Ken Goldman, JPMorgan Chase (Overweight; $61 PT) "Though we appreciate the difficulty in being overly optimistic on a retailer with potentially decelerating comps, we are taking a long-term approach. Over time, healthy eating will continue to be one of the better growth stories in the US, we believe, and WFM is the best pure-play way to play this trend. Competitors likely will continue to take share, but even if comps slow to ~5% on a run-rate basis, the shares have significant upside potential over the next few years, by our measure."
Kelly Bania, BMO Capital Markets, (Outperform; $68 PT)
"We forecast WFM F1Q14 EPS of $0.45 vs. consensus of $0.44, based on comps of 5.8% - suggesting stable trends following the +5.8% previously reported quarter-to- date comps for the first five weeks of the quarter (through Nov. 3) however, we believe expectations are for comps as low as 5% based on recent weakness in the stock.""Potential negatives include a shortened holiday season (which could weigh on F1Q14 comps but not likely quarter-to-date comps) and ongoing cannibalization pressure in Boston (~20 stores as of 2012), while weather could be a wild-card and could impact quarter-to- date comps." Bania trimmed earnings estimates for the year by 2 cents to $1.65 a share due to higher pre-opening store expenses associated with the Dominick's transition. Karen Short, Deutsche Bank (Buy; $70 PT) "WFM's shares are down 8.5% year-to-date vs. -5.0% for the S&P 500 and are now trading at 11x our EV/FY15E EBITDA, in-line with its 10-year average. Despite the YTD underperformance, we are cautious on the stock heading into 1Q earnings on 2/12. We believe the weather-related disruption has likely persisted into 2Q, and we expect updated guidance to reflect the dilution associated with the acquisition of seven SWY stores in Chicago (higher pre-opening expense in 4Q14 than previously expected), some potential for inventory write-downs (spoilage) associated with the storms in Toronto, and gross margins more in-line with the 34%-35% long-term target (they have been running above). Although a weaker-than-consensus comp in 1Q14 and into 2Q14 appears to be widely expected, a lower gross margin could feed the thesis that WFM's gross margin structure is 'too high.' We disagree with this thesis/fear given the sales mix which is much more heavily skewed to higher margin prepared food versus any and every competitor. In addition, our analysis indicates WFM could match [Kroger] (not necessarily a realistic comp from a competitive perspective) on up to 3,000 SKUs (reducing prices on identical SKUs by 13.4%) and still maintain their stated 34%-35% gross margin goal. We believe the negative thesis on the stock reflects a price investment well above this range." Short lowered estimates by a penny to 43 cents a share and same-store sales comps to 4.2% from 6% in a Feb. 5 note. Mark Wiltamuth, Jefferies (Buy; $68 PT) "In the wake of Whole Foods' same store sales slowdown last quarter, we have fielded a number of investor questions around whether or not the organic/natural retail marketplace is getting too crowded. Are these retailers bumping into each other? Our analysis shows that the head to head competitive overlaps are not that onerous." "Rather than focusing on potential head-to-head collisions within the natural/organic industry, we believe investors should focus on the opportunity for the natural/organic grocers to add stores as the organic trend continues to expand. We estimate that natural/organic food sales are currently only 6.5-7.0% of the broader grocery market." --Written by Laurie Kulikowski in New York. Follow @LKulikowski
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