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Whole Foods Market, Inc. posted first-quarter fiscal 2017 adjusted earnings of 39 cents a share that came in line with the Zacks Consensus Estimate but declined 15.2% from 46 cents delivered in the year-ago quarter. The company’s top-line improved 1.9% year over year to $4,918 million in the quarter but lagged the Zacks Consensus Estimate of $4,985 million for the second straight quarter.
Whole Foods witnessed a 2.4% dip in comparable-store sales (comps) during the quarter, following a 2.6% decline in the preceding quarter. This was the sixth consecutive quarter when comps have declined. During the first three weeks of the second quarter, comps slipped 3.2%.
Lower-than-expected sales compelled management to trim sales and earnings forecasts for the fiscal year. Further, Whole Foods informed that it no longer foresees potential for opening over 1,200 stores. Analysts believe stiff competition, food price deflation, an aggressive promotional environment and waning store traffic are the primary headwinds with which the sector is grappling.
Shares of this Austin, TX-based company fell 1.5% during after-market trading hours yesterday. We noticed that in the past one year, the stock has declined 2.3% compared with the Zacks categorized Retail-Supermarkets industry that jumped 1.2%.
Nevertheless, 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 - Free Report) , Sprouts Farmers Market, Inc. (SFM - Free Report) and Wal-Mart Stores Inc. (WMT - Free Report) .
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 and 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, Whole Foods has been working on lowering prices, upgrading technology and containing costs. However, costs related to the implementation of category management will hurt operating margin by 85 basis points during the fiscal year.
During the quarter under review, adjusted EBITDA fell 6.5% to $373 million, while adjusted EBITDA margin contracted 70 basis points to 7.6%. Whole Foods envisions EBITDA margin of approximately 8% during fiscal 2017.
Store Update
Whole Foods currently operates 469 stores in the U.S., Canada and U.K. The company opened 13 outlets during the reported quarter, comprising two relocations. So far in the second quarter, the company has opened three stores, including one relocation and plans to open three more outlets, including one relocation. Further, the company shuttered one commissary kitchen and plans to close nine outlets and the last two remaining commissary kitchens during the quarter.
It projects square footage growth of about 5% net of closures for fiscal 2017, representing approximately 30 new outlets, including up to six relocations and three “365” outlets.
Other Financial Details
Whole Foods ended the quarter with cash and cash equivalents of $350 million, total long-term debt and capital lease obligations of $1,051 million and shareholders’ equity of $3,292 million.
During the quarter, Whole Foods generated cash flow from operations of $284 million and incurred capital expenditures of $245 million, resulting in free cash flow of $39 million. Management now anticipates fiscal 2017 capital expenditures to be 4% of sales. The company paid $43 million in quarterly dividends.
Guidance at a Glance
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. The current Zacks Consensus Estimate is pegged at $1.45, which is likely to witness correction in the coming days.
Earlier, Whole Foods had envisioned sales growth of 2.5–4.5% and comps to be flat to down 2% for fiscal 2017. Management projected earnings per share of $1.42 or more for the fiscal year.
Whole Foods currently carries a Zacks Rank #3 (Hold).
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Whole Foods (WFM) Meets Q1 Earnings, Lags Sales; Trims View
Whole Foods Market, Inc. posted first-quarter fiscal 2017 adjusted earnings of 39 cents a share that came in line with the Zacks Consensus Estimate but declined 15.2% from 46 cents delivered in the year-ago quarter. The company’s top-line improved 1.9% year over year to $4,918 million in the quarter but lagged the Zacks Consensus Estimate of $4,985 million for the second straight quarter.
Whole Foods witnessed a 2.4% dip in comparable-store sales (comps) during the quarter, following a 2.6% decline in the preceding quarter. This was the sixth consecutive quarter when comps have declined. During the first three weeks of the second quarter, comps slipped 3.2%.
Lower-than-expected sales compelled management to trim sales and earnings forecasts for the fiscal year. Further, Whole Foods informed that it no longer foresees potential for opening over 1,200 stores. Analysts believe stiff competition, food price deflation, an aggressive promotional environment and waning store traffic are the primary headwinds with which the sector is grappling.
Shares of this Austin, TX-based company fell 1.5% during after-market trading hours yesterday. We noticed that in the past one year, the stock has declined 2.3% compared with the Zacks categorized Retail-Supermarkets industry that jumped 1.2%.
Nevertheless, 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 - Free Report) , Sprouts Farmers Market, Inc. (SFM - Free Report) and Wal-Mart Stores Inc. (WMT - Free Report) .
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 and 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, Whole Foods has been working on lowering prices, upgrading technology and containing costs. However, costs related to the implementation of category management will hurt operating margin by 85 basis points during the fiscal year.
During the quarter under review, adjusted EBITDA fell 6.5% to $373 million, while adjusted EBITDA margin contracted 70 basis points to 7.6%. Whole Foods envisions EBITDA margin of approximately 8% during fiscal 2017.
Store Update
Whole Foods currently operates 469 stores in the U.S., Canada and U.K. The company opened 13 outlets during the reported quarter, comprising two relocations. So far in the second quarter, the company has opened three stores, including one relocation and plans to open three more outlets, including one relocation. Further, the company shuttered one commissary kitchen and plans to close nine outlets and the last two remaining commissary kitchens during the quarter.
It projects square footage growth of about 5% net of closures for fiscal 2017, representing approximately 30 new outlets, including up to six relocations and three “365” outlets.
Other Financial Details
Whole Foods ended the quarter with cash and cash equivalents of $350 million, total long-term debt and capital lease obligations of $1,051 million and shareholders’ equity of $3,292 million.
During the quarter, Whole Foods generated cash flow from operations of $284 million and incurred capital expenditures of $245 million, resulting in free cash flow of $39 million. Management now anticipates fiscal 2017 capital expenditures to be 4% of sales. The company paid $43 million in quarterly dividends.
Guidance at a Glance
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. The current Zacks Consensus Estimate is pegged at $1.45, which is likely to witness correction in the coming days.
Earlier, Whole Foods had envisioned sales growth of 2.5–4.5% and comps to be flat to down 2% for fiscal 2017. Management projected earnings per share of $1.42 or more for the fiscal year.
Whole Foods currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>