uploads/2016/04/220.jpg

Key Factors behind the Slowdown in Whole Foods’ Sales Growth

By

Updated

A look at WFM’s top line in 1Q16

Whole Foods Market (WFM) reported a 3.4% year-over-year (or YoY) increase in revenue to $4.8 billion in fiscal 1Q16, which ended January 17, 2016. The company’s sales topped Wall Street estimates by 0.4%, or $20 million.

The company achieved a positive surprise after 12 consecutive quarters of either a negative or zero earnings gap. However, fiscal 1Q16 was Whole Foods Market’s slowest sales growth quarter since fiscal 2014.

Article continues below advertisement

Same-store sales trend

Whole Foods Market’s (WFM) topline growth was primarily fueled by new store openings as it reported a 1.8% decline in same-store sales during fiscal 1Q16. This was the second consecutive quarter of negative same-store sales for the company after reporting a 0.2% decline in fiscal 4Q16.

The company had cited an intensely competitive environment and increasing cannibalization as the main reasons for the decline.

Until fiscal 2014, Whole Foods Market had delivered best-in-class same-store sales. The company was one of the few successful players in the organic and natural space with no real competition around.

Competition

However, the company scrambled to keep pace with the rising competition after the entry of Kroger (KR), Costco (COST), and Walmart (WMT) into the organic food space. In addition, it gained negative publicity from allegations of overcharging on prepackaged foods and mislabeling weights, which dented its image.

The VanEck Vectors Retail ETF (RTH) invests ~17.5% of its holdings in Whole Foods Market (WFM), Walmart (WMT), Costco (COST), and Kroger (KR).

Article continues below advertisement

Comparing WFM’s same-store sales to peers

Whole Foods Market’s average same-store sales stood at 7.1% between fiscal 2010–fiscal 2014, as compared to 3.7% for Kroger (KR), 4.5% for The Fresh Market (TFM), and 0.3% for Walmart (WMT). However, Whole Foods was among the worst-performing supermarkets in the last reported quarter.

The company’s sales comps stood -1.8% as compared to Kroger’s 3.9%, Costco’s (COST) 5%, and Walmart’s 0.4% in their latest quarters. The Fresh Market had reported the lowest (at -3.7%) while Sprouts Farmers Market (SFM) reported the best same-store sales (at 7.4%) in the supermarket peer group.

What can you expect from WFM’s same-store sales now?

Whole Foods Market (WFM) is likely to see a further deceleration in sales comps, at least in the next few quarters. The company’s management has guided the company’s same-store sales to lie between -2% to 0% during fiscal 2016.

Read on to learn about Whole Foods Market’s margins and profitability drivers.

Advertisement

More From Market Realist