Whole Foods hitting on limits of growth?

11/07/2013 03:37:00 PM
Tom Karst

Tom KarstThe postmortem on the Whole Foods earnings report is mixed. In its quarterly report, the company said comparable store sales increased 5.9% in the quarter that ended Sept. 29. Identical store sales, excluding five relocations and two expansions, were up 5.5%.

For the fiscal year that ended Sept. 29, Whole Foods reported comparable store sales increased 6.9%; identical store sales, excluding six relocations and four expansions, increased 6.6%, according to the financial.

 But revised guidance for fiscal year 2014 pulled the stock price down after the financials were issued.

Reuters coverage noted greater competitive pressure for the organic dollar from Kroger, Costco and even Wal-Mart has taken a toll.

 On the sunny side of the street, Whole Foods opened a best-ever 12 stores in the fourth quarter, the quarterly report said, resulting in a record 32 store openings in the fiscal year. For the upcoming year, Whole Foods said that in the first quarter of fiscal year 2014, WF has opened five stores so far and expects to open five additional stores. The Company currently has 367 stores open totaling approximately 13.9 million square feet. Estimated store openings for fiscal years 2014 and 2015 will range between 33 and 38 stores in 2014 and between 35 and 40 for fiscal year 2015.

 “Over the long term, the Company considers 1,000 stores to be a reasonable indication of its market opportunity in the United States as the Whole Foods Market brand continues to strengthen, consumer demand for natural and organic products continues to increase, and the company’s flexibility on new store size opens up additional market opportunities,” the report said. WF believes Canada and the United Kingdom hold “great promise” as well.

 The Whole Foods earning calls transcript on Seeking Alpha saw commentary on record fourth quarter results, average weekly sales per store of $694,000, gross margin of 35.6%, direct store expenses of 25.4% of sales, a store contribution profit of 10.3%, operating margin of 6.4%, But the call did say growth trends were not quite as robust as the last two years in the third quarter. Economic uncertainty may be stalling some growth in “crossover consumers,” but WF core customers appear resilient, WF executives said.

 For fiscal year 2014, WF now expects sales growth of 11% to 13%, comparable store sales growth of 5.5% to 7%, identical store sales growth of 5% to 6.5%. John Mackey tried to diffuse the disappointment in the “reset” expectations, which were 1% lower than previous forecasts.

 “Yes, food retailing is more competitive than ever and with the growing demand for fresh healthy foods, it seems like everyone is adding to or expanding their offering of natural and organic products. However, we believe the strength of these numbers highlights our ability to innovate and to compete the unique power of our brand and the excitement our stores create within this community. With 47 new leases signed over the last 12 months, we have 94 stores in our development pipeline and see demand for 1,000 Whole Foods market stores in the United States alone,” he said.

 Just as some folks would never think to go in an Aldi, others may not think that Whole Foods is for them. As competitors like Sprouts and The Fresh Market start to nibble at their core customers, the rising number of Whole Food stores will force the chain to compete for the middle of the consumer market, despite the limp economy. That effort to increase their customer base may increase pressure on organic suppliers to lower prices and could open up opportunities for greater sales of conventional produce at Whole Foods.



Comments (0) Leave a comment 

Name
e-Mail (required)
Location

Comment:

characters left

Feedback Form
Leads to Insight