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Whole Foods (WFMI) Replies |
HenryTo
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Joined: 06 Aug 2004
Posts: 11260
Location: Los Angeles, California
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 Posted: Thu Feb 10, 2011 2:08 pm Post subject: |
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Morningstar on WFMI's 1Q earnings:
| Quote: | Whole Foods Has Momentum, but Market Pricing In Outrageously Optimistic Scenario
Whole Foods Market (WFMI) reported strong fiscal 2011 first-quarter results thanks to solid store productivity. The firm is benefiting from growing confidence among middle- and high-income consumers, and this momentum continues to carry the stock higher. In after-hours trading following the release of the earnings report Wednesday, the shares were trading 8% higher, and at 25 times our estimate of fiscal 2011 earnings, the stock is grossly overvalued, in our view. Our fair value estimate and 1-star rating remain in place because our assumptions for 2011 are in line with the firm's improved guidance, and we think there may be risks on the horizon that are not being accounted for by the market.
Total revenue for the quarter increased 14% to $3 billion, driven by new store growth and a 9% increase in identical-store sales. Greater traffic led to a 50-basis-point year-over-year improvement in the operating margin, which increased to more than 5%.We are impressed by the firm's ability to reinvigorate the top line, which we attribute to an improved price perception and effective merchandising efforts. However, comparisons will become more difficult going forward, and we do not expect the same level of identical-store sales growth for the remainder of the fiscal year. In addition, rising gas prices and the food inflation that may filter through to retail prices throughout the year may persuade the subsection of Whole Foods' customers who are still sensitive to price to trade down to cheaper stores once again.
We forecast revenue growth of 10% in fiscal 2011, which is at the high end of the firm's 7%-9% guidance for same-store sales and allows for some new store openings. We think the firm's inherent operating leverage will lead to modest profitability improvements. However, the current market valuation implies far too optimistic a scenario, in our opinion. The after-hours share price of $58 implies 14% growth in fiscal 2011 and double-digit growth thereafter, as well as operating margins of 7% every year, above the peak margin of 6% achieved only once in the past 14 years. This scenario assumes that consumer confidence grows indefinitely, and it gives Whole Foods the revenue benefit from an inflationary environment, which in itself is a lofty assumption, but none of the drawbacks of rising wage rates and health-care costs if inflation occurs. Greater store traffic is likely to lead to some operating leverage, and we do assume limited margin expansion (we forecast an average operating margin of 5% over the next decade, up from the 4.8% achieved on average over the past 10 years), but we think the margin expansion and revenue growth being implied by the current market valuation are unachievable. |
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HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11260
Location: Los Angeles, California
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| Posted: Tue Aug 24, 2010 2:40 pm Post subject: |
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FYI
S&P upgrades Whole Foods to 'BB' as sales recover
SAN FRANCISCO (MarketWatch) -- Standard & Poor's Ratings Services on Friday raised Whole Foods Markets Inc.'s (WFMI 35.36, +0.01, +0.02%) corporate credit rating to BB from BB-. "Whole Foods' recent rebound in operating performance during 2010 marked by high-single-digit increases in identical-store sales and roughly 20% higher EBITDA has exceeded our expectations," said S&P credit analyst Charles Pinson-Rose. Whole Foods' rating reflects the company's aggressive financial risk profile and the increasingly competitive nature of the food retail industry, according to the ratings agency. The outlook is stable. |
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rffrydr
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Joined: 30 Oct 2005
Posts: 16445
Location: Sunny California
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| Posted: Fri Aug 06, 2010 7:30 am Post subject: |
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Since when have earnings become such a daring season? Here's the revenue everyone's screaming about and still down 10% on a number. Index nation...we don't want to know.
