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Whole Foods Discovers Stock Buybacks, And It's Too Little Too Late: Stock Tumbles Again
A quarter ago, when we commented on the latest post-earnings collapse in Whole Foods stock, we said that "Whole Foods Misses, Lowers Guidance, Or What Happens When You Ignore Buybacks At The Expense Of CapEx", and broke down the results as follows:
.. the luxury grocery chain moments ago reported revenues of $3.32 billion, missing the $3.35 billion expected, and EPS which also missed expectations of $0.41, instead printing at $0.38. Adding insult to injury, WFM also cut comp store sales guidance lowering its previous fiscal year comp store guidance from 5.5%-6.2% to 5.0%-5.5%, cutting sales growth from 11-12% to 10.5%-11%, and also cut EBITDA from $1.32-$1.37 billion to $1.29-$1.32 billion.
Ok, the results were horrible, but one key thing was missing.
WFM continues to be a cash cow, generating tremendous amounts of bottom line cash. Which perhaps was its biggest failing as well - WFM reported that "year to date, the Company has produced $619 million in cash flow from operations and invested $362 million in capital expenditures, of which $207 million related to new stores. This resulted in free cash flow of $257 million. In addition, the Company has paid $82 million in quarterly dividends to shareholders and repurchased $117 million of common stock."
The problem was clear: "Alas, this is nowhere near enough shareholder friendly activity to keep investors happy in a New Normal in which buybacks tend to be far greater in amount than CapEx spending."
As expected, the stock promptly collapsed by 10%:

A quarter later, Whole Foods management seems to have read our lament and acted accordingly. On the chart below see if you can figure out which is the company's quarterly stock repurchase and capex activity without peeking at the legend:
Indeed, that red bar soaring from a negligible $55 million to a whopping $361 million is precisely what happens when a company realizes that its only recourse to "goose" EPS is to go full tilt buying back its stock in the open market.
And sure enough, when WFM reported earnings moments ago, it "magically" beat EPS expectations of $0.39, courtesy of its raging repurchasing activity, printing a $0.41 EPS.
However, that was as far as it went. Unfortunately, while this time Whole Foods remember to repurchase as much stock as it could, it missed the key metrics starting with comp store sales, which were +3.9% on expectations of 4.8%, but the biggest impact was the reduced full year guidance as follows:
- Sales growth: 9.6-9.9%, down from 10.5-11.0%
- Comp store sales growth: 4.1-4.4%, down from 5.0%-5.5%
- Operating margin: 6.4%-6.5%, down from 6.5-6.6%
- EPS growth: 3-4%, down from 3-6%.
And so on. The stock reaction:
So while we congratulate WFM management on finally figuring out that in the New Normal financial engineering is perhaps the only thing that matters to get the algo momentum ignition boost upon announcing earnings, next quarter it may want to pay some more attention to the underlying business model too.
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Not the tums again, i need another case.
I hate Whole Paycheck anyway . . .
Exactly.
The middle class would like to shop there, but Kroger/Safeway are 25% cheaper.
I'd bet the upper middle class is stretched too, what with tuition costs and the un-Affordable non-Care Act.
Simple, Whole Paycheck doesn't go as far as it used to.
pods
And their cheese has moved, compention has grown exponentially
It's gotta be that 4% GDP growth and all that booming consumer confidence that is driving Whole Frauds price so high.
Yeah ... uhh .... yeah???
Paying $8 bucks for a dozen eggs….$2 per carrot…etc…seems to be harder for those Middle Class folks these days…can’t imagine why? ............ I mean with the ekonomy so robust and all....
...don't forget that there is also no inflation. /s
People selling real things like food and housing can only fool th emarket but so far. Those selling the intangibles like future technology are the only winners. Gamblers only bet on the unknowns. The known is not a bet and tangible stuff is just too damned "known". But a social media site, now thats an unknown if there ever was one and hang on cause the gamblers love that shit.
And how much of their sales growth is inflation?
