Whole Foods Downgraded to Neutral
On Feb 14, 2013, we downgraded our recommendation on
Whole Foods Market, Inc.
), the natural and organic foods supermarket, to Neutral based on
the company's cautious stance for the remainder part of fiscal
2013. The stock currently holds a Zacks Rank #3 (Hold).
Why the Downgrade?
Whole Foods has been witnessing downward estimate revisions
since the company came out with its first-quarter fiscal 2013
results and provided a conservative outlook for the remaining
quarters. The company's first-quarter earnings of 78 cents a
share jumped 20% year over year and came a penny ahead of the
Zacks Consensus Estimate. Revenue of $3,856 million rose 13.7%
but fell short of the Zacks Consensus Estimate of $3,875
Management hinted that the rate of growth in earnings per
share in the remaining part of the fiscal 2013 would not be at a
similar level as that of the first quarter as gross margin would
remain under pressure, primarily in the second and third
quarters. This is due to tough year-over-year comparison, along
with competitive pricing strategy to gain market share against
other supermarket chains.
The Zacks Consensus Estimates for fiscal 2013 fell by 1% to
$2.87 per share over the last 7 days. For the second and third
quarter, the Zacks Consensus Estimates dropped by 1.4% and 1.3%
to 73 cents and 74 cents, respectively, over the same time
Causes for Concern
We observe that comparable and identical store sales growth
trend is softening. Whole Foods said that comparable-store sales
rose 7.2% in the quarter, down from 8.7% in the prior-year
quarter and from 8.5% in the previous quarter. Identical-store
sales climbed 7.1% in the quarter compared with 8.2% in the
year-ago quarter and 8.3% in the preceding quarter.
Consequently, Whole Foods narrowed its sales outlook. Whole
Foods now projects an escalation of 10% to 11% in total sales
compared with 10% to 12% growth forecasted earlier.
Other Stocks to Consider
There are certain other stocks that warrant a look, such as
Flowers Foods, Inc.
J&J Snack Foods Corp.
), both of which hold a Zacks Rank #1 (Strong Buy) and are
expected to continue with their upbeat performances. Another
stock that should be merited is
The Hershey Company
), which holds a Zacks Rank #2 (Buy).
FLOWERS FOODS (FLO): Free Stock Analysis
HERSHEY CO/THE (HSY): Free Stock Analysis
J&J SNACK FOODS (JJSF): Free Stock Analysis
WHOLE FOODS MKT (WFM): Free Stock Analysis
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