Whole Foods Market, Inc. (NASDAQ:WFM) is a great buy for 2015 because of its long-term growth plans and the success it’s having thanks to fundamental changes to its business.
Consumers long have bemoaned Whole Foods’ prices, giving way to the nickname “Whole Paycheck,” and eventually leading many organic shoppers to spend their money elsewhere, such as Wal-Mart Stores, Inc. (NYSE:WMT) or Trader Joe’s Company.
However, Whole Foods has been working to shake that stigma, and recently released first-quarter earnings are evidence that its changes are starting to take hold.
WFM grew Q1 earnings 10% year-over-year on a 10% improvement in total revenue. That was sparked by a 4.5% increase in same-store sales, which was up significantly from 3.1% comps growth in the previous quarter.
Whole Foods made a number of fundamental changes that helped spark this impressive quarter — its second good report in a row — and WFM is well back in comeback territory, up 50% in the past six months.
And it’s not done yet. For several reasons, WFM looks likely to challenge its all-time highs above $65.
WFM Lowered Prices
WFM saw an increase in sales this past quarter thanks in large part because it lowered prices, addressing one of consumers’ biggest concerns.
Whole Foods began a campaign last year called “Values Matter” meant to ensure consumers that while prices were going down, the quality of its products was not. The campaign, aimed at a high-end audience in its 30s to 40s, paid off as WFM saw more traffic to its stores.
The campaign will weigh on Whole Foods’ margins — they fell 20 basis points to 34.8% this past quarter, but that number still is the envy of most of the industry.
So, although Whole Foods’ prices were lowered to match competitors’ prices, customers still view Whole Foods as a quality grocery store — now, just one with great prices.
Whole Foods Treats Employees Well
Since its opening in 1998, WFM has made the list of Fortune’s “Best Companies to Work For.” That’s thanks in part to things like Whole Foods’ weeklong health program for employees where workers learn about nutrition, are provided cooking assistance and are given a health assessment. WFM also recently announced it is discussing opening an employee medical clinic.
Keeping employees happy can be a costly affair, but good employee treatment is reflected in the customer experience — Whole Foods shopping tends to be a pleasant experience, and that’s fueled in large part by its friendly staff.
WFM Shows Big Expansion Plans
Whole Foods believes it eventually can open another 800 stores in the U.S., for a total of 1,200, tripling its store count. This year, the company plans on opening 40 stores domestically, and it has five stores in development in Canada.
WFM Is Tech Savvy
Whole Foods has successfully married the digital world and grocery shopping. WFM partnered with Instacart last year for an online-ordering program that provides both at-home delivery and in-store pick-up. Now, in some stores, weekly online delivery sales make up roughly 5% of sales.
WFM plans to add more food options to the online delivery service and expects online sales to continue growing.
Bottom Line
Sure, as far as WFM stock is concerned, the “whole paycheck” moniker still applies — WFM trades at 35 times earnings, which is far from cheap.
But Whole Foods is getting back into the pocket of put-off consumers, and it has several initiatives in place that should keep the stock’s momentum going strong in the future.
As of this writing, Dana Kobilinsky did not hold a position in any of the aforementioned securities.
