Whole Foods (WFM) Stock Threatened by Overcharging Allegations

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Whole Foods (WFM) stock is on a four-day losing streak, continuing a troublesome recent trend that I think will continue for some time on Wall Street.

whole foods wfm stockThe trend, of course, is simply WFM stock’s recent tendency to go down — shares of the organic grocery chain are now off 20% in 2015.

Once the king of the burgeoning organic food industry, Whole Foods’ results have been hit by a bevy of competitors like The Fresh Market (TFM), Trader Joes, Kroger (KR) and Harris Teeter.

Now even the big boys like Walmart (WMT) and Costco (COST) are getting in the game.

That’s a problem, but not nearly as big a problem as the heavy backlash WFM is taking in the court of public opinion after New York City officials launched an investigation into the chain for allegedly systemic overcharging in its Big Apple stores.

“Whole Paycheck”

Whole Foods, which has been derisively called “Whole Paycheck” for its incredibly expensive offerings, must now combat what investigators allege is reality and not merely perception. While competitive pressures are one thing, I don’t think WFM stock will be able to handle competitive pressures and empirical proof that the chain is ripping people off.

The Department of Consumer Affairs, or DCA, conducted a “sting” on NYC Whole Foods last fall, and according to the Daily News, results were pretty damn … well, damning:

“Inspectors weighed 80 different types of items at Whole Foods’ eight locations in the city that were open at the time. They found every label was inaccurate, with many overcharging consumers …”

I’m sorry, but every label — all 80 randomly selected food items — displayed an inaccurate weight? If true, that’s downright egregious. WFM is denying the allegations, which do not get more flattering as they go on. DCA Commissioner Julie Menin had no plaudits for Whole Foods. The Daily News report goes on to say:

“‘Our inspectors told me it was the worst case of overcharges that they’ve ever seen,’ Menin said.

The overcharges ranged from 80 cents for a package of pecan panko to $14.84 for a container of coconut shrimp…”

Though I doubt that a citywide investigation will result in any fines that would materially impact WFM stock in and of themselves, the larger issue is the detrimental affect this news will have on Whole Foods’ public perception. Even a cursory glance at the Whole Foods Facebook page shows that customers are outraged.

For instance, a Facebook user by the name of Denise Kolby Federoff wrote:

“Your overcharging practices are deplorable! I no longer shop at Whole Foods. Far better, more honest, less expensive choices out there! Perhaps grab a clue from Trader Joes, who never screws over and deceives customers to the extent you do!”

Ouch.

Who knows what a deeper investigation will turn up, but one thing is certain: With WFM stock trading at 24 times earnings and profits only expected to rise by 10% this fiscal year, Whole Foods stock is definitely a rip-off.

After all, who wants to pay that much for not-too-much organic growth?

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/06/whole-foods-wfm-stock-threatened-by-overcharging-allegations/.

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