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Why you Should Sell Whole Foods Market and Buy Kroger

July 21, 2014 | About:

As consumers are getting to be more mindful about the effects of hereditarily changed nourishment and repercussions of the industrial fertilizers and pesticides used in cultivating, they are searching for more transparency in the sustenance they consume. As a result of this, it is normal that the business sector for natural sustenance in the U.S. will surpass $80 billion by 2015. The natural and regular sustenance market still has substantial potential for further development. In 2012, this business sector was just 3.5% of aggregate nourishment sales in the U.S.A.

Nonetheless, this enormous development open door has also offered rise to stiff rivalry and as a result Whole Foods Market's (NASDAQ:WFM) under execution is prone to proceed in the approaching quarters. Truth be told, the organization has revised its earnings and income direction downwards for Fy2014 for the second time consecutively. The organization has lessened Fy14 EPS $1.58-$1.65 which is well beneath the consensus estimate of $1.68.

The awful news doesn't end there. Over the past quarter, Whole Foods was cutting prices (on key products) because of increased rivalry by companies entering the Organic & Natural nourishment business; especially Costco (NASDAQ:COST) and Kroger (NYSE:KR). Proceeded with cost decrease will specifically consume into the organization's gross edge, which will put descending pressure on Whole Foods' main concern.

On the splendid, Whole Foods Market is wanting to open 33-38 stores in fiscal 2014 and 38-45 all the more in fiscal 2015. Additionally, the organization predicts that there exists space for 1,200 stores in the long run, and aims to surpass the number of 500 stores by 2017.

On the other hand, I don't think these initiatives will be sufficient to solve Whole Foods available problems whenever soon. Additionally, Whole Foods' normal dollar-volume has dropped significantly to $219.2 in the latest reported quarter. In this way, I think investors should retreat Whole Foods Market as soon as possible.

Kroger Moves

Kroger's second from last quarter registered positive comps of 3.5%, making it the 40th consecutive quarter of positive comps. This is no mean deed and is the result of Kroger's customer-driven business model. The organization is generally positioned to proceed with its development force as well. On the once again of comps development, Kroger's second from last quarter income bounced 3.2% over last year to $22.5 billion.

The organization's customer-first strategy and the strong progress to enhance the fresh products segment has been one of the development drivers. The customer driven business model has, over a time of 10 years, been responsible for a 83% increase in faithful households that continue visiting Kroger for their foodstuff needs. Focusing on the most unwavering brand of customers has been one of the main impetuses behind the 40 consecutive quarters of positive comps, and it is good to go to sustain the energy into 41st.

Kroger is certain of its development going ahead because it is catching just $0.50 of each $1 the faithful customer spends on products that the organization sells. It is sure of accomplishing its fiscal 2013 earnings for every share target and projects comps development of 3% to 3.5% (barring fuel) for the final quarter. For fiscal 2014, it is certain of conveying 8% to 11% earnings-for every share development targets, which does exclude the accruals rolling in from the Harris Teeter Supermarkets acquisition last year.

Harris Teeter's acquisition opens up a fantastic open door for Kroger to access areas with high average incomes such as Northern Virginia and the North Carolina research triangle. Kroger has also hopped onto the natural and characteristic nourishment fleeting trend, going for consumers who are determined to natural and common sustenance items for reasons of wellbeing and supporting neighborhood farmers.


Not just is Kroger developing faster than Whole Foods, it is also less expensive as it is exchanging at 12.27 times its earnings. Entire Foods' development is slowing down and I anticipate that that pattern will proceed all through 2014. Awful quarterly results never run down well with investors; in this way I think investors should dump Whole Foods Market for Kroger.

Rating: 1.0/5 (1 vote)


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