




MANY MEN WANTED TO LAY ME DOWN, BUT FEW WANTED TO LIFT ME UP
-Eartha Kitt





for Dollar Den purposes ...
Whole Foods recently lost investors a s#!tload of money !!!
Why did this happen ? Arguably lack of profitability due to high employee labor costs, plus lack of sales growth as fewer Americans can afford the VERY premium price of Whole Foods products.
News from buzzfeed immediately following the most recent ( lack of ) earnings announcement ...
(snip)"Shares of Whole Foods stock closed Wednesday at $38.93 each, down significantly from 24 hours prior after its earnings presentation revealed the company had changed its pricing strategy. The flatlining growth comes as a result of mounting competition in the organic grocery space, which some analysts have said Whole Foods had failed to adequately account for in recent years.
The collapse of Whole Foods’s stock, which was trading around the $50-per-share mark in recent days, dragged down the company’s organic grocery peers on Wednesday as well. Shares of Sprout Farmers Market dipped below the $26 mark after closing Tuesday at $31.09 each. And The Fresh Market closed Tuesday around the $36-per-share mark before sinking to a Wednesday low of $31.16 per share.
As part of its earnings call, Whole Foods announced a pricing strategy that will significantly bring down its earnings-per-share estimates over the next few years. Sterne Agee analyst Chuck Grom, who downgraded his rating of Whole Foods to “neutral” on the heels of the earnings, wrote in a note that the company’s forecast is “a sobering reminder of how competitive the niche grocery space is today” and said that there were more potential concerns for Whole Foods in the years to come.
“We’re more convinced today that because of the company’s ‘Whole Paycheck’ image, that simply lowering prices won’t be enough to stimulate demand and improve unit volume,” Grom wrote. “Said differently, we firmly believe that WFM will need to get very loud with its price message, which would almost certainly lead to lower operating margins.”(snip)





Yea. Thanks, Mel.! In my area, there are now several WF's, Trader Joes, & now Mariano's (Chicago area only)http://www.marianos.com/..
Mariano's seems to pattern itself after WF..
MANY MEN WANTED TO LAY ME DOWN, BUT FEW WANTED TO LIFT ME UP
-Eartha Kitt





^^^ well, from an investor's standpoint, there are now several other 'organic' food retailers trying to directly compete with Whole Foods ... who had previously enjoyed a near 'monopoly' on this upscale market niche. Given that Whole Foods has been supporting comparatively high retail price levels ( which the competitors could take advantage of, with a tiny discount ), and also given that the labor costs paid by the competitors are far lower than those paid by Whole Foods, future profit margins thus stock valuations for the competitors are likely to fare better for Whole Foods itself.
For example, while Mariano's parent company Roundy's recently took a similar share price 'pounding' due to fallout from Whole Food's poor profits announcement, the current share price of RNDY at $5.41 with an 8% plus effective dividend payout makes Roundy's look like a pretty attractive buy right now. I might have to snag some shares myself as a short term dividend play !
However, virtually every analyst is panning RNDY for the longer term ... see . This is pretty much based on the premise that fewer and fewer Americans can actually afford to keep paying high price premiums for 'organic' foods in the future, on top of the fact that this 'shrinking pie' must now also be 'cut into more pieces' i.e. new competitors.
Instead, a couple of analysts are raising the issue that those Americans who can no longer afford to shop at Whole Foods etc. will be forced to transition to less expensive grocery retailers ... but will still retain their 'taste' for upscale products. Thus rising sales / profits and rising stock prices are forecast for 'quality' name brands Nestle, Kraft, Kellogg, etc. which are carried by those less expensive grocery retailers. See Probability of rising sales / profits is aided by these 'quality' name brand food companies expanding sales in developing countries, as well as via cost-cutting, via acquisition of smaller competitors etc.
Last edited by Melonie; 06-11-2014 at 12:30 PM.





That's only for investors who invested in Whole Foods one year ago. Investors who invested 5 years ago made out pretty well.
http://chart.finance.yahoo.com/z?s=W...n-US®ion=US
Whole Foods is very profitable compared to other food and staples retailers.
Whole Foods profit margin for 1st qtr 2014 was 4.27%.
http://ycharts.com/companies/WFM/profit_margin
This is a bit old, but in 2012, the average profit margin for this sector for the S & P 500 was 2.9%.
http://www.businessinsider.com/secto...-sp-500-2012-8





true ... but ancient history from the standpoint of new investors. As you know, stock share valuations for 'hot ticket' companies like Whole Foods are sensitive to projected future growth and earnings per share expectations. Whole Foods growth projections are now down, thanks to new competitors entering their niche. Whole Foods future earnings per share projections are mediocre, due to the probability that the new competitors with lower labor costs will force Whole Foods profit margin to be compressed etc.
from
(snip)"Presenting Whole Foods: the luxury grocery chain moments ago reported revenues of $3.32 billion, missing the $3.35 billion expected, and EPS which also missed expectations of $0.41, instead printing at $0.38. Adding insult to injury, WFM also cut comp store sales guidance lowering its previous fiscal year comp store guidance from 5.5%-6.2% to 5.0%-5.5%, cutting sales growth from 11-12% to 10.5%-11%, and also cut EBITDA from $1.32-$1.37 billion to $1.29-$1.32 billion.
So yes - sadly for WFM, unlike every other company, it took no charges, and had no add-backs to add to give a far rosier non-GAAP EPS number, which in itself is admirable. And while we commiserate with having a weaker consumer to sell to, that too was perfectly expected now that the economy now only ground to a halt but in Q1 declined.(snip)
The important take-away for Dollar Den investors is that, while Whole Foods is still profitable, and while Whole Foods is still investing in new stores in an effort to grow market share, this doesn't really matter much. What DOES matter a whole lot more is that institutional investors, hedge fund investors etc. were unhappy with Whole Foods profit margins being less positive, and unhappy with Whole Foods less positive growth as measured by 'same store' sales, thus they started selling and quickly depressed WFM's share price by more than 10%.
Or put another way, while Whole Foods business 'fundamentals' are actually still fairly healthy, 'fundamentals' matter very little these days as compared to 'momentum' and investor 'sentiment'. Obviously, Whole Foods stock shares are not alone in this regard.
And, arguably, Whole Foods now faces a whole bunch of difficult decisions ... one of which will be whether or not to increase company repurchases of their own stock shares to again 'pump up' their stock share price and thus regain the favor of the institutional investors and hedge funds. But if they do this, the company will have to pay for it somehow ... i.e. not building as many new stores, cutting labor costs, etc.
(snip)Which perhaps was its biggest failing as well - WFM reported that "year to date, the Company has produced $619 million in cash flow from operations and invested $362 million in capital expenditures, of which $207 million related to new stores. This resulted in free cash flow of $257 million. In addition, the Company has paid $82 million in quarterly dividends to shareholders and repurchased $117 million of common stock."
Alas, this is nowhere near enough shareholder friendly activity to keep investors happy in a New Normal in which buybacks tend to be far greater in amount than CapEx spending"(snip)
Last edited by Melonie; 06-21-2014 at 06:36 PM.
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