Whole Foods Can’t Buy Investors Love

November 4, 2015 by Paul Ausick

Whole Foods produce
Source: courtesy of Whole Foods Market Inc.
Whole Foods Market Inc. (NASDAQ: WFM) reported fourth-quarter and full-year fiscal 2015 results after markets closed Wednesday. For the quarter, the high-end grocery store chain posted diluted earnings per share (EPS) of $0.16 on revenues of $3.44 billion. In the same period a year ago, the company reported EPS of $0.35 on revenues of $3.26 billion. Fourth-quarter results also compare to the Thomson Reuters consensus estimates for adjusted EPS of $0.35 and $3.47 billion in revenues.

Fourth-quarter results included a non-cash asset impairment charge of $46 million, or $0.08 per diluted share, and a restructuring charge of $34 million, or $0.06 per diluted share.

For the full year, Whole Foods posted diluted EPS of $1.48 on revenues of $15.39 billion, compared with fiscal 2014 EPS of $1.56 on revenues of $14.19 billion. The consensus estimates called for adjusted EPS of $1.67 on revenues of $15.42 billion.

Same-store sales slipped 0.2% on a comparable currency basis compared with the same period a year ago. Fiscal year comparable store growth came in at 2.5%.

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Whole Foods guided fiscal year 2016 sales to rise by 3% to 5%. Regarding comparable store sales the company said:

The higher end of the sales outlook reflects a 2.8% two-year comp, in line with the current run rate, and flat comps for the year, improving from -2% in the first quarter, to relatively flat in the second and third quarters, to 3% by the fourth quarter. The lower end of the sales outlook reflects the possibility that comps could get marginally worse before they get better, with an inflection point later in the year.

The company also plans to open 30 new stores in the next fiscal year.

Whole Foods has also announced separately a new capital allocation plan including a new $1 billion stock buyback program and a quarterly dividend increase of 4% to $0.135 per share. Also included is a $500 million revolving credit facility and an announced intention to borrow $1 billion in long-term debt before the end of the company’s first fiscal quarter. Proceeds from debt offerings would be used for general corporate purposes, including share buybacks.

For the 2015 fiscal year, Whole Foods paid $184 million in quarterly dividends to shareholders and repurchased $513 million of common stock. The company’s co-CEO, John Mackey, said:

In the face of increasing competition, we are not standing still. … We recognize the need to move faster and go deeper to rebuild traffic and sales and create a solid foundation for long-term profitable growth and are taking the necessary steps to better communicate our differentiation, improve our value perception, and fundamentally evolve our business.

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The capital allocation announcement has not been enough to turn the heads of investors who are undoubtedly disappointed at the poor earnings show and the miss on estimated revenues.

Whole Foods’ shares traded down about 5.7% after-hours on Wednesday at $28.95, below the stock’s 52-week range of $29.73 to $57.57. The current low was posted on Monday. Thomson Reuters had a consensus analyst price target of around $35.76 before the report.