Organic grocery king Whole Foods Market (WFM) reports fourth-quarter and full-year earnings for fiscal 2013 this Wednesday afternoon, and the stakes are high heading into the report.
Whole Foods stock soared to an all-time high north of $65 just a couple weeks ago. And although the stock has pulled back a bit since then, a nearly 40% year-to-date run for WFM stock and a lot of question marks surrounding Whole Foods earnings are enough reason to avoid WFM heading into the report.
What to Expect from Whole Foods Earnings
While Whole Food earnings have beaten expectations in each of the past three quarters, investors should be wary of forecasts for an unimpressive Whole Foods earnings report Wednesday.
Take a look at what Wall Street expects from WFM:
- Whole Foods earnings growth of just 3% and sales improvement of 4% for Q4.
- For the full year, Whole Foods earnings growth of 16% (less than estimated five-year annual growth) and sales growth of just 11% (the lowest annual rate since 2009).
- Same-store sales growth for WFM between 7.2% and 7.3% for the full year — not too shabby, but unimpressive compared to same-store sales growth of 8.5% and 8.7% in fiscal 2011 and 2012.
Those shrug-worthy Whole Foods earnings numbers, though, have accounting quirks to blame. In fiscal 2012, WFM enjoyed a 53-week calendar year that’s back to normal for the current fiscal year.
But it’s hard to predict how investors will react to slowing momentum — generally a red flag for a hot growth stock like WFM that trades a significant premium — if it comes with an accounting scapegoat.
After third-quarter Whole Foods earnings, for example, shares immediately reacted with a selloff and ended up shedding around 7% during the next month. That’s because even though earnings beat expectations, WFM missed on revenue and posted slowing same-store sales growth.
Of course, Whole Foods stock soon reversed direction and climbed all the way up to its current highs. Perhaps investors finally realized that Whole Foods earnings growth did continue to outpace sales as WFM buys back shares and gross margins expand. Plus, Whole Food still has room to stretch its legs — the company has a goal of 1,000 locations, and was just more than a third of the way there as of the end of Q3.
But at the end of the day, that still hardly justifies buying into WFM stock right now.
Whole Foods stock is trading for a whopping 37 expected 2014 earnings at the moment — a multiple that more than doubles the company’s projected long-term growth. And between earnings weakness in the rear-view and potential disappointing numbers looming just ahead … well, the headwinds are pretty apparent.
So even if you believe WFM stock is worth a premium and will continue chugging higher, consider waiting until after Whole Foods earnings to see if you can get in at a slightly better price.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.