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Analysts Upbeat on Whole Foods Prospects

Analysts Upbeat on Whole Foods Prospects

NEW YORK — Wall Street analysts were generally upbeat Thursday about long-term prospects for Whole Foods Market, despite a negative reaction by some investors to the chain's fourth-quarter financial results and its lowered financial guidance for fiscal 2014.


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As reported late Wednesday, net income for the 12-week fourth quarter rose 7.1% to $121 million, while sales increased 2.2% to $3 billion and comps jumped 5.9% —reflecting earnings and comps that were below consensus expectations.

Karen Short, research analyst with Deutsche Bank, said she does not see Whole Foods "as a broken growth story [because of] a long runway for growth, above-average comps [and] steady margin expansion. Despite a disappointing quarter, we continue to see demand growing for healthier food and believe Whole Foods is uniquely positioned to capture share in this market over time."

Charles Grom, an analyst with Sterne Agee, said he believes the pullback in the stock will be short-lived. "Whole Foods took a page out of the Costco/Kroger playbook and proactively invested in price on known-value items to reinforce the value message on which it has been intently focused since 2009. Such moves are typically met with future traffic gains and are therefore 100% the right strategy for Whole Foods to undertake."

Read more: Whole Food Lowers 2014 Guidance

John Heinbockel, managing director for Guggenheim Securities, said he views the slowdown in Whole Foods results as more temporal than secular, "although we do acknowledge the growth limitations in older stores, [so] it is possible that simple maturity will cause a moderation in growth but only of a modest magnitude. Whole Foods indicated that strategic price investments were made late in the third quarter to close the gap with certain competitors and that this investment was funded by lower shrink and better purchasing."

Kelly Bania, an analyst with BMO Capital Markets, said that, despite lower comps, "the natural and organic industry backdrop remains solid; new store returns [at Whole Foods] remain strong, with an increase in baskets of $50 or more; older stores' comps remain solid at 4.3%; execution of prepared foods remains a key advantage; and comps still remain more consistent than industry peers."

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