Retail Stocks: Organic Grocery Misses Earnings Target
By Ann Sosnowski
A Taipan Financial News Market Report (Sign up Free!)
In this article:
Whole Foods Markets Inc. (WFMI:NASDAQ) saw a sales increase in the second quarter.
But income of 32 cents per share missed estimates by four cents.
The delay in its acquisition of Wild Oats Markets Inc. (OATS:NASDAQ) most likely pushed the stock down.
----------------------------------------
Retail Stocks: Organic Grocery Misses Earnings Target
Whole Foods Market Inc. (WFMI:NASDAQ) didn’t give investors what they wanted on Wednesday.
The alternative food grocer saw sales increase 11.6% for its second quarter, a total of $1.5 billion. Comparable stores open at least a year saw an additional 6% sales increase.
Net income came in at $46 million, or 32 cents per share. The estimate for WFMI’s quarter according to industry analysts was 36 cents.
However… the company saw an increase in costs this time around, 114% gain to $15.6 million for pre-opening and relocation costs. The grocer opened six new stores during the second quarter, which equals 15 new stores opened in the past 12 months. The company plans to open more stores this fiscal year.
What I always like best about a company is its debt versus cash figures. Whole Foods has cash and investments of $170 million and debt of only $3 million.
The bad portion of the quarter came in the form of a gross profit decrease of 18 basis points. And direct store expenses increased 49 basis points.
As most retailers have already mentioned, Easter came early this year, which added to second-quarter sales growth. However, this sales growth will not be accounted for and will result in a drop in third-quarter income, both for Whole Foods Markets and most retailers across the board.
Another reason that Whole Foods’ earnings report turned investors off is the fact that its acquisition of Wild Oats Markets Inc. (OATS:NASDAQ) is not yet complete. WFMI extended the expiration of the bid on the company to May 22 so that it can work with the Federal Trade Commission to get the acquisition approved. The FTC has yet to state whether it will, or will not, challenge the deal.
------------------------------------
Read on… Get Market Report everyday! Sign up Free!
------------------------------------
Retail Stocks: Downside Gaps On Earnings
On the earnings news, investors dropped WFMI down to an open of $40.47 on Thursday morning, a drop in value of 11.6% on Whole Foods’ stock. This is the second time over the past six months that a downward gap has occurred on earnings.
The last occurred on November 3, 2006 at a gap down of 21% or nearly $14 per share, after the company suggested sales would slow and 2007 earnings would be impacted.
That’s what bothers me a little bit about shareholders’ actions. They already knew Whole Foods’ plans to open more stores and the impact that sales would have on its bottom line. So that news should have already been absorbed into the stock.
The Wild Oats acquisition news of the extended deadline was already known as well.
I expect that WFMI will get approved for the acquisition and the stock will rise again. The stock may trade flat for a while under its 50% Fibonacci retracement, but the stock is oversold and should come back to fill in that gap.
I’m watching the Diligent Investor portfolio very closely. We’re showing a loss of 17%, but over the long term I think the stock is still a good investment.
Once the stock begins to rise toward its 200-day Moving Average again, I’d suggest doubling down.
***
Ann Sosnowski is a small and mid-cap stock analyst for Taipan Financial News. She is the editor of Diligent Investor, a monthly newsletter that balances conservative and moderately risky investments that pertain to current market trends. She is also the editor of Diligent Investor Micro-Cap Hot Sheet, a monthly newsletter that finds the hottest penny and micro-cap stocks on the market.
Did you like this article? Get Market Report everyday! Sign up Free!
Related Articles
Retail Stocks: Playing the “Tween” Trend
Retail Stocks: The Purchase Power of Generation Y
Related Resources
Retail Stocks: Whole Foods Home Page
Retail Stocks: Growth Pains for Whole Foods (courtesy of Business Week)