It has been about a month since the last earnings report for Whole Foods Market, Inc. . Shares have lost about 3.5% 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 its most recent earnings report in order to get a better handle on the important drivers.
Whole Foods Meets Q1 Earnings, Lags Sales; Trims View
Whole Foods Market, Inc. posted first-quarter fiscal 2017 adjusted earnings of $0.39 per share that came in line with the Zacks Consensus Estimate but declined 15.2% from $0.46 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.
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.
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.
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.
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. In the past month, the consensus estimate has shifted lower by 8.3% due to these changes.
VGM Scores
At this time, Whole Foods' stock has a great Growth Score of 'A', though it is lagging a lot on the momentum front with a '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
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #4 (Sell). We are looking for a below average return from the stock in the next few months.
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Why Is Whole Foods (WFM) Down 3.5% Since the Last Earnings Report?
It has been about a month since the last earnings report for Whole Foods Market, Inc. . Shares have lost about 3.5% 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 its most recent earnings report in order to get a better handle on the important drivers.
Whole Foods Meets Q1 Earnings, Lags Sales; Trims View
Whole Foods Market, Inc. posted first-quarter fiscal 2017 adjusted earnings of $0.39 per share that came in line with the Zacks Consensus Estimate but declined 15.2% from $0.46 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.
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.
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.
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.
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. In the past month, the consensus estimate has shifted lower by 8.3% due to these changes.
Whole Foods Market, Inc. Price and Consensus
Whole Foods Market, Inc. Price and Consensus | Whole Foods Market, Inc. Quote
VGM Scores
At this time, Whole Foods' stock has a great Growth Score of 'A', though it is lagging a lot on the momentum front with a '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
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #4 (Sell). We are looking for a below average return from the stock in the next few months.