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HenryTo
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Joined: 06 Aug 2004
Posts: 11260
Location: Los Angeles, California
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| Posted: Fri Aug 06, 2010 12:03 am Post subject: |
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WFMI dropped nearly 10% on its 3Q earnings report on Wednesday. Following is courtesy of Morningstar:
| Quote: | | Whole Foods WFMI reported third-quarter results that lend more evidence to the trend of higher-end retailers showing relative strength compared to lower-priced channels. The firm's initial forecast for fiscal 2011 indicated stronger top-line growth than we were expecting, but lower margin expansion. The rather muted outlook with respect to margins is a sign that the company will stay focused on price as the competitive environment remains fierce and economic recovery uncertain. The two factors largely offset each other, and thus we are leaving our fair value estimate in place. For the quarter, total sales increased 15.2% to $2.2 billion, driven by 8.4% growth in identical store sales (8.2% ex-currency) and new store openings. We have been impressed by the firm's ability to continue to drive an increasing number of transactions and average basket size after a weak 2009; however, we don't expect this level of store productivity going forward because the firm will face harder comparisons in upcoming quarters. Our initial forecast for comps in 2011 is 4% growth, slightly below the firm's expectation of 4.5% to 6.5% growth. Higher cost of goods sold was offset by lower occupancy costs, driving gross margin improvement of 13 basis points (excluding LIFO charges). Leverage of fixed expenses and fewer store closure costs drove operating margin improvement of 110 basis points to 5.3% in the quarter. |
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HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11260
Location: Los Angeles, California
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| Posted: Thu May 13, 2010 11:41 am Post subject: |
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Morningstar totally dropped the ball when it came to WFMI. It slapped a $23 "fair value" price on it as recent as just a few months ago:
| Quote: | | Whole Foods Market WFMI reported second-quarter results ahead of our expectations, and we are placing the firm under review as we update our discounted cash-flow analysis accordingly. We are impressed by Whole Foods' ability to turn the business around after a disappointing 2009. Sales for the quarter increased 13.4% to $2.1 billion, driven by comparable-store sales growth of 8.7% (8.2% on a constant currency basis). As a result, the firm is trending well above our expectation for 3.7% growth in comps for the year. The increased store productivity helped leverage rent and other fixed expenses, and as a result Whole Foods delivered $119 million in operating income, representing 5.7% of sales, up from 3.7% in the prior-year period. Although the firm will have tougher comparisons to lap as the year progresses, profitability is nonetheless running ahead of our projections. |
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HenryTo
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Posts: 11260
Location: Los Angeles, California
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rffrydr
Moderator
Joined: 30 Oct 2005
Posts: 16445
Location: Sunny California
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| Posted: Wed Feb 17, 2010 6:08 pm Post subject: |
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Remember there is a core-group here for whom WF is not a store--but a religion. And servant--paper or plastic IS a hard question. I recommend the W. Hollywood or Beverley Hills store to see what the new monied-class looks like.
This post brought to you from a Whole Foods market in nearby Arcadia--where an old man food "sampler" is bluffing his way through another free meal: "In all my years practicing law I have never....." "Backbone" is not sold here.
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HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11260
Location: Los Angeles, California
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| Posted: Wed Feb 17, 2010 4:48 pm Post subject: |
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WFMI up 12% in trading today. Note that Morningstar is revising its "fair value" on WFMI - it previously only assigned it a value of $20 a share:
| Quote: | | Whole Foods WFMI delivered first-quarter results ahead of our expectations, and we expect to modestly increase our fair value estimate to reflect higher operating projections for the fiscal year. Total revenue increased 7% to $2.6 billion, driven by a 3.5% increase in comparable-store sales. Although we had been expecting a rebound in comps this year, the firm delivered productivity well above our expectation for a 2% increase for the whole year. We were a bit surprised to see this improvement, which comes when consumer spending is still fairly weak. However, it appears that Whole Foods' initiatives to lower prices and cross-sell merchandise are working and drawing traffic back into stores. Total transactions and items per basket were up in the quarter, even as av erage basket size and price per item declined slightly. Additionally, the former Wild Oats stores are beginning to turn around, with comps up in the double digits. Effective inventory management and better purchasing terms offset any lost margin in lower prices, and drove an 84-basis-point improvement in gross margins (excluding LIFO charges). Tight cost control helped keep operating expenses in line, and as a result the firm delivered a 3.9% operating margin, up from 2.7% in the prior-year period. Whole Foods' positive comp momentum is continuing into the second quarter, which should fuel more margin expansion as well. |
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