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Whole Foods (WFM) Comp Slowdown Tied to Cannibalization - Deutsche Bank

December 12, 2013 9:03 AM EST
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Price: $41.99 --0%

Rating Summary:
    6 Buy, 25 Hold, 6 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 13 | Down: 11 | New: 11
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Deutsche Bank Thursday reiterated a Buy rating on Whole Foods Market (NASDAQ: WFM) with a price target of $70.00. Analyst Karen Short believes Q4/Q1 slowdown in comps is due to cannibalization. In her view, this is an anomaly and growth remains intact.

"On WFM's 4Q call, management loosely mentioned cannibalization was a comp headwind in 4Q and into 1Q resulting in part from the former Johnnies re-openings. The comment piqued our interest and prompted us to perform a detailed analysis on "cannibalization" to determine whether or not the comp actually slowed in the last 9 weeks of 4Q and further into 1Q, or if, in fact, highly unusual "cannibalistic" new store openings negatively impacted the comp. Our conclusion: the comp may have slowed, but less than the reported numbers, because cannibalization definitely accelerated from 4Q into 1Q," said Short.

"Using a 10-mile radius, we estimate cannibalization negatively impacted WFM's comp by 21bp in 3Q, 73bp in 4Q, 106bp in the first 5 weeks of 1Q, and will impact comps by 123bp in the last 11 weeks of 1Q14. On a 5-mile radius, the impact is lower, but the acceleration is similar. Note, because we estimate cannibalization likely increases throughout 1Q given the 22 store openings in 4Q and 1Q, we caution investors that cannibalization could accelerate further throughout 1Q, but the negative impact should abate in 2Q and beyond because WFM is far from saturated nationally. Also, our analysis shows that store openings in 4Q13 and 1Q14 impacted all age classes – which explains why the comp slowed across the board," added the analyst.

For an analyst ratings summary and ratings history on Whole Foods Market click here. For more ratings news on Whole Foods Market click here.

Shares of Whole Foods Market closed at $56.18 yesterday.


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