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Natural and organic foods grocer Whole Foods (WFM) reported lower-than-expected fiscal fourth-quarter results. Total sales advanced 2% from the 13-week period last year and 10.8% on a comparative 12-week basis, but comparable store sales growth of 5.9% during the quarter came in below our estimates. The firm's 'two-year comps' trend (shown in table below) has slowed from the previous sequential three quarters, and it looks as though the slowdown has continued into the first quarter of fiscal 2014.

(click to enlarge)

Image Source: Whole Foods

The firm's gross profit increased 37 basis points to 35.6% of sales in the quarter, and store contribution improved 43 basis points, to 10.3% of sales. Diluted earnings per share advanced 7% from the fourth quarter last year, an increase of 7%. Free cash flow in the period totaled $31 million (cash flow from operations of $191 million less $160 million in capital expenditures).

Looking ahead, Whole Foods lowered its earnings outlook for fiscal year 2014 and now expects sales growth of 11%-13% (was 12%-14%), comparable store sales growth of 5.5%-7% (6.5%-8%), and diluted earnings per share growth of 12%-15%, to $1.65-$1.69 (was $1.69-$1.72). The firm continues to expect to open between 33-38 stores for the year.

Valuentum's Take

Whole Foods did a classic 'no-no' for a high-multiple equity: it ratcheted down forward expectations. Though the company's future growth rates remain robust, the new and lower expansion trajectory ultimately has an impact on future earnings and cash flows, and by extension, the firm's intrinsic value. Shares have fallen aggressively today to our fair value range (at the time of this writing). We don't expect to be active in the company anytime soon in our Best Ideas Newsletter.

Source: Whole Foods Ratchets Down Forward Expectations