Investors hope for revenue growth at Whole Foods

The upscale grocer, which reports quarterly earnings Wednesday, has set a recent goal of having 1,200 locations.

By Benzinga Feb 11, 2014 3:32PM

Caption: Produce on a Whole Foods paper bag
Credit: (© Elise Amendola/AP)By Nelson Hem


Whole Foods Market (WFM), which was a top stock pick on Jim Cramer's "Mad Money" last week, is scheduled to report its fiscal first-quarter results Wednesday after the markets close.


Investors will be looking to see if the company manages to keep up its revenue numbers despite cutting prices due to increased competition, and they will have an eye on sales growth. Whole Foods may also say something about its recently raised goal of having 1,200 locations.


Analysts on average predict that Whole Foods will report its revenue for the quarter rose more than 11 percent year-over-year to $4.29 billion. Earnings of $0.44 per share are also in the consensus forecast. That would be up from a reported profit of $0.39 per share in the comparable period of last year and $0.32 in the fourth quarter.


Analysts seem to be sure about their earnings per share (EPS) estimate, as the consensus has not changed in the past 60 days, and individual estimates only range from $0.41 to $0.47 per share. In the past four quarters, Whole Foods has exceeded EPS expectations by a penny or two.


The company said in the fourth-quarter report: "We reported record fourth quarter operating results which contributed to the best fiscal year performance in our company's 35-year history." It opened 12 stores in the period, and raised the quarterly dividend. But the stock dropped about 11 percent after that report on disappointing guidance.


Looking ahead to the current quarter, the analysts' consensus forecast so far calls for year-over-year EPS growth similar to the first quarter, as well as revenues that are about 12 percent higher. And the full-year forecast thus far calls for EPS and revenues both to be up more than 12 percent, relative to the previous year.


The company

Whole Foods Market is a retailer of natural and organic foods, as well as lifestyle and household products. At the time of its most recent quarterly report, the company operated 367 supermarket stores in the United States, Canada and the United Kingdom.


This S&P 500 component was founded in 1978 and is headquartered in Austin, Texas. The company has a market capitalization of more than $20 billion. Founder John Mackey is one co-chief executive officer, and Walter E. Robb III has been the other since May 2010.


Competitors include Kroger, Safeway and Sprouts Farmers Market. Declining earnings and revenues for the most recent quarter are expected from Kroger and Safeway. Smaller Sprouts has been public less than a year, and EPS for the current quarter are forecast to have declined sequentially.


During the three months that ended in January, Whole Foods boosted its dividend by 20 percent, cut its outlook for 2014, tested a discount card for shoppers, raised its U.S. store goal to 1,200 and announced that it would phase out Chobani products from its shelves.

Performance

Whole Foods has a long-term EPS growth forecast of more than 16 percent, but its price-to-earnings (P/E) ratio is higher than the industry average. The operating margin also is greater than the industry average, and the return on equity is almost 15 percent. The dividend yield is about 0.9 percent.


The number of Whole Foods shares sold short, as of the most recent settlement date, represents almost three percent of the float. That short interest is more than three times higher than last February. It would take more than two days to close out all of the short positions.


Of the 29 analysts surveyed by Thomson/First Call who follow the stock, 14 recommend buying shares and the rest rate the stock at Hold. The mean price target, or where the analysts expect the stock to go, represents more than 11 percent potential upside.


The share price is more than six percent lower than 90 days ago. The 50-day and 200-day moving averages formed a "death cross" last week. Over the past six months, the stock has outperformed Kroger (KR) and Sprouts (SFM) but underperformed Safeway (SWY) and the S&P 500.


At the time of this writing, the author had no position in the mentioned equities.


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