Whole Foods Market Continues to Slide

Whole Foods Market Inc (WFMI) finished the week with a little uptick as volume spiked at the close on Friday, but the week's chart looks similar to Freddie Mac (FRE).

Of course, Freddie Mac dropped 43% this week while Whole Foods only dropped 6%. But the continued slide looks similar.

Love the Stores

I like the stores themselves although its customer base is the high end consumer which could be shrinking as consumers look for bargains at stores like Wal-Mart (WMT) or the same.

Fundamentals

Analysts have downgraded the earnings slightly over the past 90 days from 0.28 a share down to 0.15 a share. And the company has missed their last four earnings estimates, which is never a good sign. Sales are expected to grow 22% this year while earnings take a tumble down 31% year over year.

The Trade

There’s a lot of short interest in the stock, currently 19.7% of float. So being long the stock could provide a short squeeze if there’s any kind of positive news from the company. Yet the overall economy is not improving, inflation is staying for the time being, and Whole Foods Market is going to struggle for the foreseeable future.

Disclosure: none

Comments

[roedebunger:]

Here here Hedge! I could not agree with you more. One can only hope we may see our taleneted writer Mr. Patterson 'slide' out of his meager salaried job at seeking alpha, to pursue a life of "K-2" coloring book design, where thank god for the younglings sake---they cannot read his treachereous hate regarding the the color fuchsia.

2008 Aug 24 12:20 PM

[Captain Ame...:]

Whole Foods problems are self induced. Why it ever bought Wild Oats, a very second rate organic grocery store that never made any money for an ungodly amount of money is beyond me. It was clearly a defensive move to keep one of the major chains from buying it and invading its space. They borrowed to make this acquisition and have leveraged up the balance sheet, which has reduced their flexibilty during the economic downturn. This is not to long after they distributed most of their excess cash ($500+ million) in a special dividend.

I still think in the long run that Whole Foods is a great investment, but I'm clearly disappointed in the decision making by management. Its stores and their operations are far superior to most grocery chains and have very good margins.

One risk is Whole Foods trying to cater to more price sensitive shoopers through its private label program, which I think is a big mistake. One of its strengths is buying locally prepared products from small food producers, which creates its mistique. I've noticed since starting this private label program, they've reduced the offerings from these small food producers. Big mistake.

This is a good opportunity to enter the stock given the big pullback and take a chance on this stock.

2008 Aug 24 04:51 PM

[Swordman:]

The basic fact is that Whole Foods customers have more money to spend on food than shoppers at conventional grocery stores. Whole Foods caters to that market segment. As the economy deteriorates, those shoppers have less disposable income. They spend less and shop elsewhere. Whole Foods needs to adapt or it will continue losing revenue and market share.

2008 Aug 24 05:59 PM

[hedgemybets:]

Seeking Alpha deleted my messages which were critical of the poor writing and completely unanalytical, simple-minded observations made by the author of this article. The fact that Seeking Alpha would do this proves my point-Seeking Alpha will never be able to silence me though. Seeking Alpha is a hedgefund mouthpiece and nothing more.

2008 Aug 25 10:39 AM

[hedgemybets:]

Swordman
As I said in my past message which Seeking Alpha, the hedgefund masquerading as an investor friend online magazine, erased I will say again now. As you said in your premise of your statement, WFM customers are wealthier and have more discretionary income, they therefore can weather economy vicissitudes better. Swordman your logical conclusion doesn't make sense based on your premise. The fact that Seeking Alpha erased the message which is exactly as I am saying shows me Seeking Alpha is nothing but a hedgefund mouthpiece.

2008 Aug 25 10:59 AM

[User 155020:]

WF cannot survive simply by catering to the wealthy. They have too many stores in different areas of the country and their stores are too big. The rent and electricity is the same regardless of sales, the lower the volume the higher the expense as a % of sales. The competitors are taken away WF customers in droves, by price and service. Trader Joes is making it a point to open next door to WF and take away 300,000.00 a week in sales, is like taking candy from a baby.
As WF becomes more competive , their margins will detiriorate and their earnings will continue to suffer.

2008 Aug 29 12:06 PM

[Chickenpookie:]

By eliminating their dividend, WFMI has made themselves vulnerable to shorting. I hope you enjoy the ride down...

2008 Sep 02 09:00 PM