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Is Whole Foods a Buy?

April 06, 2014 | About:

Whole Foods Market (NASDAQ:WFM) is sailing through troubled waters for quite some time. In spite of reporting good revenue, the company failed to impress the Street as it missed on the earnings estimate. Whole Foods has decreased its forecast for 2014 to 5.5%-6.2% from 6.2% a year ago. This is below than its own outlook of 5.5%-7.7%

Sales for the first quarter increased 10% to a record $4.2 billion as compared to last year. Its operating cash flows amounted to $337 million and a 13.3% return on its investments. The comps for the first five quarters were also up 5.8%, however for the last 11 weeks comps declined to 5.2%.

Revenue was also affected due to a weak macro environment and to top that severe winter across the U.S. negatively impacted the shopper’s sentiments, as customers refrained from shopping and liked to remain in the cozy comfort of their rooms. The stock has declined 7% so far and its subdued prospects would make the going even tougher.

Prospects ahead

But Whole Foods is determined to turnaround its situation and improve its profitability. Consequently, the company has added more high-grade conventional products in its stores, to complement its organic offerings. This would provide its customers with more options to buy at Whole Foods Market. The company has introduced fresh packaged chicken under the brand 365 Everyday Value to all its stores in the U.S. This is a well recognized brand for value and quality by customers, and is among the best sellers in most grocery categories.

Looking forward, Whole Foods is positive about its growth as the company continues with new store openings. It has opened 10 new stores last quarter, and increased its product mix with new products such as coffee, beer, and wine bars to highly popular cold pressed raw juices and oyster venues. With these new offerings in place, Whole Foods is anticipating better times ahead.

The new stores it had opened recently are delivering solid results. Comp sales at stores less than two years old have produced an average 16% return on invested capital, which is its best new store performance. The company has a conservative outlook for 2014, as it is making investments to grow its business, which could pressurize its margins in the short-term.

Growth-oriented moves

The company is increasing its investment in technology, and also improving the customer experience through a unified ecommerce platform. Whole Foods has announced a partnership with Square, enabling it to offer digital check-out at venues and select stores. Whole Foods also announced the acquisition of seven former Dominick's locations, which will allow it to expand its presence in the greater Chicago area. Apart from acquisitions it is testing various innovations that might work for Whole Foods’ turnaround.

Looking forward the company is positive regarding its growth potential. With the retail industry to grow at a CAGR of 14% in the U.S., Whole Foods is determined to take advantage of this growth. According to Transparency Market Research, the organic food industry is expected to be worth $187.85 billion by 2019. To tap this huge industry, Whole Foods has signed 57 new leases in the past 12 months, and has put 107 stores in its development pipeline. The company expects to open 1,200 stores in the U.S., which is the largest market for organic food globally.


Whole Foods seems to be moving in the right path despite short-term weakness. Since the industry is expected to grow at a solid rate, Whole Foods’ moves will help the firm to keep itself ahead of its peers.

Rating: 0.0/5 (0 votes)


Dr. Paul Price
Dr. Paul Price - 3 years ago    Report SPAM

You never said what you think WFM is worth.

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