Images

Whole Foods Market (NASDAQ: WFM) investors caught a welcome break last week. Shares of the leading organic supermarket chain moved 15% higher as buyout speculation and an encouraging analyst note helped propel buying interest during an otherwise negative week for the market.

Earlier this month, TheStreet.com and Mad Money star Jim Cramer had talked about Whole Foods as a potential company to go private in 2016, and that was reiterated in a Dec. 6 article on TheStreet.com that played up Whole Foods as one of three stocks that are strong buyout candidates in the year ahead. That likely gave the stock a boost early in the week, pushing the stock higher in three of the first four trading days before Friday's analyst-fueled pop.

ITG Market Research analyst Joseph Fersedi issued a report on Friday morning suggesting that sales are trending better than his peers are modeling. He sees Whole Foods clocking in with $4.842 billion to $4.888 billion in sales for the holiday quarter, just ahead of Wall Street's consensus average. 

Fersedi isn't necessarily bullish. He's targeting comps to post a year-over-year decline between 0.7% and 1.7% for the current quarter. However, that actually represents a relative improvement over the 2.2% decline that Wall Street pros are expecting. 

In short, Whole Foods Market isn't necessarily turning the corner. It's just possibly not sinking as quickly as even its own guidance was suggesting. 

It hasn't been easy to be a stockholder in Whole Foods Market. The stock has shed a third of its value this year, and that's on top of last year's 13% drop. It was a market darling when patrons lined up to shop at it's high-end supermarkets, but after back-to-back years of double-digit percentage declines -- losing roughly half of its value in the process -- it's clear that the retailer is out of favor. 

The trouble began during the springtime of last year when Wal-Mart (NYSE:WMT) announced it would be driving prices of its own organic products down by roughly 25% through a new private label. There's no shortage of traditional grocery stores that have tried to take on Whole Foods Market by expanding their all-natural offerings, but when the discounting juggernaut Wal-Mart gets involved it's easy to fathom a price war breaking out. 

This year's setbacks have included price manipulation allegations, negative store-level trends, and the market unimpressed with Whole Foods Market's plan to target millennials and penny pinchers with a new concept called 365 that will cater to shoppers looking for organic merchandise at lower price points. 

Wal-Mart's push to drive prices lower has hurt Whole Foods, and it may very well have been the catalyst for 365. It ultimately serves as a warning to investors paying a premium for a grocer based on its brand when consumers don't see much of a difference in the actual products. This doesn't have to end badly for Whole Foods. Maybe Cramer is right, and private-equity funds decide that turning the chain around will be easier as a nonpublic entity. Maybe Fersedi is right, and things are bad but not as bad as they seem. We'll find out soon enough, but for last week's gains to hold up we're going to have to see clear signs that comps have stabilized -- and we're not there yet.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.