Whole Foods Market, Inc. is gearing to release its fiscal fourth-quarter results after the market closes on Wednesday. Analysts polled by Thomson Reuters are expecting earnings of 35 cents a share, flat from a year ago. Revenue is projected to come in at $3.47 billion for the quarter, 7 percent higher than the year ago total of $3.26 billion.
Whole Foods Hit Hard by the Price Fixing Scandal
Whole Foods Market, Inc. has struggled to maintain same-store sales growth in the past couple of years. Recent audits of the organic grocer have only tarnished its image. Earlier in June, New York City officials found that the chain had mislabeled the weights of some freshly packaged foods like chicken tenders and vegetable platters. NYC’s Department of Consumer Affairs said Whole Foods was “systematically overcharging” for certain pre-weighted items.
Top management issued immediate apologies. But analysts say that the damage could not be undone, and forecast comparable-store sales growth of 1 percent or lower.
Whole Foods is also slated to provide guidance for the current fiscal year. Investors will focus on its outlook for sales, and particularly traffic growth, which have considerably slowed in last few months. Traffic growth is a key indicator of how well the firm is holding up against competition. Will fiscal 2016 revive the faltering growth, or will the slowdown of the past few quarters continue?
Caught Between the Devil and Deep Sea
Shares of Whole Foods Market, Inc. are among the worst performers in the market, down 50 percent from its February peak. And the reasons are not hard to find.
Competition from the likes of Wal-Mart, Costco and Kroger has been brutal. All of them have expanded their organic products basket, and are typically offering them at much cheaper price than Whole Foods
Costco, for example, claims to be the biggest retailer of organic foods, and Wal-Mart is now selling its organic Wild Oats at the same price as other conventional brands.
Whole Foods Market, Inc. ‘s “single biggest problem is their price image,” Meredith Adler of Barclays Capital, said. “Sure, Whole Foods is working to lower prices in produce. But if it’s also selling fish that’s $45 a pound, it will be hard to convince people that prices are good.”
So can Whole Foods can revive its faltering growth? It looks tough.
Ajay Jain of Pivotal Research Group, who follows the stock, said it wouldn’t be a big surprise if comparable-store sales actually fell in the just ended quarter.
To be fair, Whole Foods isn’t the only organic retailer that’s struggling. Shares of smaller rivals Fresh Market, Sprouts and Fairway have all had a terrible year to date.
Whole Foods Market, Inc. has tried to counter competition by cutting prices. But that has hit its profit margins hard – something which analysts don’t like.
Don’t be surprised if some activist hedge fund decides to buy a stake, and shake things up!