Whole Foods Jumps on Strong Earnings

Is this meaningful? Or just another movement?

Jeremy Bowman
Jeremy Bowman
May 8, 2013 at 9:27PM
Consumer Goods

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Whole Foods Market (NASDAQ:WFM) were looking fresh from the garden today, climbing as much as 12% after delivering a strong quarter earnings report.

So what: The organic grocery chain beat earnings estimates, and raised its full-year projection. Whole Foods said same-store sales jumped by an impressive 6.9%, and the pace heated up in the current quarter, improving to 9.4%, or 7.4%, adjusting for a special employee discount day. Overall, sales were up 13% to $3.03 billion, and earnings came in at $0.76 per share, ahead of estimates of $0.73. Whole Foods also bumped up its full-year EPS guidance from $2.83-$2.87 to $2.86-$2.89, and said it would enact a 2-for-1 stock split at the end of the May.

Now what: This was certainly a strong report, and it's hard to doubt Whole Foods' brand strength as it basically owns the high-end grocery niche. However, shares look dearly priced after today's jump at a 2013 P/E of 35, and with top-line growth of just 13%. Whole Foods has likely grabbed the low-hanging fruit in the industry, meaning it's already opened stores in high-end urban enclaves where its target customers are found. Consequently, it's hard for me to see the company growing to this valuation. 

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