On Wednesday, high-end grocer Whole Foods Market, Inc. (NASDAQ:WFM) reported adjusted first-quarter earnings that came in right in line with Wall Street’s expectations of 39 cents per share. But the company’s revenue for the three-month period was only $4.92 billion, while $4.98 billion was the consensus.
Toss in yet another same-store sales decline — the sixth in a row — and a lowered outlook, and it’s not that surprising that investors’ immediate reaction was negative. WFM stock slid around 4% in after-hours trading.
If you’ve been paying a little more attention to Whole Foods over the past several quarters, though, it’s also not surprising that shares quickly rebounded the morning after. The struggles for WFM stock have been reflected in its price for some time.
Whole Foods stock hit a peak in late 2013 at about $65 per share and is now sitting at less than half that value. And yet, that’s in many ways what makes WFM stock appealing now — shares have moved back into affordable territory while management has felt pressure to right the ship.
Before the report, JPMorgan expressed its optimism about Whole Foods. While many have criticized the price tag of Whole Foods’ offerings, noting it puts a ceiling on the customer base, management has been opening low-cost stores to address that concern.
Meanwhile, the company is also working to cut costs and be more strategic about promotions, both of which should help get earnings growth back to black next year. For the cherry on top, a lower tax rate could add more wind to the company’s sails.
Plus, Whole Foods’ CEO noted in the report its commitment to getting things back on track:
“We are refining our growth strategy, refocusing our efforts on best serving our core customers, and moving faster to fully implement category management. Evolving our purchasing operating model while developing data-rich, customer-centric category management capabilities is critical to our go-forward merchandising, pricing, marketing and affinity strategies.”
Once again, WFM stock surged Friday morning before tempering its gains to trade flat. But the bump for WFM stock on Thursday despite falling in Wednesday’s after hours offers some more technical promise for the stock, too.
Shares are now sitting about their long-term and short-term moving averages, which could serve as a nice base for a further recovery.
That’s not to say it’s all butterflies and rainbows for Whole Foods. If you comb the earnings report, there are plenty of frogs. Competition is stiff, margins have declined and earnings are slated for a 7% decline this year despite all the moves.
But at the end of the day, context is key. The multi-year downtrend of WFM stock suggests those realities are acknowledged and built-in, offering room for a substantial short-term recovery. I would buy Whole Foods at these levels, keeping an eye on management’s moves to see how sustainable the cost-cutting and other measures appear.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.