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Factors That Set the Tone for Whole Foods (WFM) Q1 Earnings

Of late, grocery chains have been going through a rough patch. Analysts believe that the industry-wide weakness is hurting the margins of supermarket chains. Stiff competition, food price deflation, an aggressive promotional environment and waning store traffic are the primary headwinds plaguing these providers of daily need items.

The Zacks categorized Retail-Supermarkets industry has declined 3% in the past three months, and has underperformed both the S&P 500 and the Dow Jones Industrial Average that gained 10.2% and 12.3%, respectively. In fact, it also underperformed the broader Retail-Wholesale sector that increased 2.6%.

Per the latest Earnings Trends report as of Feb 3, Retail-Wholesale sector is likely to witness earnings decline of 1.4% but revenue growth of 4.8%. Let's take a closer look as to how Whole Foods Market, Inc.WFM is expected to contribute to the sector's performance.

Despite prevailing headwinds, Whole Foods has been quite resilient and increased roughly 3% in the said time frame, clearly outpacing the industry. However, not much movement has been noticed in the stock ahead of the first quarter of fiscal 2017 earnings release, which is slated to be announced on Feb 8. In the past five days, the stock has marginally edged down 0.4%.

Which Way are Estimates Treading?

In the last quarter, Whole Foods recorded a positive earnings surprise of 16.7%. In the trailing four quarters, the company outperformed the Zacks Consensus Estimate by an average of 9.8%. Let's look at earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company.

The current Zacks Consensus Estimate for the quarter under review has been stable in the last seven days but has increased by a penny over the past 30 days, and is currently pegged at 40 cents, down from 46 cents reported in the year-ago quarter. Analysts polled by Zacks expect revenues of $4,985 million, up over 3% from prior-year period. Well the obvious question that comes to mind, will Whole Foods be able to post positive earnings surprise in the quarter to be reported.

Strategic Initiatives Raise Optimism

Whole Foods has been revamping its pricing strategy and concentrating on value offerings in view of heightened competition as more companies are entering and expanding their presence in the Organic & Natural food business. These players include The Kroger Co. KR , Sprouts Farmers Market, Inc. SFM and Wal-Mart Stores Inc. WMT .

We note that this Austin, TX-based company is leaving no stone unturned to reach its target customers, whether through national marketing and branding campaigns, home delivery services, store expansion or the adoption of a digital route such as the launch of digital coupon within its Whole Foods Market mobile app. Moreover, it introduced a new "uniquely-branded store concept", "365 by Whole Foods Market". The new chain is equipped with innovative technology, compelling products at value prices and a modern look to target millennials as well as stave off competition.

Whole Foods Market, Inc. Price, Consensus and EPS Surprise

Whole Foods Market, Inc. Price, Consensus and EPS Surprise | Whole Foods Market, Inc. Quote

Concerns

Whole Foods has been grappling with waning comparable-store sales (comps) performance since the past five quarters. Comps declined 2.6% in fourth-quarter fiscal 2016. Comps had fallen 2.6%, 3% and 1.8% in the third, second and first quarters fiscal 2016, respectively, and 0.2% in the final quarter fiscal 2015. During the first five weeks of first-quarter fiscal 2017, comps dropped 1.6%.

Further, we noticed that despite ending fiscal 2016 with a positive earnings surprise, Whole Foods failed to contain the decline in the bottom line. After declining 14% in the third quarter, earnings per share fell 6.7% in the final quarter fiscal 2016.

What the Zacks Model Unveils?

Well our proven model does not conclusively show that Whole Foods is likely to beat earnings estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You can see the complete list of today's Zacks #1 Rank stocks here .

Whole Foods has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 40 cents. The company's Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise. You may uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

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Wal-Mart Stores, Inc. (WMT): Free Stock Analysis Report

Kroger Company (The) (KR): Free Stock Analysis Report

Sprouts Farmers Market, Inc. (SFM): Free Stock Analysis Report

Whole Foods Market, Inc. (WFM): Free Stock Analysis Report

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


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

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