Argus Would Like To Add Whole Foods To The Buy List, But Can't Quite Bring Themselves To Do It

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Argus’ Chris Graja expects Whole Foods Market, Inc. WFM to witness reduced sales growth during the current quarter, offset by an increase in share buybacks.

Graja maintains a Hold rating on the company.

Guidance Cut

Management has lowered its square footage growth guidance to 6 percent.

“We continue to expect share repurchases but we are expecting future buybacks to be from internally generated cash rather than from new borrowings,” Graja mentioned.

Increasing Competition

Based on store visits, the analyst believes that competition has been increasing across various fronts, especially with The Kroger Co KR ramping its natural and organic food offering.

Related Link: Goldman Sachs Still Buying Sprouts Farmers Market: "Ready For A Storm"

Stronger Signs Needed

“We would still like to get WFM back on the BUY list, but we need to see additional indications that comp sales have stabilized and that the company is generating stronger increases in transactions as a sign that it is winning customers,” Graja stated.

The analyst believes that the company would need to work harder to establish its value proposition, which could require greater price investments than earlier expected.

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Whole Food Market’s transactions decline 2.7 percent in 3Q.

The FY17 EPS estimate has been lowered from $1.66 to $1.50, to reflect the steep decline in sales growth.

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Posted In: Analyst ColorEarningsGuidanceReiterationAnalyst RatingsArgusChris Graja
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