What Helped Whole Foods (WFM) Stock to Beat Its Industry

Despite prevailing headwinds, Whole Foods Market, Inc. WFM has outperformed the Zacks categorized industry in the past six months. We noted that over the said time frame, the stock has advanced 6%, while the Retail-Supermarkets industry has witnessed a meager gain of 0.3%. Let’s delve deep to find what has made the stock resilient in spite of stiff competition, food price deflation, an aggressive promotional environment and waning store traffic.

Endeavors Instill Confidence

Whole Foods has been revamping its pricing strategy and concentrating on value offerings in view of heightened competition as more companies are entering and expanding their presence in the Organic & Natural food business. These players include The Kroger Co. KR, Sprouts Farmers Market, Inc. SFM and Wal-Mart Stores Inc. WMT.

We note that this Austin, TX-based company is leaving no stone unturned to reach its target customers, whether through national marketing and branding campaigns, home delivery services, store expansion or the adoption of a digital route such as the launch of digital coupon within its Whole Foods Market mobile app. Moreover, it introduced a new “uniquely-branded store concept”, "365 by Whole Foods Market". The new chain is equipped with innovative technology, compelling products at value prices and a modern look to target millennials as well as stave off competition.

With the launch of the “365” smaller format sister chain, Whole Foods intends to turn things around in its favor. However, analysts are concerned whether the new store model will prove to be a game changer and aid the company retain market share amid stiff competition without cannibalizing its own business.

For quite some time now, Whole Foods has been working on lowering prices, upgrading technology and containing costs. As part of this strategy, the company had reduced its headcount by a significant number. Management aims to lower its cost structure by a run rate of $300 million by the end of fiscal 2017.

 

 

Hurdles to Overcome

Whole Foods has been grappling with waning comparable-store sales (comps) performance since the past five quarters. Comps declined 2.6% in the fourth quarter of fiscal 2016. Comps had fallen 2.6%, 3% and 1.8% in the third, second and first quarters of fiscal 2016, respectively, and 0.2% in the final quarter of fiscal 2015. During the first five weeks of the first quarter of fiscal 2017, comps dropped 1.6%.

Further, we noticed that despite ending fiscal 2016 with a positive earnings surprise, Whole Foods failed to contain the decline in the bottom line. After declining 14% in the third quarter, earnings per share fell 6.7% in the final quarter of fiscal 2016. Management envisions earnings per share of $1.42 or more for fiscal 2017. Consequently, the Zacks Consensus Estimate for fiscal 2017 had declined 4% to $1.45 in the past 60 days.

Given the pros and cons embedded, Whole Foods currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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