AUSTIN, Texas — Whole Foods Market here said last week it intends to continue to invest in price to broaden its appeal to consumers — a strategy the company indicated is likely to result in lower earnings through the balance of the year.
That did not seem to bother some industry analysts, who said they recognize the long-term value of Whole Foods’ approach.
“We view this move as a positive,” Karen Short, managing director for BMO Capital Markets, New York, said, “because it reinforces our thesis on Whole Foods: First, that it has no credible competition but is opportunistically taking advantage of its strong positioning to dominate; and second, given its balance sheet, market share, position and offering, there is no time like the present to go for the jugular and permanently widen the gap.”
Andrew Wolf, managing director for BB&T Capital Markets, Richmond, Va., said the decision to invest more in price should help to counter a deceleration in the chain’s sales productivity. “The Whole Foods brand continues to attract new shoppers, albeit at a slightly lower rate,” he explained, noting that transaction count growth declined during the first quarter from last year’s fourth-quarter results.
For the 16-week first quarter that ended Jan. 20, net income rose 23.7% to $146 million, while sales increased 13.7% to $3.9 billion.
Identical-store sales were up 7.2% — ending a three-year streak of comps over 8% following a slowdown in transaction counts across all regions, Walter E. Robb, co-chief executive officer, explained.
Traffic counts rose 5% during the quarter, compared with 7% in the prior quarter, which the company said it attributed in part to a decline in consumer confidence and the macro environment. Basket size increased 2%, “driven entirely by a higher average price per item, which we selectively passed through, and as customers continued trading up,” Robb said.
Edward Aaron, managing director in the Denver office of RBC Capital Markets, New York, said the quarterly results, “while not all that bad, were clearly squishier than what investors have become accustomed to, with quarter-to-date comps of 6.4%.”
He noted the first quarter IDs were up against a tougher comparison and included a negative impact from Winter Storm Nemo.
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Discussing first-quarter results with analysts, David Lannon, executive vice president, operations, acknowledged the company has successfully narrowed the price gap with competitors, “but we’d like to eliminate it while maintaining a high quality, which is a very strong position to be in competitively.
“Competition is increasing around the country, so we’re going to continue to try to improve our value proposition while continuing to differentiate and evolve our product mix.”
According to Robb, “It’s really a moving environment out there, and we want to give ourselves room to be able to continue to improve our position. And as the market expands, the bigger prize here is those folks who are not eating as healthy. We think by continuing to improve our position, we have access to a much bigger market than we’re currently serving.”
Read more: Whole Foods Eyes E-Commerce: Analyst
Whole Foods said it has narrowed guidance on comparable-store sales growth for the year to a range of 6.3% to 8.3%, with the midpoint in line with prior guidance. It also said it expects sales growth of 12% to 14% and earnings per share growth of 14% to 16%.
During the quarter Whole Foods opened nine new stores and one relocation — the highest number of openings in any single quarter — with one new store already opened in the second quarter and five more anticipated.
The six Johnnie’s Foodmaster stores in the Boston area it acquired in late November are undergoing remodeling, with plans for them to reopen as Whole Foods later in the year, the company said. Lannon also said the company is looking for additional acquisitions.
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