Whole Foods Market Looks to Turn Itself Around

Source: ChadPerez49 via Wikimedia Commons.

Every once in a while, a company truly revolutionizes what seems like a fully mature industry. In the grocery-store arena, Whole Foods Market (NASDAQ: WFM  ) has played that role flawlessly, taking what used to be viewed as a low-margin commodity business and turning it on its head by taking advantage of changing customer preferences. By tapping into the healthy food movement, Whole Foods has produced huge growth over the years. Now, as the company has hit a brief air pocket, investors hope that Whole Foods will get back to business when it reports its fiscal fourth-quarter results on Wednesday.

Whole Foods needs no introduction to most Americans, with its emphasis on organics and natural foods having earned praise from many shoppers even as its higher prices have led some to give it its Whole Paycheck moniker. But the real question facing the company right now is whether Whole Foods can maintain its competitive edge even as traditional grocers like Kroger (NYSE: KR  ) and copycat premium grocers like The Fresh Market (NASDAQ: TFM  ) try to box it in. Let's take an early look at what's been happening with Whole Foods over the past quarter and what we're likely to see in its report.

Stats on Whole Foods Market

Analyst EPS Estimate	$0.32
Change From Year-Ago EPS	0%
Revenue Estimate	$3.26 billion
Change From Year-Ago Revenue	9.4%
Earnings Beats in Past 4 Quarters	2

Source: Yahoo! Finance.

What's next for Whole Foods earnings?
Over the past few months, investors have held their views on Whole Foods earnings stable, with their projections for the just-ended quarter remaining unchanged. The stock has finally picked itself up off the mat, climbing about 3% since late July.

Whole Foods has been struggling ever since its fiscal second-quarter results back in May, in which it reduced its projections for revenue growth from a range of 11% to 12% to a lower range of 10.5% to 11% and made even more draconian reductions to earnings-growth guidance. With Whole Foods having slashed its expected earnings growth to a range of just 3% to 6%, growth investors worry that the best times for the premium grocer were behind it. In its fiscal third quarter, Whole Foods saw sales climb 10% to a record $3.4 billion, but comps were up just 3.9%, and the company once again cut its guidance for sales and earnings growth for the full 2014 fiscal year.

Source: David Shankbone/ Wikimedia Commons.

Yet Whole Foods still has confidence in its long-term prospects. Even though it already has a commanding lead over The Fresh Market and its other premium peers, Whole Foods is looking to accelerate its store-count growth in future years. That should help it compete better against Kroger and other large-scale grocery chains to answer the moves they've made to emphasize organics and natural foods in their own offerings. Whole Foods is also renovating some of its older locations to keep up with its peers. At the same time, it's also looking for ways to cut costs for its customers while still maintaining its high margins. The increased emphasis on its store brands has been one method Whole Foods has used to capture more wallet-share from shoppers.

Still, the thing that has disappointed Whole Foods investors is the decline in same-store sales, and that's a trend that might not reverse itself anytime soon. What Whole Foods appears to be doing instead is trying to make more from less, acknowledging the inevitability of slowing revenue growth but looking to ensure as much of those sales as possible reach the bottom line. That strategy could succeed in the short run, but eventually, Whole Foods will have to beat its competitors on the sales front as well.

In the Whole Foods earnings report, same-store sales will definitely be a point of emphasis for investors. But you should also take a look at the company's comments on its long-term strategic plans, because in the ever-changing grocery-industry environment, what Whole Foods focuses on has ramifications for the entire market. Whatever Whole Foods says, you can be sure that Kroger, Fresh Market, and other players will listen closely and come up with their answers to Whole Foods' strategy as quickly as they can.

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