Investors want their portfolio to have stocks with a track record of earnings beat, surging share price and a favorable recommendation. However, Whole Foods Market, Inc. WFM failed to satisfy any of these criterions. So what went wrong with this Austin, Texas-based natural and organic foods supermarket chain operator? Let’s find out.
Whole Foods delivered back-to-back negative earnings surprises in the third and final quarters of fiscal 2015. The company posted fourth-quarter adjusted earnings of 30 cents a share that lagged the Zacks Consensus Estimate of 35 cents and fell short of management’s projection as well due to lower-than-expected sales. The fourth-quarter earnings miss and year-over-year decline of 14.3% were enough to hurt investors’ sentiment.
Although, top line improved 5.6% year over year to $3,438 million, it fell short of the Zacks Consensus Estimate of $3,480 million, marking the 12th straight quarter of revenue miss. Analysts believe that intense competition and the allegation of overcharging some prepackaged foods is weighing upon the performance of this Zacks Rank #4 (Sell) stock that has fallen roughly 34% year-to-date.
Companies such as The Kroger Co. KR, Sprouts Farmers Market, Inc. SFM and Wal-Mart Stores Inc. WMT are gradually entering and expanding their presence in the Organic & Natural food business, thereby posing a competitive threat to Whole Foods. However, the latter has been revamping its pricing strategy, with focus on value offerings, along with the introduction of a new “uniquely-branded store concept”, "365 by Whole Foods Market” to counter the same.
Following Whole Foods discouraging performance, the Zacks Consensus Estimate witnessed a downtrend. Analysts polled by Zacks are now less constructive on the stock’s future performance. Over the past 60 days, the Zacks Consensus Estimate of $1.59 and $1.64 per share for fiscal 2016 and fiscal 2017 has declined 11.2% and 16%, respectively.
With Whole Foods’ share price tumbling and estimates witnessing downward revisions, it would not be prudent to keep the stock in your portfolio, at least for the time being.
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