Whole Food Market: A Case Study Of Whole Foods Market

Shares of Whole Foods Market’s (WFM) have dropped 39.8 percent from all-time high of $65.24 – formed late last year – and 32.1 percent year-to-date. This includes a 20 percent drop sustained after the company saw a significant drop in same-store sales in the fiscal second-quarter. Given how the high-end natural and organic grocer has fared since last October, you’d think there’s something seriously wrong with this company. It’s not that the concerns about increasing competition and higher food costs are invalid, but there is some overreaction here, as WFM still has a lot going for it.

Solid financials despite temporary slowdown

Whole Foods Market has successfully grown its revenues in each year since its debut in early-90s. The chart below

Even for the recently reported quarter, analysts were expecting a 5 percent increase in comps. This has led a number of investors to believe that the growth of WFM is drying up in store more than two years old, and the company can only grow through more expansion in stores. The decline is mainly attributed to increasing competition and food costs. And while these are legitimate investor concerns; the impact on sales is likely to be temporary.

For one, don’t forget that WFM is one of the largest public food and drug retailers in the United States. In fact; it is a Fortune 500 company, ranking number 232 on the 2013 list. Its size gives it the ability to negotiate better deals for its produce and products; which smaller organic grocery chains cannot. So; in the event of increased food costs; the whole industry will be under pressure but bigger companies will still have negotiation and pricing power edge over smaller chains.

For the fourth quarter, it has already announced opening of two new stores and expects to open 11 additional stores. This brings its current store count to 388, totaling approximately 14.7 million square feet. It expects to cross the 500-store mark in 2017, while it sees demand for 1,200 Whole Foods Market stores in the United States in the longer term. Lastly, it is also a champion of employee rights and does well by its shareholders. As a result, the dip in the stock’s price provides a great buying opportunity, with an upside of 20 percent in the near