We issued an updated research report on
Whole Foods Market, Inc. (
following the company's second-quarter fiscal 2014 results. The
company posted lower-than-expected second-quarter fiscal 2014
results and took a conservative stance on sales and earnings
Increasing competition and aggressive pricing weighed upon the
company's performance as more and more companies, such as
The Kroger Co.
Sprouts Farmers Market, Inc.
) are entering as well as expanding their presence in the Organic
& Natural food business.
Looking at the numbers, the quarterly earnings came in at 38
cents a share, falling short of the Zacks Consensus Estimate of 41
cents and remaining flat with the prior-year quarter. This natural
and organic foods supermarket chain operator sustained its top-line
growth momentum with revenue climbing 10% to $3,322 million in the
quarter, but coming below the Zacks Consensus Estimate of $3,346
Following soft results, Whole Foods lowered its outlook for the
third time. Management now projects an escalation of 10.5% to 11%
in total sales for fiscal 2014 on the back of an expected 5% to
5.5% rise in comparable-store sales. Earlier, management had
forecasted 11% to 12% sales growth buoyed by a 5.5% to 6.2% rise in
Management now envisions earnings in the band of $1.52 to $1.56
per share, portraying a year-over-year jump of 3% to 6%, down from
a range of $1.58 to $1.65 predicted earlier.
Despite these downsides, what makes us still constructive on the
stock's performance is the company's strategic roadmap through
fiscal 2018 that looks quite convincing.
Management hinted at attaining $25 billion in sales in the next
5 years. The company targets earnings per share growth to be either
equal to or more than that of sales from the commencement of fiscal
2015, and also intends to keep gross margin in the range of 34% to
35%. Whole Foods is determined about making its technology
investment but at the same time assured that it will try to contain
costs and maintain a disciplined cost structure to improve
operating margin through fiscal 2018 and thereafter.
Currently, Whole Foods sports a Zacks Rank #3 (Hold).
Other Stocks Worth Considering
Other better-ranked stocks that look promising include
Spartan Stores Inc.
) carrying a Zacks Rank #1 (Strong Buy) and Kroger holding a Zacks
Rank #2 (Buy).
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