Not even John Mackey, Whole Foods’ admirably brash and reckless CEO, can tank this company.
Even after Mackey alienated the store’s liberal fanbase by voicing his opposition to Obamacare in The Wall Street Journal, analyst estimates for the company’s fourth quarter results are above expectations:
JP Morgan: Ahead of Whole Foods 4Q print (11/4: AMC, details herein), we are raising our EPS estimate to $0.23 from $0.20 – a nickel above the Street (guidance of $0.16-$0.18) on the heels of better sales (down 2.0% ID), improved GPM (+68 bps), and expense discipline (SC margins of 7.9% vs. guidance of 7.2%).
Importantly, however, we believe our new numbers are already baked into buy-side expectations. Regarding the stock, recall that WFMI is up 251.0% YTD (SPX +18.0%) and trades at 27.6x our 2010 EPS – while we’d argue that the stock deserves a premium multiple relative to its traditional grocery peers – the current gap with Kroger (11.2x) seems a bit excessive, in our view. All in, we’ll remain Neutral and patiently wait for a better entry point.
In English, it means Whole Foods is doing quite well. JP Morgan points out three important factors that led to its conclusions:
1. Value strategy — Whole Foods is finally shedding the stigma of being a high-priced grocery store.
2. Inventory Management — Eliminating SKUs in favour of technologies like RFID and improved distribution oversight.
3. Efficiency — Cutting labour costs and saving money to increase the bottom line.
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