Whole Foods Market: Taking The Temperature Of 'America's Healthiest Grocery Store'

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Summary

Whole Foods Market is one of the preeminent U.S. retailers for organic and natural groceries with stores in Canada and the U.K.

In spite of a dip in stock prices in the past year, Whole Foods has shown overall strong 5-year growth in regards to both EPS and to revenue.

In order to overcome its reputation as an expensive store, Whole Foods has recently launched a strategy to trim prices for consumers.

It is also investing heavily in new stores and remodeling old ones.

These new efforts appear to be successful, as store sales have increased 3.1%.

Whole Foods Market (WFM), with its trademarked soubriquet of "America's Healthiest Grocery Store" is currently the top retailer of natural and organic foods in the United States. The chain is international, with additional stores in Canada and the U.K., but remains headquartered in Austin, Texas.

A Company You Can Feel Good About

According to the Whole Foods website, this company was founded in 1980 in Austin, Texas when John Mackey and Renee Lawson teamed up with Craig Weller and Mark Sites to open their first store. The store gradually expanded nationwide and went international with expansion into Canada in 2002 and the U.K. in 2004. It currently has 403 stores worldwide (384 in the United States, 10 in Canada and 9 in the U.K.). To date, it employs around 87,000 workers.

For investors who want to support companies with a strong ethic, Whole Foods is definitely a company to consider. In its About Our Products section of the Whole Foods official website, it outlines the standards it sets for its vendors and they are some of the highest in the industry. It allows no foods in its store that contain hydrogenated fats or artificial colors or preservatives and has guidelines for responsibly grown produce and meat raised with consideration for animal welfare. Its environmental ethos has been an important part of its company climate from its inception.

It also has a good reputation for its treatment of its employees. Its website is quick to boast that it has been on the Fortune 500 List of "100 Best Companies to Work For" each year since 1998. It also recently clocked in at #14 out of 20 in the "People's Pick: 20 Great Places to Work in Retail", which is based on actual employee surveys and covers many aspects of company policies, atmosphere, pay and employee benefits.

Would You Like a Little Golf with Your Groceries?

Whole Foods Market is organized as a chain of grocery stores throughout the United States, Canada and the U.K. Its strategy has been to provide consumers with organic and oftentimes local groceries, personal care items and gifts; it has set very high standards for its vendors in regards to how the food is grown or raised and aims at a high level of transparency for its consumers. According to a recent article from CBS News entitled "Whole Foods Gives Investors Plenty to Chew On", this company has a reputation for expansion and innovation in regards to its stores: it is currently growing by around 40 stores a year and is also putting heavy investment into remodeling old stores. Its strategy historically has been to turn its stores not only into places to shop but into entertainment destinations: it has introduced features such as wine bars, rooftop gardens, and even a putting green into some of its newer buildings. This strategy appears to be having a positive impact on sales.

In an April 2014 article in Fortune Magazine entitled "Whole Foods Takes Over America", the article notes that a large part of Whole Foods success has been its expansionist policy. It draws attention to the fact that in an often lackluster grocery sector, Whole Foods has performed well and has successfully opened and maintained locations in even more unlikely places like Boise and Detroit. It has also been successful at opening multiple locations in same city, and in places as diverse as New York City, San Francisco and Tulsa.

Whole Foods Weathers the Storm

According to a NASDAQ article, "Is Whole Foods Market, Inc. A Buy Now Stock?", the author notes that 2009 was not kind to Whole Foods Market. The company suffered a low point in sales and revenue during the economic downturn and CEO John Mackey also offended a large portion of his consumer base after publishing an article in The Wall Street Journal critical of President Obama's healthcare plan. The store was able to weather the storm of criticism and ensuing boycott and after the low point of 2009, Whole Foods Market has shown a five-year upward trend; its sales and revenues have increased steadily from $9.01 billion in 2010 to $14.19 billion in 2014.

Food Fight?

The NASDAQ articles goes on to mention that competition in this sector comes mainly from stores like Sprouts Farmer's Market (NASDAQ:SFM) or retailers like Kroger (NYSE:KR), which have been aggressively adding their own in-store organic products in an attempt to woo away customers. Whole Foods has also had to fight against its image of being extremely expensive, earnings itself the soubriquet of "Whole Paycheck." In the last year or so, the company has had a strategy of trimming its prices down to fight this public perception; this strategy initially caused a dip in Whole Foods' stock, but now appears to be paying off: stores sales have bumped up 3.1% this year, which in turn has increased earnings by 9%. This seems to have insured investors that retailers such as Kroger do not appear to pose any substantial threat to Whole Foods Market's consumer base.

Smiles After a Slump

According to MarketWatch, the EPS (diluted) for Whole Foods Market has also shown an overall upward trend in the past five years. It has risen from $0.73 in 2010 to $1.56 in 2014.

It is noteworthy, however, that according to the previously cited NASDAQ article, in this past year Whole Foods' shares fell around 40%, mostly on concerns that the company's attempts to reduce its prices would interfere with profitability. However, stocks have since rebounded and the store's strategy has resulted in record earnings for 2014 (see above).

To Buy or Not to Buy

So, what is the overall risk or benefit to be had from investing in Whole Foods Market stock? On the plus side, there is the fact that Whole Foods has responded well to the competition from other grocery chains and remains a major player in the natural/organic foods sector despite the fact that mainstream grocers like Kroger have tried to unseat it by opening up their own in-store organic product lines, as noted in the NASDAQ article.

This article goes on to note, however, that buying stock from this company should come with some qualifications and that its appropriateness for stockholders is based mostly on how long they are willing to hold the stock. The article recommends against investment for short- to medium-term holdings since the company is still involved in a combination of store expansion and price reduction to rid itself of its "Whole Paycheck" reputation. It notes that these strategies will take time and are costly and could affect stock value in the short term.

However, the article also acknowledges that for a long-term investment, this is definitely a stock worth considering. Whole Foods has performed well in the past and has shown a five-year overall upward trend in both its revenues and EPS. Also, the CBS article notes that the company itself, when discussing its 3.1% rise in sales, expects in the coming year to see that number rise in the low- to mid-single digits. The company also has further expansionist plans and over the coming years seeks to triple the number of stores it has now, stating a goal of at least 1,200 store nationwide. This is a company which definitely has room to grow.

So it is a good investment? On the whole, provided the investor is not looking for a short-term quick profit but is willing to keep the stock in the long term, Whole Foods is a pretty safe bet. It has already shown that, even though it is smaller than many retail giants like Kroger that it can successfully compete in the niche market of natural/organic foods, a niche market that appears to be growing steadily as many consumers become more health-conscious as well as more demanding for transparency in regards to how their food is raised and where it comes from. Whole Foods provides this transparency with its very high-quality standards and this can appeal to a broad range of people.

Moreover, Whole Foods has proven that it has been able to recognize and successfully rise to meet both external challenges -- like the 2009 recession and competition from Kroger and other mainstream retailers -- and internal ones as well, such as the company working to overcome its reputation as a high-end or overpriced food market. Also, its expansionist policies do seem to be helping sales and, as it shows every intention of keeping up its rate of adding 40 stores a year into the future, this upward trend will likely continue.

In a nutshell, then, Whole Foods Market is a well-managed corporation with staying power, but would likely be a wiser long-term rather than short- or medium-term investment.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.