Whole Foods Downgraded At Cleveland Research, Firm Warns Of Downside Coming

• The share price of Whole Foods Market, Inc. WFM has declined 38.75 percent year to date, hitting a low of $30.75 on September 28.
• Scott Bender of Cleveland Research has downgraded the rating on the company to Underperform.
• Bender believes that with sales seeming to have slowed during 4Q, there could be downside to the consensus expectations for 4Q and FY16.

Analyst Scott Bender explained that sales seemed “to have slowed through 4QF15 with particular softness in September to finish the quarter,” while the “overall tone in the channel is becoming incrementally more cautious.”

Bender believes that the cautious tone is likely to have been driven by the weaker than expected sales trends, the company’s inadequate response to increasing competition, persisting poor execution that have led to concerns that it could worsen and key initiatives appearing to lack clear direction.

“In addition to the negative tone in the channel, comps have already been slowing against easing comparisons throughout FY15 and comparisons are poised to get tougher in 1HF16,” Bender stated.

The comp weakness witnessed in 4Q15 is likely to have been driven by intensifying competition, to which Whole Foods has failed to react effectively. There could also be downside to the consensus earnings and comp forecasts for FY16, due to expectations of continuing increases in competition, incrementally negative tone in the channel and slowing sales over the past several quarters.

Bender expects comps to become tougher in 1HF16. The 4QF15 and FY16 comp store sales and EPS estimates have been lowered.