Krause Fund Research Spring 2017 Whole Foods Market, Inc. (NASDAQ: WFM) Recommendation: SELL Consumer Staples April 17, 2017 ANALYSTS Yue Li
[email protected] Current Price: $34.52 Hannah Hendricks Target Price Range: $25.00 – $28.00
[email protected] Rachel Langholz U.S. LARGEST ORGANIC GROCER
[email protected] CHALLENGES COMPANY OVERVIEW • Intensifying Competition: Due to a growing number Whole Foods Market, Inc. (NASDAQ: WFM) is of retailers entering the organic food market, WFM has recognized as the nation’s leading natural and organic experienced a stark decline in store traffic and same-store foods grocer within the broader food retail industry. sales. Considering WFM’s recent sluggish performance, we With the unique designation as the first “Certified forecast fewer new stores openings going forward, Organic” supermarket, WFM primarily operates within decreasing from 24 in 2016 to 18 in the CV year. the continental U.S. with smaller presences in Canada • “365 by Whole Foods Market”: Given a shift in and the United Kingdom. The firm largely competes consumer preferences, we anticipate this lower-cost store within its perishable and non-perishable verticals on the format to be the dominant driver of future revenues, basis of product leadership, which relies on high quality accounting for over 80% of additional stores opening in the standards and strong product differentiation. CV year. However, it may not prove to be a viable source Furthermore, WFM has introduced a newer, low-cost for long-term organic growth. store model “365 by Whole Foods Market” to increase • Stock Underperformance: While the S&P 500 its engagement with a broader customer base and increased 15% over the last 12 months, there was only a 4% rebuild its market share lost to large-scale food retailers.