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Whole Foods Market Looks Like A Short

August 22, 2014 | About:

Whole Foods Market (NASDAQ:WFM) stock has been a disappointing entertainer for investors in 2014 as the stock is as of now down in excess of 36%. Whole Foods' last two quarterly reports have contributed to a great extent to this ruin as the stock was rebuffed each time the organization had disillusioning results. Whole Foods proceeded with that pattern when it shared its Q3 earnings a month ago. In this way, should investors short Whole Foods Market? We should figure out.

The opportunity

The natural sustenance industry is right now a subject of incredible enthusiasm for nourishment retailers. The interest for natural sustenances in the U.S. is expanding step by step as individuals are getting to be mindful of the conceivable well-being impediments of adjusted sustenance through promoting and online networking. A real populace is turning to healthier alternatives of natural and common sustenances. As reported by Organic Trade Association, 81% of American families want to shop natural items.

Source: statista.com

Natural sustenance deals have demonstrated a steady development as delineated in the picture, and there are no indications of this pattern backing off. It is expected that, by 2017, natural nourishments will constitute 40% offer of the aggregate nourishment deals in the U.S. Nourishment organizations are especially mindful towards it and need to look for profits from this blasting business. Climbing well-being cognizance among individuals in the U.S. furthermore higher earnings are key drivers of this well-being nourishment industry.

The climbing rivalry

The boundless capability of the natural sustenance market has offered ascent to serious rivalry. What's more it would appear that Whole Foods will have an extreme time managing the weight from the opponents. Because of the extraordinary rivalry, Whole Foods' drive of growing its store numbers may reverse. Whole Foods Market has effectively put a ton into opening new stores, and it hopes to possess around 400 stores before this present year's over. In the interim, adversaries including Kroger (KR), Safeway (SWY), Target (TGT), The Fresh Market (TFM), Wal-Mart (WMT) have additionally entered into the natural nourishment business to profit from this blasting industry.

Wal-Mart and Kroger have figured out how to outpace Whole Foods with their moves that are continuously acknowledged and preferred by individuals. All the organizations are competitive on costs. At present, Kroger is giving less expensive items to customers as contrasted with Whole Foods Market and Wal-Mart. Kroger offers selective brands at similarly reduced prices. Its Simple Truth brand, which it claims to be free from 101 counterfeit fixings and additives, is relied upon to bring bigger revenues.

Wal-Mart additionally didn't neglect to demonstrate its essentialness. It as of late headed into organics by joining forces with Wild Oats. Wal-Mart hopes to dispatch 100 Wild Oats items in its 2,000 stores in the nearing months while adding the brand to every last bit of its stores later. The organization would sell natural items at 25% lower rates than other natural brands' rates.

With the emerging rivalry, Whole Foods is compelled to chop its costs further. This is negatively influencing its money era capacity. Lowering costs of items is the best way to add clients in this aggressive environment as individuals maintain a strategic distance from swelled products. Therefore, Whole Foods Market has diminished its costs from 3.3% to 1.7% in the last quarter. The rivalry from its associates and expanded costs has taken a toll on Whole Foods' earnings, and I anticipate that this pattern will proceed.

An alternate negative

Whole Foods was as of late fined $800,000 for cheating, and this ought to further disintegrate the organization's earnings. As reported by Reuters:

"Whole Foods Markets has consented to pay $800,000 after an examination found that the general store chain cheated clients in California, officials in the state said on Tuesday.

State and neighborhood examiners found in a year-long examination that Whole Foods charged more than the publicized cost on numerous things, as indicated by an announcement from Los Angeles City Attorney Mike Feuer.

Issues included neglecting to subtract at checkout the weight of greens bar holders, giving less weight than indicated on marks for bundled things sold by the pound and selling things, for example, kebabs and shop sustenances by the piece instead of by the pound as needed by law."

The organization asserted that its estimates were right 98% of the time and that it will "keep on refiling and execute extra methodologies to minimize such blunders going ahead." However, this fine will eat into the organization's profit and is awful news for investors.


Whole Foods' stock dropped the last two times when the organization passed up a major opportunity for the consensus estimates and a ton of variables propose the same may happen once more. They proceeded with ventures in opening new stores, decreasing costs (on key items) and expanding rivalry will sting Whole Foods' in the months to come. Hence, I think investors ought to short Whole Foods Market.

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