Can Whole Foods Turn Itself Around With This Earnings Report?

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Whole Foods Market Inc. (NASDAQ: WFM) is scheduled to release its fiscal first-quarter financial results after the markets close on Wednesday. Over the past 52 weeks, this organic grocer has suffered through earnings reports, corporate restructuring and falling comps.

Right now the consensus price target from analysts is just barely above the current price level, implying only 2% upside and signaling a large negative sentiment. This earnings report has the potential to send the stock lower or potentially affect a turnaround.

The consensus estimates from Thomson Reuters call for $0.39 in earnings per share (EPS) and $4.98 billion in revenue for the fiscal first quarter. In the same period of last year, it posted $0.46 in EPS and $4.83 billion in revenue.

In the past quarter, Whole Foods announced sweeping changes to its corporate structure, eliminating the co-CEO positions in the company and consolidating it under just one chief executive. John Mackey took on this role. Former co-CEO Walter Robb remains on the board of directors and continue to serve as chairman for both Whole Kids Foundation and Whole Cities Foundation. The transition took effect at the end of December 2016.

Merrill Lynch said in a recent report:

As natural/organic food proliferates in the conventional channel, we think WFM will continue to be disintermediated by more convenient and lower priced competitors, particularly given WFM’s large trade area relative to other food retailers. We believe comps could remain negative into fiscal 2018 as headwinds from increased promotions at competitors, WFM’s value efforts, plans to streamline selection, and deflation are likely to offset the benefits from easier comparisons & ongoing sales initiatives. We also see limited impact from the 365 format given the recently reduced store growth outlook & “mixed” early results.

Whole Foods has been seeing decelerating comps as well, most recently in the fourth quarter (−4.2%) despite relatively easy comparisons. The two-year traffic trends are −5.0%.

A few other analysts weighed in on Whole Foods prior to the earnings report as well:

  • William Blair has a Market Perform rating.
  • Oppenheimer reiterated an Outperform rating.
  • RBC reiterated an Outperform rating with a $37 price target.
  • Barclays has a Hold rating with a $30 price target.

Excluding Wednesday’s move, Whole Foods has underperformed the broad markets, with the stock down 5.8% year to date. Over the past 52 weeks, the stock is down less than 1%.

Shares of Whole Foods were last seen up over 1% at $29.35 on Wednesday, with a consensus analyst price target of $29.95 and a 52-week trading range of $27.67 to $35.58.