Whole Foods to Buy 4 New Frontiers Outlets - Analyst Blog

Whole Foods Market, Inc. WFM is set to acquire 4 stores from New Frontiers Natural Marketplace for an undisclosed amount. The acquisition is likely to be completed in the coming few weeks, following which the stores will bear the Whole Foods banner.

Of the 4 stores, each averaging 22,000 square feet, 3 are located in Arizona (Flagstaff, Prescott and Sedona) and the remaining one in California (San Luis Obispo). New Frontiers will continue to operate its store in Solvang, CA.

The acquisition is a strategic fit for Whole Foods as it will help the company expand in the markets of Arizona and California. Moreover, as part of the deal, Whole Foods will offer employment to the existing staff at the acquired outlets.

Whole Foods is one of the leading natural and organic foods retailer, with a strong brand image and marketing and merchandising expertise. The company has been spurring its sales through new store openings, acquisitions and comparable-store sales growth. The stock is poised to surge once the economy revives and the demand for healthier and natural food improves.

The stringent cost-control measures, effective inventory management, and improved store-level performance facilitated Whole Foods to register 8% year-over-year growth in the bottom line during the first quarter of fiscal 2014. Additionally, the company has been revamping its pricing strategy and concentrating more on value offerings, while maintaining healthy margins.

Moreover, the company has opened 25 stores in fiscal 2012 and 32 outlets in fiscal 2013. Whole Foods hinted that it wants to accelerate its pace of store openings in the coming years with current plans of opening 33 to 38 stores in fiscal 2014 and 38 to 45 stores in fiscal 2015. The company believes that there exists room for 1,200 stores in the long run and expects to cross the 500 stores mark in 2017.

However, the company faces challenges from increasing competition and aggressive pricing that weighed upon its first-quarter fiscal 2014 performance as more and more companies are entering into the Organic & Natural food business, specifically The Kroger Co. KR. Looking at the numbers, the quarterly earnings came in at 42 cents per share, falling short of the Zacks Consensus Estimate by a couple of cents.

Currently, Whole Foods carries a Zacks Rank #4 (Sell). Other better ranked retail stocks include Companhia Brasileira de Distribuicao CBD and Spartan Stores Inc. SPTN, which carry a Zacks Rank #1 (Strong Buy).