Whole Foods earnings are out. It was a little light on sales, beat on the earnings number but it looks like the market is reacting to the comp number of 5.9%...that's the problem with bringing in those awesome numbers quarter after quarter. At some point you just become a victim of your own success. Click here to link to the company release. The chart above is from a blog post I made back in May showing WFM's historical comps and trading multiples.
As Whole Foods continues to grow, competition is heating up. Concepts like The Fresh Market, Fairway, Sprouts, Trader Joe's, Wegmans and many other local and regional establishments are offering more to consumers every day and Whole Foods is being forced to compete more on pricing. Price matching, etc. was a primary contributor to the lower comps this quarter as inflation remained relatively moderate. None of this comes as any surprise.
I don't think it's reasonable to think that these pricing pressures will abate; this space is only going to heat up and I believe we are entering a new stage of Whole Foods' growth. In fact I wouldn't be surprised to see the market start assigning a bit lower multiple as time goes on here. It's going to happen; it's not a matter of if, but when. Given the current pace of store openings there is a long timeline for this thing to play out, but I would not plan on the stock trading at its 45 multiple forever. Just for context Kroger trades at about 15 times earnings and don't forget they just bought Harris Teeter which absolutely brings them in more direct competition with Whole Foods. These concepts with bigger store footprints will be able to compete more on pricing thanks to scale and they are also bringing more organics and naturals into their stores every day.
This all leads me to say that price is becoming extremely important when looking to buy WFM shares. The stock is down about 10% today and I suspect we'll see that sentiment hold. With that said, "opportunistic" is the key word and given the guidance management's offered I actually think the stock looks like a market-beater if this selloff holds. Of course it will probably go lower, but like Buffett says, net-buyers of stocks should route for pullbacks like these assuming the companies in which we are investing are worthy. I think Whole Foods still is.
As Whole Foods continues to grow, competition is heating up. Concepts like The Fresh Market, Fairway, Sprouts, Trader Joe's, Wegmans and many other local and regional establishments are offering more to consumers every day and Whole Foods is being forced to compete more on pricing. Price matching, etc. was a primary contributor to the lower comps this quarter as inflation remained relatively moderate. None of this comes as any surprise.
I don't think it's reasonable to think that these pricing pressures will abate; this space is only going to heat up and I believe we are entering a new stage of Whole Foods' growth. In fact I wouldn't be surprised to see the market start assigning a bit lower multiple as time goes on here. It's going to happen; it's not a matter of if, but when. Given the current pace of store openings there is a long timeline for this thing to play out, but I would not plan on the stock trading at its 45 multiple forever. Just for context Kroger trades at about 15 times earnings and don't forget they just bought Harris Teeter which absolutely brings them in more direct competition with Whole Foods. These concepts with bigger store footprints will be able to compete more on pricing thanks to scale and they are also bringing more organics and naturals into their stores every day.
This all leads me to say that price is becoming extremely important when looking to buy WFM shares. The stock is down about 10% today and I suspect we'll see that sentiment hold. With that said, "opportunistic" is the key word and given the guidance management's offered I actually think the stock looks like a market-beater if this selloff holds. Of course it will probably go lower, but like Buffett says, net-buyers of stocks should route for pullbacks like these assuming the companies in which we are investing are worthy. I think Whole Foods still is.
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