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

On Tuesday, Whole Foods Market (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 (KR -0.04%), 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

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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