Barclays Comments On Whole Foods' 'Risky New Format'

In a report published Thursday, Barclays analysts maintained an Equal-Weight rating on

, while reducing the price target from $51 to $45. Whole Food Market reported its 2Q15 EPS marginally ahead of expectations. The company also announced its decision to launch a totally new format wherein centrally managed stores will offer high-quality food and value pricing and have a streamlined design and assortment. The company indicated that it had steered away from its current format as this could not offer "a true value experience" for customers. The analysts view this as a "capitulation." Although the company believes that category demand is "exploding," its "goal of getting to 1,200 stores, especially if it competes with this new format, seems like a big stretch," the analysts mentioned. "Also, in our many years of experience, we have never seen a food retailer operate an entirely new format successfully, especially one that is so different. Opening stores is likely to be easy, but operating them satisfactorily without any institutional understanding of the concept could be a challenge," the analysts added. Whole Foods Market also guided to a slowdown in its comps to 3.1 percent in 2Q15 after adjusting for the Easter shift and 2.8 percent for the first five weeks of 3Q after adjusting for a big promotion last year. Rising competition is expected to continue to exert pressure on Whole Foods Market's comps despite the company's various initiatives like refreshing stores, developing an infinity program, lowering produce prices in some markets, enhancing the availability of Instacart and undertaking value advertising. The EPS estimates for FY15 and FY16 have been reduced from $1.72 to $1.67 and from $1.93 to $1.83, respectively.