Whole Foods Market (NASDAQ:WFM) is still a good opportunity for investors with a long-term view despite revised guidance for 2014. The healthy eating and environmentally conscious retail grocer remains strong because of a long history of revenue and earnings-per-share growth, net income growth, and good cash flow from operations.
Further, Whole Foods will continue to be a leader in the green food market as more people become health conscious – which means increasing demand for organic foods. The company does have some challenges, particularly because of its focus on the US market. This makes Whole Foods vulnerable to persistent weakness in the US economy.
Of course, the big challenge is competition from rivals like The Fresh Market (NASDAQ: TFM) and Kroger (NYSE:KR).
The Fresh Market is a smaller chain that also markets itself as a source of healthy organic food stuffs. The company's earnings were off earlier in the year as The Fresh Market faced pressure from a weak consumer.
Currently, the share price is hovering at the $50 mark, far below the 52 week high of $62 and change. If and when consumers loosen the purse strings again, The Fresh Market's share price should also bounce back. The company's third quarter earnings announcement is slated for Nov. 21, but its outlook for 2014 will be key in light of Whole Foods curbing its enthusiasm.
Meanwhile, Kroger has more brick-and-mortar stores than Whole Foods while offering more of a regular supermarket experience. Moreover, Kroger's stock has performed well this year climbing from just shy of $24 per share to its present price close to the $42 mark.
Most importantly, Kroger recently announced plans to expand its footprint in North Texas, one of the largest metropolitan regions in the U.S. Over the next 24 months, Kroger will invest $150 million in the region to build five new marketplace stores and expand three locations. Investors should keep their eyes open on Dec. 5 when Kroger announces third-quarter earnings, but this recent announcement bodes well for future growth.
While Kroger and The Fresh Market are probably good plays for investors looking for green, Whole Foods Market's long-standing leadership makes the chain the best buy of the green grocers.
Whole Foods Market fiscal year numbers at a glance
In sum, for the 52 weeks ended September 29, 2013, Whole Foods' total sales reached a record $12.9 billion, an increase of 13% compared to 2012. The grocer's earnings before interest, taxes, depreciation, and amortization came in at $1.2 billion, or 9.5% of sales, while net income was $551 million, or 4.3% of sales. Diluted earnings per share were $1.47, an increase of 19% on a comparative 52-week basis.
Further, Whole Foods churned out $1.0 billion in cash flow from operations and invested $537 million in capital expenditures-$339 million of which was related to new stores. This resulted in free cash flow of $472 million. In addition, the Company paid $508 million in quarterly and special dividends to shareholders and repurchased $125 million of common stock.
The directors also approved another repurchase program in the amount of $500 million through Dec. 31, 2015 – on top of the existing repurchase program in play of $300 million through Dec. 31, 2014. This will be a reward for investors since repurchases usually are a boon for earnings per share and future dividend payouts.
Whole Foods Market revised guidance for 2014
Some analysts were alarmed by the company's revised sales and earnings outlook for the 2014 fiscal year. Whole Foods now expects slightly lower sales growth of 11%-13%, comparable store sales growth of 5.5%-7%, identical-store sales of 5%-6.5%, and diluted earnings-per-share growth of 12%-15% to $1.65-$1.69. This guidance prompted some investors to take money off the table last week, but the share price has recovered.
The bottom line
Investors should not be put off by Whole Foods' revised guidance. The fact that the green grocer continues to pay dividends and has a stock repurchase plan in play means more growth and value for investors with a long-term view. In the final analysis, consumers are becoming increasingly aware of healthy eating and the environmental benefits of green grocers. This makes Whole Foods and the green grocer sector a good buying opportunity in the long run.