I'm not even sure I know what profit and money mean anymore
The mixture of food products I buy is up about 10% overall this year versus late last year - a few things are flat but some are over 30% up. Not saying that is representative of the whole but it seem about right from talking with family and friends.
So if a food retailer says sales are up 6% I'll assume physical turnover is down about 4%, which mean less employees needed, a bit more hunger or getting by, etc. What a fucked up country.
As a practicing "minimalist", the things I thought were really important, just aren't. The important food is actually pretty cheap at a local Mexican market. Brocolli 2 pounds/$1, Kale 2 bunches/$1, Bananas 3 pounds/$1, Chia seed $4/pound, chicken <$1/pound, red onions 4 pounds/$1, I could go on.
Now dinner out? It is easy to spend $100 between the two of us at a nice place.
FGB
WF looks like a Kroger store these days... Half the store is boxed/frozen food, candy, and soda. Nothing Whole about it.
I rarely go to WF finding them too pricy. I prefer purchasing from local farmers ( though they have tried to capitalize on this by labeling more things "local". Sorry, Santa Barbara is not local to San Diego).
Though I have admired John Mackey in many ways in terms of libertarianism and his stance on Obamacare, I think WF has strayed from his original vision. Corporate Organics is just marketing in a box.
Miffed;-)
Everyday eats - fruits/vegetables/etc - Trader Joes
Staples - Kroger/Stop&Shop/ShopRite et al
High-end organic etc - grass fed beef/etc - WF ...or maybe not, depending on how overpriced they are that day.
WF was the leader but a victim of it's own success in that 'organic' is now everywhere and subject to margin pressure...being priced like Starbucks - in the grocery biz, especially in this economy is a losing strategy.
Here in So Cal there are other markets:
Fresh & Easy (owned by WildOats now)
Sprouts (great prices and simple store layout), like a farmer's market and very good/simple meats, excellent vitamins and I like the oregano capsules to ward off coughs.
Smart & Final (now has good sizes of everything). Everything there is at Ralphs or Vons, but is $1 cheaper at least per item.
TJ's of course
Once a year will go to Bristol Farms, and maybe 4 times a year to WF.
SPROUTS is very good market and only slightly more expensive than TJ's with much larger store.
hard to believe they are only 6% margin based on their pricing...
Whole Foods smells weird. Not sure if Whole Foods employees wear too much patchouli perfume or its something from the all natural meats isle, whatever it is, something weird is definitely going on at that place.
Might I suggest an affiliate marketing business model to rich chinese oligarchs. The 'real' American consumer.
Ok... I can clearly see the problem with Whole Foods. They need to change their name to FarmVille and not have any positive earnings or any tangible products to sell. That should be good for a 20% spike in share price for q-3 earnings.
Ref; Twitter aka Tweaker.
Whole? That's not the half of it.
Airlines pile on to buyback bandwagon http://www.marketwatch.com/story/airlines-pile-on-to-buyback-bandwagon-2...
Nothing to seeeeeeehhhhhh...............
Aw shucks! The buybacks aren't working! Mwahahaha!
Hard to believe the premium grocery market is struggling when GDP is growing at 4%
They should give up on groceries and remake themselves as a social media company
Sales too high AND showing a profit?
SELL!
Wholy shit!
fk whole foods
shop at costco
Fuck Whole Foods and their Shitty Distributor! If you all knew how they treat their suppliers, I'm sure that you would never shop their again! and fuck their CEO Douche Bag! FUCK THEM!
Go to Trader Joe's; at least their employee's are nice!; they also have a much better business model! Eliminate the middle man!
Would never shop there. $8 for like a dozen raspberries. No thanks!
Can some people give their thoughts on why companies engage in buybacks. Why does a director care what the price of the company's second, third, forth-hand stock is trading at?
Because that determines the value of their own personal stock and options.
Maybe they should start selling the stock they bought in the store on the rack next to People Magazine or the National Inquirer.
Shit, try anything and everything.