As Grocer Guidance Cuts Abound, Goldman Still Sellers Of Whole Foods

The grocery landscape continues to be challenging with ongoing deflation; and competition has significantly intensified. “We do not expect grocer gloom to give way to a boom anytime soon,” Goldman Sachs’ Stephen Tanal said in a report.

Analyst Tanal reiterated a Sell rating on Whole Foods Market, Inc. WFM, saying that the company’s SSS decline could be steeper than was earlier anticipated. He reduced the price target from $31 to $28.

Reducing Expectations

Tanal commented that competitive pressures could weigh on Whole Foods’ FQ4 performance. He wrote, “We now expect SSS to decline more than we previously modeled in its fiscal 4Q2016 – the 12-week period ending September 25, 2016 – which captures the nadir in year-on-year cost deflation.”

The FQ4 SSS estimate has been reduced to a decline of 2.8 percent, which is below the consensus expectation of a 2.1 percent decline. The EPS estimate has been lowered from $0.29 to $0.21, which is now 13 percent below the consensus of $0.24.

The EPS estimates for FY16, FY17 and FY18 have been reduced by 1 percent, 3 percent and 3 percent, respectively, to reflect lower SSS forecasts due to competitive pressure and deflation. “Specifically, weaker SSS due to deflation and a competitive pressure drive greater occupancy deleverage, which is likely to exacerbate the impact of WFM’s ongoing price investments on gross margin,” the analyst stated.

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