Whole Foods Market is no longer the Wall Street darling it used to be. The company, once favoured for its massive stock returns and rapid sales growth, used to trade at more than four times rival Kroger’s price-to-earnings valuation. After another disappointing earnings report on Wednesday, the company is now trading at just a 2.8 per cent premium to Kroger, the lowest in more than six years.
Whole Foods is facing mounting competition from both ends of the grocery-store spectrum. Discounters, such as Wal-Mart Stores and Aldi, are selling more organics. Specialty stores, such as Sprouts Farmers Market, are expanding as well. Mainstream competitors, meanwhile, are selling more natural and organic food, too. Kroger’s Simple Truth line of such goods has reached $1 billion in annual sales, eating into Whole Foods’ business.
“Historically their growth rates would dwarf those of the industry,” said Joseph Agnese, an equity analyst at S&P Capital IQ. “Those days are over.”
Whole Foods shares gained every year from 2009 through 2013, surging more than 12-fold. Last year, the stock fell 13 per cent, and the shares have tumbled 29 per cent so far in 2015.
A lot of that loss has to do with the chain’s slowing sales growth. On Wednesday, Whole Foods said fiscal third-quarter same-store sales rose 2.2 per cent, trailing analysts’ estimates. Revenue by that measure is up just 0.6 per cent for the first three weeks of the current quarter.
Rivals are turning in better numbers. Kroger’s same-store sales were up 5.7 per cent in the latest quarter, a figure that topped estimates. Comparable-store sales at Sprouts rose 4.8 per cent in the most recent quarter.
Whole Foods, which has about 420 locations, is fighting back the competitive onslaught with a new chain of stores, called 365 by Whole Foods Market. The locations will be smaller and have cheaper wares.
“The new format is our competitive response, our effort to say we recognize the world is changing and we’re going to try to do something about it,” co-chief executive officer Walter Robb said in June.
The first 365 store is scheduled to open in Los Angeles next year and will feature a wine bar. Whole Foods is planning to open a total of five in 2016.
Bloomberg News, edited by ESM
