Whole Foods Market’s Fiscal 1Q17 EPS Fell 15% on Higher COGS, SG&A

As we discussed in the previous article, Whole Foods Market (WFM) reported its sixth consecutive decline in sales comps during fiscal 1Q17.[1. quarter ended January 15, 2017]

Gross margin was down 43 basis points to 33.6% during the quarter. This decline was primarily due to a rise in COGS (cost of goods sold) as a percentage of sales and an increase in occupancy costs.

WFM’s operating profit also fell 13.5% YoY (year-over-year) to $218 million as SG&A[2. selling, general, and administrative] expenses jumped 12 basis points to 28.6% of sales.

Salary costs improved 42 basis points as a result of the company’s ongoing cost control initiatives. This improvement was more than offset by a rise in depreciation and marketing expenses.

Whole Foods Market’s operating margin fell 79 basis points to 4.4% in fiscal 1Q17. A 4.4% operating margin is still a strong number when compared to peers Kroger (KR), Sprouts Farmers Market (SFM), and Supervalu (SVU). However, Whole Foods Market posted an average operating margin of 6% between fiscal 2014–2016.

Kroger, Sprouts, and Supervalu had operating margins of 2.7%, 3.6%, and 0.03%, respectively, in their last reported quarters.

Whole Foods Market’s (WFM) earnings per share (or EPS) fell 15% YoY to $0.39 per share. This was the third straight quarter of EPS decline for the company. However, its earnings were in line with average Wall Street estimates.

Investors seeking to add exposure to Whole Foods Market can consider the Market Vectors Retail ETF (RTH), which invests 1.4% of its portfolio in the company.

Read on to learn about WFM’s revised guidance for fiscal 2017.