Whole Foods Market, Inc. (WFM) is expected to release its third-quarter earnings on July 27, but expectations for the results are low.
Whole Foods is in the midst of a turnaround, and as a result, the firm’s operational challenges are likely to drag down sales figures. However, WFM stock may see a lift following the results even if they aren’t dazzling, as the company may prove that it has hit rock bottom and is on the upswing.
Muted Expectations for WFM Stock
Analysts aren’t expecting much from the stock; the consensus EPS forecast is 37 cents.
Traders are also bracing for another quarter of soft same-store sales as the firm continues to remake its image. Wall Street’s anticipation of a lackluster report could be a positive for WFM stock though, as the company is likely to meet or exceed expectations, which could give shares a lift.
While this quarter’s results aren’t expected to turn heads, investors will be interested to hear how the company’s turnaround is shaping up.
This quarter WFM opened its first 365 by Whole Foods Market location and two more are expected to open their doors in the coming quarter. The 365 concept is Whole Foods’ way of offering customers a cheaper option, and the grocer is hoping it will draw in more cost-conscious millennials.
There are some questions about whether or not the new line of stores will take away traffic from the company’s existing locations, and this concern is likely to be addressed during the third-quarter earnings call.
Management is also expected to address the firm’s food safety challenges.
Earlier this year the FDA found several issues while inspecting the firm’s North Atlantic food prep facility. Back in March, WFM said it had addressed the FDA’s concerns, but regulators claimed that the grocer’s response was inadequate.
As long as Whole Foods cleans up this mess quickly, it is unlikely to have a lasting impact on the brand, but a sluggish response would be detrimental — especially for a company like Whole Foods, whose identity centers on high-quality food.
Better Days Are Coming
Although it has gained 16% over the past three months, WFM stock has lost 47% since its 2013 highs of $65 per share, making the stock relatively cheap for those who believe in the company’s turnaround story.
However, now that the worst is behind it, WFM stock has the potential to deliver some solid gains in the coming months. While it remains to be seen whether or not Whole Foods can reclaim its place near the top of the grocery-store food chain, investors are likely to begin seeing some improvement in the firm’s financials in the quarters to come.
Comparable same-store sales have been falling for several quarters, but WFM probably begin to see some improvement in those figures as easier comparisons are on the horizon.
In order to compete with lower-cost competitors, Whole Foods has given up some of its profit margins in order to reduce prices. This change stung the grocer’s comps, but soon the year-over-year comparison will be between two quarters with similar challenges.
Easier same-store comparisons coupled with lower expectations on Wall Street will probably help WFM stock gain some momentum after several challenging quarters.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.