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What are the Headwinds Affecting Whole Foods' (WFM) Stock?

Stiff competition, food price deflation, an aggressive promotional environment and waning store traffic are the primary headwinds plaguing Whole Foods Market, Inc.WFM . These have hurt the stock's performance that has underperformed the industry in the past three months.We noticed that in the said period, the stock has declined 4% compared with the Zacks categorized Retail-Supermarkets industry that increased 1.9%.

Dismal Performance

The company's first-quarter fiscal 2017 results also reflected the impact of these factors. The top line lagged the estimate for the second consecutive quarter, while the bottom line declined for the third quarter in row. Comparable-store sales (comps) also declined for the sixth straight quarter. Lower-than-expected sales compelled management to trim forecasts. Further, Whole Foods, which carries a Zacks Rank #4 (Sell), informed that it no longer foresees potential for opening over 1,200 stores. ( Whole Foods Meets Q1 Earnings, Lags Sales; Trims View )

Whole Foods now projects sales growth of 1.5% or above and expects comps to decline as much as 2.5% for fiscal 2017. Management now envisions earnings per share of $1.33 or more for the fiscal year. Earlier, the company had envisioned sales growth of 2.5-4.5% and comps to be flat to down 2%, while projected earnings per share of $1.42 or more for the fiscal year.

Analysts polled by Zacks are less constructive on the stock. In the past 60 days, the Zacks Consensus Estimate of $1.34 and $1.36 for fiscal 2017 and fiscal 2018 has declined 11 cents and 14 cents, respectively. Moreover, the Zacks Consensus Estimate for the second quarter has dropped 4 cents to 37 cents over the same time frame.

Are There Any Green Pastures?

Needless to say, management at Whole Foods is not sitting idle. Whole Foods has been revamping 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 . Moreover, it introduced a new "uniquely-branded store concept", "365 by Whole Foods Market".

With the launch of the "365" smaller format sister chain, Whole Foods intends to turn things around in its favor. However, analysts are concerned whether the new store model will prove to be a game changer and aid Whole Foods retain market share amid stiff competition without cannibalizing its own business.

Where to Focus?

The grocery business is highly competitive and fragmented. Moreover, with more companies entering as well as expanding their presence, it is becoming tough for the existing players to retain their market share. So, when it comes to the question of a "Healthy Portfolio", it would be prudent for investors to look beyond Whole Foods, at least for the time being. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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

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

Kroger Company (The) (KR): 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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