For that cut, the stock's taking a deserved hit, dropping almost 10%.
That's totally understandable, but is it buyable? We have to answer a host of questions before we do the multiple analysis. What we will pay for that $1.58-$1.65 a share in future earnings and 5-6% same-store sales growth.
First, there's not a doubt that this company isn't the best of breed not just in the natural and organic space, but in the supermarket space entirely. But the whole industry is experiencing slowing sales after several years of acceleration.
I also don't think that you are getting a decline in the trend toward natural and organic. But you are getting a more crowded space with the addition of well-funded competitors like Sprouts (SFM), Fresh Market (TFM), Fairway (FWM) and Trader Joe's (the last being private so we have no numbers). Plus Kroger (KR), Safeway (SWY), Costco (COST) and Wal-Mart (WMT) recognize that they have to play in the space, with Costco CEO Craig Jelinek telling me that this space is not only NOT a fad, but the place to be in the next few years.I think the competition is behind some degree of the downshift -- remember it is a downshift and not an actual decline -- and that's going to be something this company will have to live with for ages, even as we saw both Fresh Market and Fairway recently disappoint, with the latter being a particularly horrendous number. The competition is going to keep a lid on gross margins, which is going to maintain that gross margin pressure that needs to lift for the same stores to re-accelerate. There's also the thought that Whole Foods is cannibalizing itself with all of its openings, which the company brought up in the previous quarter, but did not talk about much at all last night. Finally, there's the real wild card: the weather. How much did it play havoc with sales? The company's a no-excuses, no-complaining company, so we can't really get a bead on that other than traffic did seem to decline by an unusual amount. I don't see Amazon (AMZN) being the fault for that decline either, unlike so many other brick-and-mortar retailers.
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