Has Whole Foods (WFM) Boon Come to Bitter End or Are Doubts Short Sighted?

February 14, 2013 1:01 PM EST
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Price: $30.36 -1.46%

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    7 Buy, 22 Hold, 10 Sell

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    Up: 24 | Down: 17 | New: 14
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Shares of Whole Foods (Nasdaq: WFM) opened sharply lower on Thursday following the company’s Q1 report. While EPS topped estimates, decelerating comparable-store sales and questions about operating margin weighed on investor sentiment, polarizing Wall Street.

Whole Foods reported revenue of to $3.9 billion versus the consensus estimate of $3.86 billion. This was a 14 percent increase compared to last year. Comps increased 7.2 percent, but decelerated sharply from 8.7 percent growth seen in Q1 last year. EPS came in at 78 cents, edging out the analyst estimate of 77 cents.

Looking forward, Whole Food said comparable store sales growth is expected to be 6.6 to 8.0 percent versus its prior outlook of 6.5 to 8.5 percent in 2013. Operating margins are expected to remain flat at 6.6 to 6.7 percent, but many on Wall Street are skeptical. Others, however, are not so quick to say the Whole Food’s boon has come to an end.

“We believe investors should not lose sight of the long-term story still reflected in the results: WFM sustained the pace of share gains in comp stores, accelerated square footage growth, maintained new store productivity, and improved returns,” said analyst Stephen Grambling of Goldman Sachs.

With shares of Whole Foods down 9 percent, Grambling’s thesis is not an easy pill for investors to swallow, though it might eventually pan out. In the mean time, it is clear doubts have crept into the minds of many investors and it could be a while before bullish sentiment returns.

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