Canaccord Analyst: Whole Foods Market Builds Investor Confidence

Whole Foods Market, Inc.'s WFM scale should enable it to prosper in an increasingly competitive market while higher spending will result in continued earnings growth, an analyst said Tuesday.

The Austin, Texas-based retailer has gained about 4 percent since it posted earnings last month, although shares closed Tuesday at $55.54, down $0.68.

Canaccord's Scott Van Winkle reiterated a Buy rating and $60 target following a February 27 investors conference with the company's management.

Whole Foods said last month that additional investments in technology and marketing, as well as in new and existing stores, will result in a greater decline in gross margin during 2015 than during 2014.

Gross margin in the first quarter ended January 18 slipped 20 basis points to 34.8 percent, continuing a trend seen in the preceding period.

Whole Foods shares fell sharply last year on competition concerns, but Van Winkle said the company is focused on building investors' confidence in its ability to compete and grow.

Given rapidly increasing demand for high-end groceries, Van Winkle said the company is "well positioned" in its industry.

Whole Foods maintained its outlook last week for 2015 sales growth of 9 percent and same-store sales growth in the mid single-digits.

For the year ended September 28, total sales grew 10 percent to $14.2 billion, while same-store sales increased 4.3 percent.

Van Winkle said Whole Foods' partnership with San Francisco startup Instacart, which enables customers to obtain home delivery of Whole Foods' products via the Internet, is producing weekly sales of about $1.2 million.

The Instacart program accounts for up to 5 percent of sales at the most successful sites where it is currently available.

Whole Foods expects to roll out the service to about 60 percent of its customer base by year end, Van Winkle said.