Analysts have tasted the organic fruits of Whole Foods Market’s stock growth this year, especially after it surpassed their estimates for 12 months and hit an all-time high in October.
Today (Nov. 7), we see if Whole Foods continues to meet expectations when it releases its fourth-quarter results after the market closes.
Most see continued growth. Here’s what they are saying.
NASDAQ's "Earnings Preview: Whole Foods" highlights the power behind Whole Foods growth:
The stringent cost-control measures, effective inventory management, and improved store-level performance are driving earnings growth. Whole Foods has also been revamping its pricing strategy and concentrating more on value offerings, while maintaining healthy margins. In the last five fiscal years, gross margin has been in the range of 34% to 35%.
But the report also cautions about a still tenuous economy that causes consumers to make cheaper choices and growing competition from the likes of The Kroger Company.
Seeking Alpha's "The Road To 1,000 Stores For Whole Foods Market" provides a deep look at the natural and organic market, Whole Foods Market's place in it, and how small stores and competition could affect the future.
Upon running numbers, the analyst concluded Whole Foods could lose some market share as the overall natural and organic market grows.
A small decline in market share does not seem unreasonable, as one would logically expect other large retailers to move aggressively into this growing market. According to the Economist, Walmart has been "reaching for the yuppie dollar" by offering organic and "all natural" products as far back as 2006. However, I think it is also possible that Whole Foods could gain share in the space, or that the size of the natural and organic foods pie could grow faster, and become even larger than currently projected.
The Motley Fool's "Whole Foods plans more organic growth" examines Whole Foods Market's new smaller-size strategy and concludes its growth trajectory impress; but it also raises concerns about competition, noting The Fresh Market in particular.
Finally, Whole Foods' 6% operating margin is impressive compared to Safeway's 2.5%, but lags behind The Fresh Market's 8%. Safeway's higher prices don't seem to be winning enough fans to compete on the same plane as Whole Foods, and its relatively high cost structure and labor issues certainly don't help its profitability either. Meanwhile, The Fresh Market's more conventional - as opposed to organic or all-natural - products somehow command higher prices and are more profitable than either competitor's. The chain seems to be enjoying the first-mover advantage of having entered smaller markets, such as Albany, N.Y., and Destin, Fla., before Whole Foods.