What Analysts Are Saying About Whole Foods After Earnings

After Whole Foods Market Inc. (NASDAQ: WFM) released its fiscal fourth-quarter earnings report late Wednesday, the stock initially saw a handy gain. But it ended up giving all the gains back. This was no small report either, as there were sweeping changes in management.

24/7 Wall St. has included some of the key highlights of the earnings report, as well as what some analysts are saying after the fact.

The company posted $0.28 in earnings per share (EPS) and $3.5 billion in revenue, versus consensus estimates from Thomson Reuters that called for $0.24 in EPS and $3.5 billion in revenue. The same period of last year reportedly had EPS of $0.30 and revenue of $3.44 billion.

The company 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 will be taking on this role. Former co-CEO Walter Robb will remain on the board of directors and continue to serve as chairman for both Whole Kids Foundation and Whole Cities Foundation. The transition will take place on December 31, 2016.

In terms of the outlook for the coming fiscal year, the company expects sales growth in the range of 2.5% to 4.5% and EPS of $1.42 or greater. The consensus estimates call for $1.47 in EPS and $16.43 billion in revenue for fiscal 2017.

Merrill Lynch downgraded Whole Foods to an Underperform rating from Neutral and lowered its price objective to $25. The brokerage firm detailed in its report:

We are downgrading WFM from Neutral to Underperform as we see increased risks to WFM’s comp and margin outlook from a more challenging operating environment. We are lowering our F17E EPS forecast from $1.55 to $1.42. We also believe WFM’s multiple will re-rate lower as comps and margins continue to come under pressure. Our PO is now $25 (was $34), which is 18x our F18E EPS of $1.40 (was $1.75).

Customer traffic declines accelerating WFM’s traffic comps decelerated dramatically (150bps) in F4Q to -4.2%, despite an easier comparison (2-yr traffic trends are -5.0%) and stepped-up promotions. As nat/org 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 F18 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.

A few other analysts weighed in on Whole Foods as well:

  • Barclays reiterated an Equal Weight rating.
  • Deutsche Bank reiterated a Hold rating with a $29 price target.
  • BMO Capital Markets with an Underperform rating with a $23 price target.
  • RBC Capital Markets reiterated an Outperform rating with a $37 price target.

Shares of Whole Foods were trading at $28.93 on Friday’s close, with a consensus analyst price target of $29.85 and a 52-week trading range of $27.67 to $35.58.

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