Wedbush: We're 'Concerned' Whole Foods' Best Case Scenario Is Not A Beat

• Whole Foods Market, Inc. WFM shares have declined 38.68 percent year to date, hitting a low of $29.96 on October 30.
• Wedbush’s Phil Terpolilli has maintained a Neutral rating on the company, with a price target of $38.
• Terpolilli expects the company to post mixed 4Q15 results, and expressed concern that the company might “at best meet investor expectations.”

Analyst Phil Terpolilli expects Whole Foods to report its 4Q15 revenue below the consensus, with an in-line EPS. Gross margins are expected to have declined 50 bps year on year.

“We are concerned WFM may at best meet investor expectations given that our mixed 3Q survey results indicated the company failed to generate meaningfully traffic or basket size trends with incremental promotional activity,” Terpolilli said.

Terpolilli expressed concern regarding the stock performance, given the structural pressures being faced by the overall specialty retail food segment.

According to the Wedbush report, the “3Q Pricing and Store surveys of specialty retailers noted ongoing pressure on WFM from key nonspecialty competitors.”

Although there was a year on year increase in promotional activity, there was no material rise in incremental shipping trips or increase in baskets, while pricing investments by the company remained steady, according to the surveys.

Although Whole Foods’ long-term outlook appears favorable, as compared to its specialty peers, Terpolilli expressed concerns regarding “incremental negative headwinds,” while mentioning that he did not “foresee a meaningful share rebound in the near to medium term.”

“Coupled with our continued structural concerns for specialty grocers, we believe it’s prudent to shift to a wait-and-see approach to gauge if Whole Foods can recapture consumer trust and successfully execute on these initiatives,” the report added.