Whole Foods Shares Fell After Their Earnings Results
They reported their fourth quarter results on Wednesday and they were below what analysts expected.
The company is fighting to maintain their lead on the organic market, however, their competitors are offering the same products at lower prices. Wholes Foods is a high-quality retail store and struggling to offer lower prices to compete with their competitors. The company has invested in promotions and sale offers to get more customers into their stores. However, these investments haven't paid off yet for Whole Foods.
Whole Foods Co-CEO Walter Robb discussed the company's stiffer competition on their third quarter earnings call, saying "In this dynamic and increasingly competitive marketplace, we recognize we need to move faster and go deeper in creating a solid foundation for our long-term profitable growth." He went on to say, "Promotions and price investments are an integral part of our conversation, but we are not participating in a race to the bottom."
While on the earnings call, Mr. Robb told analysts that Whole Foods margins will get worse before they get better. He believes the restructuring costs could lead to a decline in operating margins of up to 75 basis points from 6.5 points. This, plus the deceleration in same store sales, has caused the company share price to fall. Investors and the market fear that the company's dominance over the organic food market is shrinking. The company is spending heavily in order to maintain their market share, however, competitors are moving in on Whole Foods niche.
Stiffer competition that Whole Foods is facing is reflected in its third quarter results. Whole Food reported earnings of 43 cents per share on revenues of $3.34 billion. Analysts had expected earnings per share of 45 cents on revenues of $3.69 billion. The company saw their Gross Margins, excluding certain costs, declined by 66 basic point to 35.6 percent. Whole Foods fall in gross margins was driven by increased cost of goods sold as a percentage of sales. The company is expecting sales growth of 7% in the fourth quarter and earnings per share between 34 cents to 35 cents. Whole Foods is expecting to see full year sales growth of 9%, however, the company is seeing low digit store sales growth. After reporting their earnings results, Whole Foods announced a $1.1 billion buyback program for shareholders. The company clearly believes that their buyback program will put a floor on Whole Foods stock and boost returns in the short-term for shareholders.
Published on Nov 13, 2015By Cody Eustice
Posted in ...Market Commentary