Captain America

Whole Foods Market Continues to Slide

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.