It wasn’t long ago when Whole Foods (NASDAQ: WFM) was held in high regard. Whole Foods stores are loaded to the brim with nutritious food, drinks and supplements. Most of the stores feature an expansive hot foods section. Ask for a free sample, and you will be indulged without hesitation.
Unfortunately, the party is over for Whole Foods Markets. If you own shares of Whole Foods, it is time to move on to a new investment.
Underperformance in The Market
Whole Foods shares dipped to $28 in late March. The stock is currently priced slightly above $36. Part of the reason for this price bump is the fact that the company met its earnings expectations of 37 cents per share.
Merely meeting Wall Street expectations for quarterly earnings should not be cause for extended celebration. Little was made of the announcement that the chain’s same-store sales decreased nearly 3 percent for the quarter. It is the seventh straight quarter of negative comparable store sales. Sure, analysts expected a more significant dip. Yet the fact still remains that the company is making less money in established stores.
It is anticipated that same-store sales will be down 2.5 percent for the entire year, let alone the most recent quarter. This is an alarming trend that will likely continue across posterity unless major changes are made.
Whole Foods executives anticipate a mere one percent sales growth across 2017. This is a reduction from the previously announced expectation of 1.5 percent sales growth for the year. The company recently appointed nearly half a dozen directors along with a new CFO in an attempt to resuscitate its once-heralded brand.
Rise and Fall
Whole Foods’ stock peaked at $65 in 2013. Rewind to this point in time, and the grocers’ customers did not hesitate to pay a premium for healthy organic food and hard-to-find brands. How things have changed…
Whole Foods has endured a steady stream of negative publicity after attempting to gouge customers with lofty prices for basic items. Consider the fact that the company was chastised by the mainstream media for selling $5 asparagus water this past year.
Someone within the Whole Foods brass decided it was a good idea to place a single stalk of asparagus in a small container of water and sell it at thousands of times its actual value. This is just one example of the company’s numerous missteps in recent years.
Pressures Inside and Out
Things have gotten so bad at Whole Foods, that two of the company’s top shareholders have demanded the brand sell itself or merge with another grocer. Plenty of investors jumped ship after this well-publicized plea. It is clear that Whole Foods shareholders are fed up with the company’s dismal performance. One has to wonder if any major grocers would even consider acquiring or merging with Whole Foods.
One of the best reasons to sell Whole Foods shares or even short the stock is the rise of external competitive pressure. The grocery space is loaded with power players ranging from Wal-Mart to Sprouts Farmers Market, Albertsons and Trader Joe’s.
As time progresses, fewer shoppers are opting to pay Whole Foods’ exorbitant prices. The company has tried to obtain a share of the budget consumer market with its 365 chain. However, these comparably small and cheap stores have not reaped the success envisioned by Whole Foods executives. 365 expansion efforts have slowed in recent months.
Whole Foods is also losing business to online e-tailers. More and more people are opting to order groceries online for doorstep delivery. Amazon and an array of other start-ups are stealing an ever-growing portion of Whole Foods’ market share by offering such shopping and delivery convenience at comparably lower prices. The company must adapt by formulating an effective digital strategy in the near future.
Social Agenda Drawbacks
The lowest paid Whole Foods employees earn an average of $13.15 an hour. This is an egregiously high level of pay for laborers with an extremely limited skill set. Though the company’s so-called “living wage” inspires some Whole Foods shoppers to remain loyal to the brand, it is a serious drag on the company’s bottom line.
Whole Foods executives are especially prideful of their stores’ beauty. These shopping spaces are bright, shiny, and clean. Everything is neat and orderly. You can find all sorts of healthy organic foods produced in an eco-friendly manner stocked along the aisles. Yet these selling points will only take Whole Foods so far.
The bottom line is that most of the grocer’s products are overpriced. Whole Foods executives’ steadfast refusal to match or beat competitors’ prices will eventually spur the brand’s demise. The time to sell your Whole Foods stock is now.