Balanced View of Whole Foods - Analyst Blog

By Zacks Equity Research,

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We issued an updated research report on Whole Foods Market, Inc. ( WFM ) 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 outlook, thereafter.

Increasing competition and aggressive pricing weighed upon the company's performance as more and more companies, such as The Kroger Co. ( KR ) and Sprouts Farmers Market, Inc. ( SFM ) 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 million.

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 comparable-store sales.

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. ( SPTN ) carrying a Zacks Rank #1 (Strong Buy) and Kroger holding a Zacks Rank #2 (Buy).

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KROGER CO (KR): Free Stock Analysis Report

SPROUTS FMR MKT (SFM): Free Stock Analysis Report

SPARTAN STORES (SPTN): Free Stock Analysis Report

WHOLE FOODS MKT (WFM): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: KR , SFM , SPTN , WFM

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