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Whole foods buying opportunity


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In spite of the short term risk from growing competition, the long term growth story in Whole Foods Market is still intact. Is the dip in Whole Foods a buying opportunity for your portfolio?

Published in: Business, Economy & Finance
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Whole foods buying opportunity

  1. 1. Buying Opportunity in Whole Foods?
  2. 2. A Rotten Year Source: Las Vegas Sands
  3. 3. Disappointing Financial Performance  Sales during the quarter ended on April 13 came in at $3.32 billion vs. expectations of $3.34 billion from Wall Street analysts. Store contribution margin declined 51 basis points to 10.6% of sales.  Earnings per share were $0.38 versus forecasts of $0.41 per share. The company reduced its guidance for the third consecutive time. Management expects sales growth of between 10.5% and 11% in the coming quarter versus a previous range of 11% to 12%. Whole Foods is still generating solid growth and profitability, but performance is clearly under pressure.
  4. 4. Main Problem: Growing Competition  Rapid sales growth and high profit margins are attracting increased competition in the natural and organic foods business.  Big traditional players such as Wal-Mart (NYSE:WMT), Safeway (NYSE:SWY), and Kroger (NYSE:KR) are increasing their presence in the category and offering competitively low prices. Smaller and focused competitors like Sprouts Farmers Market (NASDAQ:SFM), The Fresh Market (NASDAQ:TFM), and Natural Grocers Vitamin Cottage (NYSE:NGVF) are actively expanding their store base.
  5. 5. Management Acknowledges the Problem “I’d say competition is more intense right now than possibly we’ve ever experienced before.” Co-CEO Walter Robb
  6. 6. The Plan Reducing prices to keep the competition at bay. Investments in technology and cost control initiatives. Focusing on providing a superior experience and brand differentiation.
  7. 7. Competitive Strengths First mover and largest focused player in the organic food industry. Unparalleled brand recognition. Reputation for quality and customer trust. Talented management team with deep industry knowledge and a track-record of success in the business. Unique organizational culture and well incentivized employees providing a high quality service.
  8. 8. The Future The company is still forecasting healthy double-digit sales growth for the coming quarter. Management believes Whole Foods has room for 1,200 stores in the U.S. alone, versus a current store base of 379 locations. International markets are still practically untapped. Product prices will likely remain under pressure due to growing competition and expansion into lower-income areas. On the other hand, private level penetration bodes well for the company in terms of both sales growths and profit margins Growing scale and operational efficiencies should help offset the negative impact of falling prices on profit margins
  9. 9. Foolish Takeaway: Buying Opportunity Success attracts competition, and Whole Foods is being a victim of its own success. Differentiation and brand recognition provide competitive strengths for the company. Whole Foods is still the undisputed leader in an exciting growth business In spite of the short term challenges, the long term growth story is pretty much intact.
  10. 10. Our best pick for 2014 is positioned for explosive gains, and you can learn more about it via our special free report. Simply click in the link below.