North America

Earnings Preview: Whole Foods Market Q2 2017 (WFM)

By: Craig Bowles

Overview

Whole Foods Market, Inc. (WFM) is slated to report 2Q 2017 earnings after the bell on Wednesday, May 10th. The earnings release is expected after 4:00 p.m. ET with a 5:00 webcast available through Whole Foods Investor Relations. The company represents grocery and health food industries on the S&P 500 Index.

wfmP

Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS): The company normally reports a “clean” earnings number but will occasionally report an adjusted number that is comparable the consensus (as it did last qtr). The Street estimate is $0.37 with a range of $0.33 to $0.38. (Source: Yahoo! Finance) Consensus was $0.41 three months ago.
  • Revenues: Analysts expect an increase of 0.8% y/y to $3.73 bln (range $3.68 bln to $3.77 bln).
  • Comparable Store Sales: Consensus is -3.1%.

Earnings Per Share (EPS), Revenues, and Comparable Store Sales Guidance (3Q2017 and FY2017):

  • Earnings Per Share (EPS) Guidance (3Q2017): The street estimate is $0.35 (range $0.32 to $0.38).
  • Earnings Per Share (EPS) Guidance (FY2017): Company guidance is $1.33 (down from $1.42) or higher. The street estimate is $1.33.
  • Revenue Guidance (FY2017): Company guidance is y/y growth of 1.5% or greater (down from 2.5% to 4.5%). Analysts expect an increase of 1.4% y/y to $15.95 bln (range $15.81 bln to $16.25 bln).
  • Comparable Store Sales Guidance (FY2017): Company guidance is y/y growth of -2.5% or greater (down from -2.0% to 0%).
  • Whole Foods’ P/E of 26.6 compares to a 5-year average of 30.5; P/B 3.5 compares to a 5-year average of 4.2; P/S 0.7 compares to a 5-year average of 1.2; P/CF 10.1 compares to a 5-year average of 13.3. Dividend yield 1.5% compares to a 5-year average of 1.1%.
  • Analysts view Whole Foods with 5 Buy, 14 Hold, and 6 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold 56,400 shares the past three months and a net 119,292 shares in the past year. (source: NASDAQ.com) A $1 billion stock buyback program was announced November 4, 2015 but nothing since.
  • Whole Foods is compared other grocery store companies with quarterly results possibly impacting Sprouts Farmers Market (SFM), Fairway Group Holdings (FWM), Kroger (KR), Safeway (SWY) and Hain Celestial (HAIN).
  • Whole Foods has a 1-day average price change on earnings of 5.30%. Options are pricing in an implied move of 5.12% on earnings.

Recent News

  • 04/21: Whole Foods Market outlined a new strategy to slow its store growth and refocus on appealing to its core customers. Credit Suisse thinks trends are only getting worse in the grocery business and believes selling out to Amazon (AMZN) or Kroger (KR) is the best way to unlock value, according to a post on Barron’s.com.
  • 04/12: Amazon reportedly considered buying Whole Foods last fall, according to a post on Barron’s.com.
  • 04/11: Activist hedge fund Jana Partners has taken an 8.8% stake and wants Whole Foods to improve operations and consider a sale, according to a post on Barron’s.com.
  • 03/28: SunTrust appears less than enthusiastic near-term about a Buy rating on Whole Foods but likes it “as a solid long-term holding,” according to a post on Barron’s.com.
  • 03/27: Barclays views customer losses at Whole Foods Market as “staggering.” A 3% traffic decline may not seem like much, but this equates to 14m customers, according to a post on Barron’s.com.

Technical Review

Whole Foods made a $65 all-time high in late 2013 and 2015 took a second leg down. This company can act as an economic and stock market leading indicator probably due to the discretionary spending premium paid by customers.  Point and figure charts show a balance area of support around $31 and pushed above on the recent buyout speculation. (Chart courtesy of StockCharts.com)

wfmC

Summary

Whole Foods is focused on improving operating performance this year but analysts hope the 2018 story might involve selling out to a larger operation. Increased competition and lost customers are a worry. Insider selling eased up the past six months.  The company has beaten analyst consensus by an average of 2c the past four quarters. Estimize consensus for an EPS of $0.38 on revenue of $3.724 bln compares to analyst consensus of $0.37 on revenue of $3.73 bln. Comparable sales guidance is negative for 2017.

 

DISCLAIMER:  By using this report, you acknowledge that Selerity, Inc. is in no way liable for losses or gains arising out of commentary, analysis, and or data in this report. Your investment decisions and recommendations are made entirely at your discretion. Selerity does not own securities in companies that they write about, is not an investment adviser, and the content contained herein is not an endorsement to buy or sell any securities. No content published as part of this report constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.