Several industry analysts seemed to express skepticism Tuesday about optimistic expectations by Whole Foods Market in the face of increasing competition and lowered guidance for the balance of the fiscal year.
Speaking with company executives during a conference call, Ken Goldman, an analyst with J.P. Morgan, said he was surprised by the positive tone the company was taking.
“You’re telling us your estimates for the next couple of years are significantly too high and your stock is down around 14%. One question I’ve been getting lately is, does Whole Foods management appreciate that the world has changed and there is a lot more competition out there? I’m not really hearing anything that suggests management is taking this situation as seriously as some investors want you to, and I don’t hear a lot of talk about what it takes to operate in a changed market.”
In response, John Mackey, chairman and co-CEO, said, “While we may not have been as aggressive as we could have been, we’ve continued to bring prices down, invest in technology and become more disciplined on the cost side while expanding the store base, and that’s our approach.”
For the second quarter ended April 13 net income was flat at $142 million, while sales increased 10% to a record $3.3 billion and comparable store sales, including the shift of Easter to this year’s third quarter, rose 4.5%; for the first half net income fell 4.2% to $300 million, while sales rose 10% to a record $7.6 billion and comps, including the negative impact of the Easter shift, increased 5%.
For the balance of the year Whole Foods said it expects sales growth of 10.5% to 11%, compared with earlier expectations of 11% to 12%; comps to be in the range of 5% to 5.5%, compared with earlier guidance of 5.5% to 6.2%; and earnings per share of $1.52 to $1.56, compared with earlier expectations of $1.58 to $1.65.
“This is not new guidance but rather a reasonable roadmap of how we are thinking about evolving our business model,” Walter Robb, co-CEO, said. “We have a clear point of view of what we need to do to improve our value image and extend ourselves digitally to add convenience and flexibility to support our customers’ busy lifestyles. We will [also] work to improve our cost structure to offset the impact of our value and technology investments and expect to produce year-over-year improvement in operating margin in 2015 and beyond.”
The company also said it expects sales to approach $25 billion over the next five years.
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