North America

Earnings Preview: Whole Foods Q1 2017 (WFM)

By: Craig Bowles

Overview

Whole Foods Market, Inc. (WFM) is slated to report 1Q 2017 earnings after the bell on Wednesday, February 8th. 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.

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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. The Street estimate is $0.39 with a range of $0.35 to $0.44. (Source: Yahoo! Finance) Consensus was $0.43 three months ago.
  • Revenues: Analysts expect an increase of 3.1% y/y to $4.98 bln (range $4.83 bln to $5.03 bln).
  • Comparable Store Sales: October suggested -1.4% for Q1.

Earnings Per Share (EPS), Revenues, and Comparable Store Sales Guidance (2Q2017 and FY2017):

  • Earnings Per Share (EPS) Guidance (2Q2017): The street estimate is $0.41 (range $0.37 to $0.46).
  • Earnings Per Share (EPS) Guidance (FY2017): Company guidance is $1.42 or higher. The street estimate is $1.45 (range $1.33-$1.55).
  • Revenue Guidance (FY2017): Company guidance is y/y growth of 2.5% to 4.5%. Analysts expect an increase of 3.4% y/y to $16.26 bln (range $16.08 bln to $16.55 bln).
  • Comparable Store Sales Guidance (FY2017): Company guidance is y/y growth of -2.0% to 0%.
  • Whole Foods’ P/E of 19.3 compares to a 5-year average of 30.5; P/B 3.0 compares to a 5-year average of 4.2; P/S 0.6 compares to a 5-year average of 1.2; P/CF 8.8 compares to a 5-year average of 13.3. Dividend yield 1.8% compares to a 5-year average of 0.9%.
  • Analysts view Whole Foods with 6 Buy, 13 Hold, and 5 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold 6,058 shares the past three months and a net 113,298 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 5.50%. Options are pricing in an implied move of 6.61% on earnings.

Recent News

  • 01/26: After five consecutive quarters of negative comparable sales, Whole Foods Market is closing its three remaining regional kitchens, according to a post on TheStreet.com.
  • 01/24: Whole Foods’ first announced their lower-priced “365” stores in mid-2015 and there are only three such stores in existence. 23 stores are in development with the next opening in April, according to a post on Barron’s.com.
  • 01/18: Oppenheimer reiterated an Outperform rating on Whole Foods, their top grocery pick for 2017. Progress is encouraging with limited downside from here given valuation and M&A support, according to a post on Barron’s.com.
  • 12/22: Barclays identified new online competition and says it could cause Whole Foods to lose business until prices come down, 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 technicians have a bearish price objective of $22. The stock has a two-year balance area of $28 to $34. (Chart courtesy of StockCharts.com)

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Summary

Whole Foods created optimism with their 365 chain but opening one store every six months seems unusually deliberate. Whole Foods doesn’t deliver, so using a 3rd party costs nearly 30% more than competitors. Insider selling eased up the past six months.  The company has beaten analyst consensus by an average of 3c the past four quarters. Estimize consensus for an EPS of $0.41 on revenue of $4.984 bln compares to analyst consensus of $0.39 on revenue of $4.98 bln. Comparable sales guidance was negative for 2017.

 

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