North America

Earnings Preview: Whole Foods Market Q3 2017 (WFM)

By: Craig Bowles

Overview

Whole Foods Market, Inc. (WFM) is slated to report 3Q 2017 earnings after the bell on Wednesday, July 26th. 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.

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 the last two qtrs). The Street estimate is $0.33 with a range of $0.26 to $0.36. (Source: Yahoo! Finance) Consensus was $0.35 three months ago.
  • Revenues: Analysts expect an increase of 0.6% y/y to $3.72 bln (range $3.70 bln to $3.76 bln).
  • Comparable Store Sales: Q2 was -2.8%.

Earnings Per Share (EPS), Revenues, and Comparable Store Sales Guidance (4Q2017 and FY2017):

  • Earnings Per Share (EPS) Guidance (4Q2017): The street estimate is $0.22 (range $0.19 to $0.27).
  • Earnings Per Share (EPS) Guidance (FY2017): Company guidance is $1.30 or greater. The street estimate is $1.30.
  • Revenue Guidance (FY2017): Company guidance is y/y growth of 1.0% or greater (down from 1.5%). Analysts expect an increase of 1.2% y/y to $15.91 bln (range $15.84 bln to $15.99 bln).
  • Comparable Store Sales Guidance (FY2017): Company guidance is y/y growth of -2.5% or greater.
  • Whole Foods’ P/E of 33.1 compares to a 5-year average of 30.5; P/B 4.0 compares to a 5-year average of 4.2; P/S 0.8 compares to a 5-year average of 1.2; P/CF 11.5 compares to a 5-year average of 13.3. Dividend yield 1.4% compares to a 5-year average of 1.1%.
  • Analysts view Whole Foods with 4 (5 last qtr) Buy, 19 Hold, and 3 (6 last qtr) Sell ratings. (source: MarketBeat.com)
  • Insiders have sold 31,127 shares the past three months and a net 102,706 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 4.95%. Options are pricing in an implied move of 0.96% on earnings.

Recent News

  • 06/30: RBC Capital sees the combined entity of Amazon/Whole Foods solving the two biggest issues that come up for grocery shoppers: location and price, according to a post on Barron’s.com.
  • 06/29: Oppenheimer downgraded Whole Foods Market to Perform from Outperform. While Amazon’s bid may undervalue the company, it now appears less likely a new bid will come from a strategic player, according to a post on Barron’s.com.
  • 06/28: With its deal for Whole Foods, Amazon will be within an hour drive of 70% of Americans, according to a post on Barron’s.com.
  • 06/23: Barclays justified scenarios in which Kroger or Wal-Mart Stores could make their own bids for Whole Foods; not only would a rival bid keep Whole Foods out of Amazon’s hands, but it also makes sense on profit potential alone, 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. With the buyout pegged at $42, the earnings release is unlikely to have much effect on the stock price. (Chart courtesy of StockCharts.com)

Summary

Amazon.com (AMZN) is expected to buy Whole Foods Market for $42 a share or $13.7 billion total in a deal that is expected to close in the second half of 2017. Insider selling eased up the past six months.  The company has beaten analyst consensus by an average of 1c the past four quarters. Whole Foods is expected to have additional costs and produce an Adjusted EPS again in Q3. Estimize consensus for an EPS of $0.34 on revenue of $3.725 bln compares to analyst consensus of $0.33 on revenue of $3.72 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.