The Good, The Bad And The Outlook For Whole Foods

According to Kelly Bania of BMO Capital Markets, Whole Foods' earnings report contained both encouraging and discouraging signs, which resulted in the analyst lowering her earnings per share estimates.

The Good

The encouraging signs in Whole Foods' report include:

• A 1.6 percent improvement in items/basket.
• An improvement in quarter-to-date comps from negative 2.6 percent in the fourth quarter to negative 1.6 percent in October.
• A "more confident tone" in management's ability to execute targeted price investments given better data analysis capabilities.
• The upcoming national launch of the loyalty program.
• Progress in the company's cost savings plan.
• A re-acceleration in marketing efforts.
• Steadier sequential comps compared to its peers despite the deflationary food retail environment.

The Bad

The analyst identified the following discouraging signs:

• A 4.2 percent deterioration in customer traffic during the quarter on a one- and two-year basis.
• Stabilization of comps remain slower than expected.
• The improvement in item/basket is not necessarily a reflection of value and marketing efforts.
• The company's guidance suggests a pullback in price investments compared with last year.
• Cost savings efforts are expected to be impacted by other costs such as occupancy and D&A.
• EBITDA margins will remain under pressure which poses a multi-year risk.

EPS Changes

Bania lowered her fiscal 2017 earnings per share estimate to $1.42 from a previous $1.49 on comps of negative 0.9 percent, which was lowered from a prior estimate of a 0.6 percent gain.

The analyst's fiscal 201 earnings per share estimate was also lowered to $1.3 from a previous $1.53.

Shares of Whole Foods remain Underperform rated with an unchanged $23 price target. At last check, the stock was up 2.77 percent at $29.30.