It has been about a month since the last earnings report for Whole Foods Market, Inc. . Shares have lost about 4.3% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Whole Foods Q2 Earnings Meet, Sales Beat Estimates
Whole Foods Market posted second-quarter fiscal 2017 adjusted earnings of $0.37 per share that came in line with the Zacks Consensus Estimate but declined roughly 16% from $0.44 delivered in the year-ago quarter. Top line improved 1.1% year over year to $3,737 million and came marginally ahead of the Zacks Consensus Estimate of $3,725 million, after missing the same in the preceding two quarters.
The company witnessed a 2.8% dip in comparable-store sales (comps) during the quarter, following a 2.4% decline in the preceding quarter. This was the seventh consecutive quarter of comps decline.
Dismal comps performance compelled management to trim sales and earnings forecasts for the fiscal year. Analysts believe stiff competition, food price deflation, an aggressive promotional environment and waning store traffic are the primary headwinds plaguing the sector. The company, which appointed Keith Manbeck as its new CFO and named five new board members, also announced turnaround strategy and cost-containment plan.
During the quarter under review, adjusted EBITDA fell 10.5% to $316 million, while adjusted EBITDA margin contracted 110 basis points to 8.5%. Whole Foods envisions EBITDA margin of approximately 8% during fiscal 2017.
Store Update
Whole Foods currently operates over 460 stores in the U.S., Canada and U.K. The company opened six outlets during the reported quarter, comprising two relocations and shuttered nine stores. So far in the third quarter, the company has opened three outlets, including one Whole Foods Market 365 store. The company plans to open three more stores, including one relocation. It projects square footage growth of about 5% net of closures for fiscal 2017, representing approximately 30 new outlets, including up to seven relocations and three “365” outlets.
Other Financial Details
Whole Foods ended the quarter with cash and cash equivalents of $412 million, total long-term debt and capital lease obligations of $1,049 million and shareholders’ equity of $3,359 million.
During the quarter, the company generated cash flow from operations of $340 million and incurred capital expenditures of $131 million, resulting in free cash flow of $209 million. Management now anticipates fiscal 2017 capital expenditures to be about 4% of sales. The company paid $45 million in quarterly dividends.
The company hiked its quarterly dividend by 29% to $0.18 per share and also announced a new share buyback program of $1.25 billion that replaces the existing one.
Strategic Initiatives
Whole Foods has been revamping pricing strategy, concentrating on value offerings and affinity programs, and unifying purchasing structure in view of heightened competition as more companies are entering and expanding their presence in the Organic & Natural food business. The company also expects to generate $300 million additional cost savings by fiscal 2020 on the back of supply chain efficiencies and optimum utilization and standardization of labor force.
We note that the company is leaving no stone unturned to reach 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 along with a modern look to target millennials and stave off competition.
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. For quite some time now, the company has been working on lowering prices, upgrading technology and containing costs. Management expects to implement category management across all U.S. stores by fiscal 2018.
Guidance at a Glance
Taking into account the strategic endeavors, management expects to deliver positive comps and register earnings growth by fiscal 2018. For fiscal 2020, Whole Foods envisions total sales of more than $18 billion, comps growth of over 2%, EBITDA margin of above 9.5% and cash flow from operations of over $1.2 billion.
Whole Foods now projects sales growth of 1% or above and expects comps to decline as much as 2.5% for fiscal 2017. Management now envisions earnings per share of $1.30 or more for the fiscal year. Earlier, Whole Foods had anticipated sales growth of 1.5% or above and earnings per share of $1.33 or more for the fiscal year.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.
Whole Foods Market, Inc. Price and Consensus
VGM Scores
At this time, the stock has a great Growth Score of 'A', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
While estimates have been moving downward, the magnitude of the revision is net zero. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Whole Foods (WFM) Down 4.3% Since Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Whole Foods Market, Inc. . Shares have lost about 4.3% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Whole Foods Q2 Earnings Meet, Sales Beat Estimates
Whole Foods Market posted second-quarter fiscal 2017 adjusted earnings of $0.37 per share that came in line with the Zacks Consensus Estimate but declined roughly 16% from $0.44 delivered in the year-ago quarter. Top line improved 1.1% year over year to $3,737 million and came marginally ahead of the Zacks Consensus Estimate of $3,725 million, after missing the same in the preceding two quarters.
The company witnessed a 2.8% dip in comparable-store sales (comps) during the quarter, following a 2.4% decline in the preceding quarter. This was the seventh consecutive quarter of comps decline.
Dismal comps performance compelled management to trim sales and earnings forecasts for the fiscal year. Analysts believe stiff competition, food price deflation, an aggressive promotional environment and waning store traffic are the primary headwinds plaguing the sector. The company, which appointed Keith Manbeck as its new CFO and named five new board members, also announced turnaround strategy and cost-containment plan.
During the quarter under review, adjusted EBITDA fell 10.5% to $316 million, while adjusted EBITDA margin contracted 110 basis points to 8.5%. Whole Foods envisions EBITDA margin of approximately 8% during fiscal 2017.
Store Update
Whole Foods currently operates over 460 stores in the U.S., Canada and U.K. The company opened six outlets during the reported quarter, comprising two relocations and shuttered nine stores. So far in the third quarter, the company has opened three outlets, including one Whole Foods Market 365 store. The company plans to open three more stores, including one relocation. It projects square footage growth of about 5% net of closures for fiscal 2017, representing approximately 30 new outlets, including up to seven relocations and three “365” outlets.
Other Financial Details
Whole Foods ended the quarter with cash and cash equivalents of $412 million, total long-term debt and capital lease obligations of $1,049 million and shareholders’ equity of $3,359 million.
During the quarter, the company generated cash flow from operations of $340 million and incurred capital expenditures of $131 million, resulting in free cash flow of $209 million. Management now anticipates fiscal 2017 capital expenditures to be about 4% of sales. The company paid $45 million in quarterly dividends.
The company hiked its quarterly dividend by 29% to $0.18 per share and also announced a new share buyback program of $1.25 billion that replaces the existing one.
Strategic Initiatives
Whole Foods has been revamping pricing strategy, concentrating on value offerings and affinity programs, and unifying purchasing structure in view of heightened competition as more companies are entering and expanding their presence in the Organic & Natural food business. The company also expects to generate $300 million additional cost savings by fiscal 2020 on the back of supply chain efficiencies and optimum utilization and standardization of labor force.
We note that the company is leaving no stone unturned to reach 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 along with a modern look to target millennials and stave off competition.
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. For quite some time now, the company has been working on lowering prices, upgrading technology and containing costs. Management expects to implement category management across all U.S. stores by fiscal 2018.
Guidance at a Glance
Taking into account the strategic endeavors, management expects to deliver positive comps and register earnings growth by fiscal 2018. For fiscal 2020, Whole Foods envisions total sales of more than $18 billion, comps growth of over 2%, EBITDA margin of above 9.5% and cash flow from operations of over $1.2 billion.
Whole Foods now projects sales growth of 1% or above and expects comps to decline as much as 2.5% for fiscal 2017. Management now envisions earnings per share of $1.30 or more for the fiscal year. Earlier, Whole Foods had anticipated sales growth of 1.5% or above and earnings per share of $1.33 or more for the fiscal year.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.
Whole Foods Market, Inc. Price and Consensus
Whole Foods Market, Inc. Price and Consensus | Whole Foods Market, Inc. Quote
VGM Scores
At this time, the stock has a great Growth Score of 'A', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
While estimates have been moving downward, the magnitude of the revision is net zero. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.