Whole Foods Market Inc. Earnings: Can the Ailing Grocer Bounce Back?

On Tuesday, Whole Foods Market (NASDAQ: WFM  )  will release its quarterly report, and investors haven't been sure what to make of the premium grocer's stock lately. Despite sporting profit margins that crush those of traditional grocers Safeway (NYSE: SWY  ) and Kroger (NYSE: KR  ) , Whole Foods has some investors worried about whether it can sustain its impressive growth rate into the future.

Whole Foods Market pioneered the move toward healthier offerings at grocery stores, with its push to bring organic and natural foods to consumers. By offering higher-cost items, Whole Foods has grown its earnings at a much faster pace than most traditional grocery-store chains, and customer loyalty has also played a vital role in driving the stock higher over the long run. Lately, though, some have questioned whether Whole Foods can keep delivering the same pace of growth. Let's take an early look at what's been happening with Whole Foods Market over the past quarter and what we're likely to see in its report.


Source: Whole Foods Market.

Stats on Whole Foods Market

Analyst EPS Estimate

$0.41

Change From Year-Ago EPS

7.9%

Revenue Estimate

$3.34 billion

Change From Year-Ago Revenue

10.4%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Can Whole Foods earnings growth keep up the pace?
Investors have gotten a bit less excited about Whole Foods' earnings prospects in recent months, cutting their first-quarter estimates by $0.02 per share and their full-year fiscal 2014 projections by triple that amount. The stock has fallen as well, with losses of 5% since late January.

Whole Foods Market's fiscal first-quarter earnings set the tone for the company's poor share performance, with results that fell short of the ambitious targets investors had for the grocery-store chain. Revenue rose 10% on a 5.8% jump in same-store sales, and earnings came in almost 8% higher than year-ago levels. But even those impressive-looking figures were less than what shareholders were looking for, and Whole Foods also reduced its guidance on full-year sales and comps to the lower ends of its previous ranges.

Because of its success, Whole Foods Market has seen competition from all sides. On one hand, copycat specialty grocer start-ups have mimicked its focus on healthy food offerings, with up-and-comers rapidly growing their national footprints to become significant threats to Whole Foods. At the same time, Kroger, Safeway, and other traditional grocers have learned lessons from the success that Whole Foods has had in natural and organic foods. By using store-branded organic products, Kroger and Safeway have undercut Whole Foods on price, taking advantage of Whole Foods Market's reputation as being too costly for typical customers. That in turn could eventually force Whole Foods to make price cuts of its own, threatening its margins as well. At the same time, Kroger's new Marketplace concept could put the grocer in a more direct competitive position against Whole Foods.

One interesting question facing Whole Foods is how it will respond to initiatives to offer online retail and delivery options. Kroger and retail giant Wal-Mart have both come out with programs to offer home delivery of groceries, and Whole Foods has come back with personal shopping and delivery services at some of its store locations. Yet Whole Foods will have to establish that it has the infrastructure to support what could become high demand for such services without losing the reputation for customer service that it has fought hard to earn.

In the Whole Foods Market earnings report, watch to see whether same-store sales hold up well compared to past quarters. If growth keeps eroding, then it'll be hard for Whole Foods to rebound from its recent losses.

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  • Report this Comment On May 07, 2014, at 9:53 AM, Morgana wrote:

    The kind of person who goes to Whole Foods is also the type of person who supports Obamacare. See what Mackey has said about Obamacare below:

    In an interview with NPR, Whole Foods CEO and self-professed libertarian John Mackey revived his previous criticism of Obamacare — but this time, with a new twist. While Mackey incorrectly denounced the landmark health reform law as “socialism” in a controversial 2009 Wall Street Journal op-ed, the multimillionaire CEO has revised his assessment and now considers Obamacare — also incorrectly — to be closer to “fascism”:

    “Technically speaking, it’s more like fascism. Socialism is where the government owns the means of production. In fascism, the government doesn’t own the means of production, but they do control it, and that’s what’s happening with our healthcare programs and these reforms.”

    Although fascist nations do often control their “means of production,” Mackey seems to have forgotten that they usually utilize warfare, forced mass mobilization of the public, and politically-motivated violence against their own peoples to achieve their ends. By contrast, Obamacare regulates some of the insurance industry’s shoddiest practices and imposes a small tax penalty on Americans who refuse to purchase government-subsidized private insurance.

    That hasn’t stopped other conservative critics of Obamacare from making similar statements. In 2011, former Republican presidential candidate Rick Santorum decried that America was falling into the throes of fascism, and that the health reform law was its “final death knell.”

    UPDATE

    After the controversy generated by his comments, Mackey revised his statement further today and admitted that he made a “bad choice of language” since fascism is usually associated with World War II-era Nazi Germany, Spain, and Italy. He went on to say that he still believes Obamacare saps away “free enterprise capitalism” from the health care industry.

  • Report this Comment On May 09, 2014, at 9:46 PM, smbern wrote:

    Did I miss something? WFM is a lifestyle brand like Apple, Starbucks, Disney, Nike, etc. Shopping at WFM for many goes way beyond grocery shopping, just like a cup of coffee at SBUX is beyond needing a caffine fix. Sure others like Walmart will offer some (150ish) products from brands like Hain Celestial, but WFM is 55,000 items that meet the wants/needs of the health conscious consumer. I do think a little shaving off the top to bring the price valuation inline a bit is logical, but the hand wringing that WFM is yesterday's news and have no chance of competing with a bunch of upstarts and Walmart is insane. I took a bath with the price drop by will buy on the dip, patience as we might not be at the bottom yet, and hold because the proof is in the pudding and WFM will shine in the long run.

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