Austin, Texas-based Whole Foods Market passed a critical earnings test last week, regaining confidence from Wall Street, boosting its stock and putting a positive cap on an otherwise tough fiscal year.
Analysts applauded the results of the organic-food giant’s aggressive new game plan, which included the company’s first national ad campaign, a new national grocery delivery and pickup service, and adding a customer-rewards program, among other moves.
But what isn’t clear, analysts say, is whether Whole Foods can hold on to those gains — and find a way to build on them.
“It was a good quarter, but it’s too early to tell if it’s a favorable trend that will continue throughout the year and if it’s something to build up on,” said Joseph Agnese, an equity analyst at S&P Capital IQ. “We got some good, early results, but it’s uncertain whether that can be sustained. We are already starting the new (fiscal) year on a better foot.”
Whole Foods employs 85,000 workers at 402 stores worldwide. It plans to hit the 500-store mark by 2017 and 1,200 stores long term.
Last week, the retailer posted quarterly earnings per share of 35 cents, flat from a year ago. It also saw record quarterly revenues of $3.3 billion, up 9 percent from the same quarter in 2013. It beat analyst expectations of earnings per share of 32 cents and $3.26 billion in revenues.
Whole Foods also met expectations of same-store sales growth of 3.1 percent and said that figure has already risen to 4.6 percent in the first few weeks of the current quarter.
The company’s aggressive growth plans continued, adding a record 13 stores and announcing plans for another 12 stores, including their first locations in El Paso; Destin, Fla.; and Hoover, Ala.
For the fiscal year, Whole Foods posted record sales of $14.2 billion — a 10 percent increase from the previous year — and same-store sales growth of 4.3 percent, compared to 6.9 percent a year earlier. It added 38 new stores during that time.
STAGING A COMEBACK
Last week’s earnings report was a relief for investors after a series of subpar earnings reports in the past year.
In May, Whole Foods faced a hostile reaction from Wall Street when it missed earnings expectations and suffered its worst day on the stock market in more than two years, posting an overnight 20 percent decline on shares.
After years as the organic-foods leader, Whole Foods is facing stiffer competition, having seen traditional supermarkets, big-box stores and online retailers step up their offerings.
In July, the retailer launched a five-part strategy, with plans to continue to add stores, cut prices, update older stores, expand its digital reach with customers and begin its first national advertising campaign, which kicked off in late October.
TRANSFORMING A BRAND
As part of its new strategy, Whole Foods in the fall started a national grocery delivery and pickup service, a customer-rewards program in New Jersey, lowered produce prices at its Austin stores and added a national produce-rating system.
The rewards program, now at 11 locations, will be in most stores by the end of next year.
Whole Foods also introduced a new wines-by-mail club, and became one of the first Apple Pay retailers.
Whole Foods executives also said the aggressive price cuts have helped boost traffic at participating stores, and could be expanded in the future.
“Our value focus is on perishables, where we see opportunities to broaden our selection of products at entry-level price points, increase promotions and narrow price gaps on select known value items,” co-founder and co-CEO John Mackey said. “We are encouraged by the pricing experiments we are running in several markets, and if results continue to be positive, we expect to expand our tests to more markets during the year.”
Those efforts, combined with their innovation initiatives, will help keep Whole Foods ahead of the pack, analysts said.
“They have made some great strides marking down some key prices,” said Dwight Hill, a retail strategist and partner with McMillan Doolittle. “They have such an innovative vibe and shopping experience. They are keeping themselves ahead of the other retailers.”
The retailer faces a larger shift within the organic-foods industry itself as shoppers, increasingly interested in healthy eating, are also looking for better buys.
“There are a number of retailers trying to make organic more affordable,” said Thom Blischok, Chief Retail Strategist at Strategy&, a division of PwC. “I think it’s transforming and the American consumer is realizing the value of organic and they are expecting new levels of affordability.”