5 Positives (And 4 Negatives) From Whole Foods' First Quarter

On Thursday, Karen Short of Deutsche Bank commented in a note that investors can find five positives and four negatives from Whole Foods Market, Inc. WFM's first quarter.

The Positives

• 1. Earnings per share of $0.01 was "clean."
• 2. Comps were about in-line and sales strength was broad-based across departments, store age classes and regions.
• 3. The second quarter-to-date (first three weeks) comp of 4.9 percent was an acceleration on a two-year stack to 10.5 percent versus 9.9 percent in the first quarter and 9.0 percent in the fourth quarter. It was also above the 4.6 percent second quarter consensus.
• 4. Gross margins were lower by 20 basis points year over year, better than the 45 basis point decline expected.
• 5. Management's fiscal 2015 targets were reaffirmed, as expected, since management already suggested it would not update them throughout the year.

The Negatives

• 1. The company changed its definition of comps, which benefited the first quarter figure but "adds noise" in trying to evaluate historical trends.
• 2. The company provided less I/S disclosure by aggregating DSE and G&A into the SG&A expense line.
• 3. The company is benefiting from cycling cannibalization, making price investments and some winter storm-related tailwinds, making its real run-rate comp a bit more difficult to ascertain.
• 4. Last twelve-months lease-adj. return on invested capital was essentially flat on a sequential basis at 9.3 percent in the first quarter, and the focus on larger stores could depress return on invested capital moving forward.