Below, we've analyzed Whole Foods Market in preparation for a live chat that Whole Foods co-CEO John Mackey will have with us and Fool readers tomorrow. Join us on Fool.com from 3 to 4 p.m.
Approaching a company from all sides is a great way to analyze the floor and the ceiling of its potential as an investment. We can do this through SWOT analysis, a look at a company's strengths, weaknesses, opportunities, and threats. Today, I'd like to focus on Whole Foods Market
- Whole Foods remains the marquee brand in organics, especially after its hotly contested acquisition of Wild Oats. Its competition basically amounts to the spunky Trader Joe's, a slew of indies, and traditional grocers that are devoting more of their shelves to organic items.
- Last week's quarterly report was a beauty on an absolute basis. Revenue climbed 15%, assisted by an impressive 8.4% spike in identical-store sales. Earnings nearly doubled to $0.38 a share.
- Selling premium organic groceries in an upscale setting provides a little more wiggle room in markups than traditional supermarkets are afforded. Whole Foods has drummed up net margins of 2.6% over the past four quarters. It may not seem like much, but it's a healthy upgrade to where conventional grocers Safeway
(NYSE: SWY), Kroger (NYSE: KR), and SUPERVALU (NYSE: SVU)are perched.
- Whole Foods has come a long way in rebuffing the "whole paycheck" myth that implies that its costly wares will gobble up entire paychecks. Walk into a store, and you will find competitive pricing on soymilk, store brands, and other items. Recent value-pricing initiatives point to deals within the store. However, consumers still tend to flock back to cheaper processed edibles when money is tight during recessionary stretches. Want proof? Whole Foods may be coming off its third consecutive quarter of positive comps, but identical-store sales had fallen in each of the five previous periods.
- Closing in on 300 stores, Whole Foods' expansion is slowing on a percentage basis. It will only open one new unit this quarter. Saturating the market also finds Whole Foods entering smaller markets with smaller stores. The 15 stores that it has opened so far this fiscal year, on average, are significantly smaller than the 15 locations opened in fiscal 2009.
- International expansion offers the elbowroom that the United States lacks. Whole Foods has tiptoed into Canada and Great Britain, but there is certainly room for bolder forays abroad.
- Shares of Whole Foods took a hit after last week's ho-hum sales outlook, but there's more to this than decelerating comps and sales growth. This is still a scalable model, and Whole Foods may have disappointed investors with its target of 10% to 13% in sales growth for fiscal 2011, but earnings -- at the projected range's midpoint -- are pegged to improve by a respectable 17%.
- Fiscal third-quarter earnings soaring 88% to $0.38 a share is great, but it's the first time in nearly two years that Whole Foods didn't top Wall Street expectations. Analysts were already waiting at the $0.38-a-share mark. The trend indicates that the pros have finally caught up to Whole Foods, creating pressure to outperform in the current quarter.
- The company is now a few cozy years removed from its Rahodeb fiasco, when CEO John Mackey hit financial message boards under a pseudonym to discuss his company and mix it up with bashers. The charismatic founder has been on a shorter leash after that, even now having to share the CEO title.
(NYSE: WMT)continues to push into groceries, with "cheap chic" Target (NYSE: TGT)following suit. Their organic offerings are limited at the moment, but they have the ability to compete aggressively on price if they believe that they can make it up elsewhere. It's the model that Wal-Mart and Best Buy (NYSE: BBY)utilized in all but driving music stores to extinction, and groceries may be next.
Remember, we'll be hosting a live chat with Whole Foods co-CEO John Mackey tomorrow. Join us on Fool.com from 3 to 4 p.m.
Best Buy and Wal-Mart are Motley Fool Inside Value recommendations. Best Buy and Whole Foods are Stock Advisor picks. Motley Fool Options has recommended a bull call spread position on Best Buy. The Fool owns shares of Best Buy. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.
Longtime Fool contributor Rick Munarriz digs the covered garage that is part of the Whole Foods that's a mile from his home. It makes rainy summer days that much easier to get through. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.