Why Whole Foods Market, Inc. Stock Got Slammed Today

The organic grocery chain fell on a weak earnings report by a competitor and after its CEO denounced activist investors.

Jeremy Bowman
Jeremy Bowman
Jun 15, 2017 at 12:41PM
Consumer Goods

What happened

Shares of Whole Foods Market, Inc. (NASDAQ:WFM) were tumbling today after the organic grocer feuded with activist investors and as shares of rival Kroger (NYSE:KR) plummeted after it said profits and comparable sales fell in its first quarter. Kroger also lowered its earnings guidance for the year.

As of 11:13 a.m. EDT, Whole Foods stock was down 6.5%.

The entrance of a Whole Foods store lit up at night

Image source: Whole Foods Market.

So what

Yesterday, Whole Foods CEO John Mackey called activist investor Jana Partners "greedy bastards" for pushing for a sale and trying to "destroy" his reputation. The charge may have thrown cold water on the possibility of a sale; investors seemed to like the idea as the stock originally surged when Jana's stake was revealed.

Then this morning, Kroger posted an ugly earnings report, sending its own stock down more than 18% and weighing on the greater grocery industry -- Sprouts Farmers Market (NASDAQ:SFM) and SUPERVALU (NYSE:SVU) also fell sharply. Profits at Kroger declined due to food deflation and an intensifying price war in the industry, a bad sign for Whole Foods, which is already struggling to adapt to changes in the industry. Its own comparable sales have fallen for the last seven quarters in a row.

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Now what

Before Jana took a stake in Whole Foods, the supermarket was trading around $30 a share, which seems to be closer to a fair value for the stock. Even after today's plunge, the stock is still above $33. 

Mackey is the co-founder of the company and has led it since its inception nearly 40 years ago. Without his support, a sale seems unlikely. The board would have to unite against him, and even then finding a buyer for the $10 billion company is far from assured.

Kroger's report makes one thing clear: The troubles in the supermarket industry are far from over. Whole Foods, which has already seen profits fall for several quarters, is likely to continue to struggle. I'd expect the stock to keep sliding as it still seems overvalued even with today's adjustment.