Natural foods grocer Whole Foods Market, Inc. (WFM) surprised analysts with its second quarter earnings report on Wednesday with earnings per share of 44 cents versus expectations of 41 cents. However, that was where the good news ended as the rest of the firm’s results suggested an uncertain future.
Revenue came in below expectations at $3.70 billion and net income fell to $142 million, a 10% decline. Perhaps the most worrying figure was comparable store sales, which fell 3% percent from a year earlier.
The gloomy figures were not unexpected as WFM has been struggling with increased competition and a deteriorating image.
The firm is in a bit of a transition period as it struggles to bring down prices in order to compete with big name grocers like Costco Wholesale Corporation (COST) and The Kroger Co (KR), which have introduced their own lines of low-cost organic foods that directly compete with Whole Foods’ offerings.
However, despite the less-than-perfect results, WFM co-CEO John Mackey was optimistic, saying that the company’s efforts to lower costs and improve margins would help the grocer get back on its feet.
Potential Positives for WFM
In order to compete, Whole Foods has been working to shed its image as an over-priced retailer by offering coupons and customer loyalty programs that reduce prices. The firm has also shifted from allowing individual stores to order their inventories to bulk buying for the entire chain, giving WFM more leverage with suppliers.
Mackey also commented on the company’s expansion plans, which he plans to move forward with despite the grocery chain’s struggles. WFM is planning to open a series of new, lower cost stores called 365 by Whole Foods. The first location is slated to open its doors on May 25, with two more to follow in the fourth quarter. This quarter, Whole Foods has already opened five of its traditional stores and is planning for an additional seven including the 356 location.
Can 365 Save Whole Foods Stock?
There is some debate as to whether the 365 concept is a wise idea, as some analysts believe the new locations will become competition for existing Whole Foods stores.
Co-CEO Walter Robb said he doesn’t expect the new store format to take away traffic from the existing brand. Instead, he believes that the 365 stores will give the company a new way to give customers more value for their money and that there is a demand for both types of stores. Many believe the 356 locations will be a way for the supermarket to reach the coveted millennial generation, who are known for being cost-conscious shoppers.
Following the earnings release, Whole Foods stock made some gains and finished the day up 2 percent in after-hours trading.
The majority of investors remained cautious on WFM, and investors shouldn’t expect shares to make any major gains in the coming week.
However, at under $30 per share, WFM stock could be considered a bargain buy — especially for those who believe in the company’s future growth plans.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.