Whole Foods Market's First-Quarter Results Indicate Better Times Ahead

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Feb 27, 2015

Whole Foods Market (WFM, Financial) ended 2014 on a good note with better than expected results, which seems to continue in the first quarter of 2015 as well. During the quarter, it grew both its top and bottom lines steadily on a year-over-year basis. As a result of this strong performance its stock had a complete turnaround and rose significantly after touching its 52-week low few months back. Analysts are optimistic of its future performance anticipating a better run in the days to come.

Growth in the cards

Its revenue for the quarter rose 10.2% to $4.67 billion compared to last year, while earnings increased to 46 cents a share from a year ago period of 42 cents per share. The management credits these numbers to the positive response of its customers towards the strategic initiatives it undertook in the past year. Whole Foods had been struggling for quite some time on account of a stiff competition from its peers, which weighed on its performance.

To address this issue, the company lowered its prices, added more branded foods and increased advertising. These initiatives finally paid off, as its same store sales grew 4.5% during the quarter. And to keep this momentum going the company will add more stores with better features to lure customers. For example, its new stores have beer gardens on the roof while it remodeled the old stores with unique features like as brewery.

New initiatives to drive growth

Along with this, its new technology initiatives such as grocery delivery through Instacart, accepting Apple Pay and mobile phone app will help the company to stand out among its peers. Whole Foods launched its online delivery service last fall and since then it incurs an average weekly sales of more than $1 million. It isn’t hard to imagine how the company managed to get these numbers considering its initiatives.

For instance, during Valentine’s Day it is offering flower delivery in as little as one-hour with prices starting at $25 for a dozen of its high-quality ethically sourced whole-trade roses. Moreover, Orders can be placed in advance, and combined with the ability to include chocolates or some other treats. Such a deal is hard to beat, which means the company is all set to give a tough competition to its peers.

Its online delivery contributes around 5% to its total sales and the management anticipates huge potential even as it expands its reach to more markets. These are major developments that will play a significant part to increase its store traffic. Currently it has 400 stores in the U.S. with plans to reach 1,200 stores in the days to come.

Conclusion

Going forward, the upscale grocery chain is determined to shed its "Whole Paycheck" nickname which it received on account of its high prices. In this direction, it is cutting prices on fresh produce and other perishable items. In the light of these initiatives, the company anticipates a sales growth of over 9% in 2015 with comps growing in the low to mid-single digit percentage. Currently with a trailing P/E of 35.13 and an improving forward P/E of 28.94, Whole Foods seems to be on track to deliver year over year growth in the days ahead.