole Paycheck" and with good reason. But our WFM has wines for as low at $4 a bottle. This I suspect is because it competes with the nearby groceries

    My spouse likes WFM for certain specialty items, and their deli counter is very good. But their prices for other items are high and does earn them that "Whole Paycheck" moniker. It's produce is generally similar to what we can get elsewhere, and we have a nearby grocer who has much better produce and offers organic.

    This personal experience has made it difficult for me to purchase WFM stock. That, and the buying spree of WFM which resulted in several smaller competitors being absorbed. My spouse and I like to support choice. For groceries, I have had the opinion that I can save a lot more over a few years by the competition that yields better food prices, than I might make from the appreciation of WFM stock.

    That's the problem I see as an investor. Comparing local experience to the larger experience offered by a company. WFM may be the best choice in many grocery markets, but not for me. That has definitely influenced by stock decision. If they can't come out on top here where I live, then I do wonder about how they will succeed longer term.

  • Report this Comment On December 13, 2012, at 1:00 PM, toastedseeds wrote:

    "Whole Foods' most recent quarter boasted one huge reason that I'm willing to pound the table on this stock: sales. The organic grocer's total sales surged 24% to [b]$2.91 million[/b], and same-store sales exploded a staggering 8.5%. In the grocery industry, such figures are pretty incredible.

    It's not like Whole Foods' profitability took a big hit, either. Fiscal fourth-quarter net income increased 49.4% to $112.7 million, or $0.60 per share. The grocer has even increased gross margin to 35.3% from 34.5%."

    Is the bolded a typo? how did they earn $112 million on $2.91 mill in total sales?

    Thanks,

    ts

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