Whole Foods Earnings Beat, Smaller Stores and Return to One CEO Could Lead to a Turnaround

Shares of Whole Foods Market (WFM)  were roughly flat in Thursday trading following a quarterly earnings beat and news that the company's founder will be reinstated as its sole CEO. The stock price had been up earlier in the day. 

This year has been a bumpy or Whole Foods and its investors, with its stock chart resembling a rocky mountain range. Since July, shares have seen a drop-off of about 17% as the company struggles with sales.

The eating habits of Americans have trended toward natural food free of artificial ingredients and preservatives. This is Whole Foods' niche, but other bricks-and-mortar stores, such as Kroger, and uber-convenient grocery shopping websites such as Amazon have been able to undercut Whole Foods' often-lofty prices. When even Wal-Mart is increasing its organic grocery and produce sections, natural foods have definitely gone "mainstream."

Whole Foods has been losing its market share.

The company has seen five consecutive quarters of falling sales. That includes the most recent, fourth quarter, for which the company reported on Wednesday. During the period, same-store sales fell by 2.6%, a bigger decrease than the 2% that analysts had been expecting.

However, investors were pleased with fourth-quarter earnings of $88 million, or 28 cents per share, on $3.50 billion in revenue. Wall Street had been calling for earnings per share of 24 cents on $3.50 billion in revenue.

But investors were also happy with the announcement that Whole Foods will reinstate its founder, John Mackey, as sole CEO of the company.

In 2010, Mackey, who had led the company since founding it in 1980, started splitting the CEO role with Walter Robb, who had more to do with daily operations and directly managing its growth. However, having just one CEO again should help the company make the big changes it needs to make to grow its business. Mackey has never been a wallflower in his approach to business.

There is also great precedence for founders who have returned to great success, including Starbucks' Howard Schultz and Apple's Steve Jobs.

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"I like our positioning, but I'm not going to sugarcoat it... We've got t up our game, and that's what we are intending to do," Mackey said Wednesday on the quarterly earnings call.

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Mackey declined to reveal details of a turnaround, but no doubt it will involve Whole Food's newest venture, a line of smaller stores centered around store-brand groceries at value prices. Called 365 by Whole Foods, these store are geared toward the Millennial market. Currently, there are only three 365 stores open, in California, Oregon and Washington state.

Whole Foods is taking steps in what could be the right direction. However, competition in the grocery sector remains tough. Whole Foods could make a promising long-term play. Keep an eye on the company as it attempts to turn its business around.

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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.

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