Wfm Buy Local
Image source: Whole Foods Market.

Natural- and organic-grocery pioneer Whole Foods Market (NASDAQ:WFM) has come on hard times lately, and it has had to find a way to fend off competition from multiple corners. Between the move into organics that Kroger (NYSE:KR) and other conventional grocers have made and the efforts of natural-food specialists challenging its dominance of the niche, Whole Foods has had to defend its territory amid some controversies. Coming into Wednesday's fiscal first-quarter financial report, Whole Foods investors were still nervous about its ability to rebound, but the company's results came in better than many had expected. Although Whole Foods has a long way to go, its optimism about the rest of the fiscal year was good to see. Let's take a closer look at the latest results from Whole Foods and what investors should take away from the report.

Did Whole Foods just hit bottom?
Whole Foods' fiscal first-quarter numbers weren't free of potential concerns, but they did give investors some hope that the grocery giant has finally put the worst behind it. Revenue climbed 3% to $4.83 billion, just barely topping expectations for $4.81 billion in sales. Net income eased downward by 6% to $157 million, but thanks to a big drop in share count, Whole Foods posted flat earnings of $0.46 per share, which was more than a nickel above the consensus forecast among investors.

Taking a closer look at Whole Foods' results, comparable-store sales continued their weak performance, falling 1.8% on a constant-currency basis. A large drop in customer counts was predominantly to blame for the weakness in comps, although basket size also fell very slightly. The company said that comps fell 2.8% to start the fiscal second quarter, although it blamed adverse weather for at least some of the decline. Gross margins fell to 34%, again weakening in the face of higher costs of goods sold.

Whole Foods' growth efforts also hit a seasonal lull. The company opened just three new stores during the fiscal first quarter, although it said it had already opened two more in the early weeks of the second quarter and anticipated six more before quarter-end. Leases for five new 365 stores got executed, with three locations in California and one each in Florida and Illinois. The grocery chain also signed a lease for another traditional Whole Foods store in San Diego.

Co-CEO Walter Robb said that he was "pleased with the progress we have made" on its strategic plan. As Robb explained, "We improved our cost structure, stepped up our value efforts, and are excited to announce today the national launch of digital coupons within our mobile app." Whole Foods expects its efforts to pay off even more clearly in the near future.

Can Whole Foods bounce back from here?
For the most part, the guidance that Whole Foods gave for the full fiscal 2016 year was similar to what investors first saw three months ago. The company still expects sales to grow between 3% and 5% over the course of the year. It has modeled those growth estimates on the expectation that comparable-store sales will be at best flat and at worst drop 2%. Guidance for adjusted earnings of at least $1.53 per share is good in light of the current consensus forecast that matches that number exactly, but it leaves Whole Foods having to prove it can meet and surpass that guidance in order to satisfy shareholders completely.

The big question facing Whole Foods is whether it can keep up with rivals like Kroger. A mobile coupon app will be good for Whole Foods, but Kroger's ClickList service is arguably even more revolutionary. Kroger allows customers to place orders online, setting a shopping list and choosing a time to pick up their order. As customers demand more convenience, Whole Foods will have to keep up with Kroger in order to avoid seeing defections.

Whole Foods' stock initially jumped after the announcement, but within 30 minutes, the stock had fallen back to unchanged in the after-hours session. In the long run, though, Whole Foods will still have to establish its ability to follow through on its growth initiatives in order to produce the fundamental results that will help the stock regain its lost momentum.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Dan Caplinger owns shares of Whole Foods Market. 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.