Cowen: 'Not A Whole Lotta Love' In Whole Foods' Earnings Print

In a report published Thursday, Cowen And Company analyst Jerry Gray maintained a cautious tone on

as a "significant" deceleration in store traffic resulted in sales to fall short of expectations in its second quarter. Whole Foods reported an earnings per share of $0.44 in the second quarter, two cents better than Gray expected as better purchasing more than offset an increase in promotions. However, the company's same-store sales growth of "only" 3.5 percent missed his estimate of 5.3 percent, despite a 50 basis point benefit from the Easter calendar shift. Gray continued that comp trends were not off to a good start in the third quarter as same-store sales higher by 2.8 percent (over the five week period ending May 3). With that said, the analyst argued that Whole Food's multiple is largely driven by investor sentiment around the company's same-store sales growth trend. Looking forward to the remainder of the year, Whole Food's reiteration of its fiscal 2015 sales and earnings guidance implies a "significant" worsening in gross margin trends that may prove conservative given the strong performance of the company's purchasing department along with its product promotion program and "sharpening" price points. As such, the analyst argued he does not see any potential for margin upside in the near-term, and investors should be cautious over Whole Foods' long-term margin given its commitment to improving its value proposition. Finally, Gray stated that Whole Foods has decided to "throw their hat" into the value ring with a newly announced lower-priced, lower-service version of Whole Foods market. This move will make the company a "formidable" competitor within the value-end of the healthy grocery space. However, investors should "avoid" buying shares until there is "meaningful" evidence that same-store sale trends are likely to improve. Shares remain Market Perform rated with an unchanged $53 price target.