Ugly Financials at Whole Foods

Retailers of all types are struggling. The October financials are in and things aren’t pretty for upscale and downscale retailers. Same store sales at upscale retailers are in a free fall: Neiman Marcus (-26.8%); Nordstrom (-15.7%); Saks (-16.6%). Same goes for comp sales at downscale retailers: Kohl’s (-9.0%); Target (-4.8). Ouch.

One company, near and dear to me, that’s struggling mightily is Whole Foods Market. Before this economic avalanche struck, Whole Foods was churning out strong sales and solid profits. Not now.

Whole Foods released fourth-quarter financials this week and the news is downright ugly. Net income for the quarter fell 96% to $1.5M. Same store sales increased by only 0.4%. (A year ago, same store sales were at 8.2%.) And, year-over-year transactions have fallen 1.5%. Net/net … fewer customers are buying fewer items, resulting in feeble sales at Whole Foods Market.

The feeble sales situation is made all the more complicated by the costs associated with Whole Foods acquisition of Wild Oats. For an excellent breakdown on how the Wild Oats acquisition has wrecked Whole Foods profitability, read Alyce Lomax’s column at The Motley Fool.

In her breakdown, Alyce notes Whole Foods has assumed $925M of debt, much of which is tied to the Wild Oats purchase and assimilation. She also notes the $425M cash infusion from a private equity firm will be used to help pay down this Wild Oats afflicted debt.

But Alyce isn’t souring on Whole Foods Market. She still believes in its mission, its model, and its merchandise. From Alyce’s perspective, Whole Foods is a cheap stock with upside once the indigestion of gobbling up Wild Oats passes and the economic climate rebounds.

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UPDATE (11/8): BusinessWeek chimes in with their take on the Whole Foods Market private equity cash infusion ... "The private equity money comes at a steep price and also reflects the retailer's serious problems." READ MORE

Comments

[Brandon Weber]

It's a shame. But Whole Foods is a company that I continue to believe in. The local store I visit seems to get even busier every day (even with a second that just opened close by). People are beginning to care more and more about the food they put into their bodies and I think that they will only benefit from this trend (as long as they can weather this storm).

[johnmoore (from Brand Autopsy)]

Brandon, "weather the storm" is right ... WFM is making tough decisions like terminating leases and retooling signed leases to reflect smaller stores (decreaseing sq. footage). Those tough decisions are costly but not as tough and "costly" as decisions related to their team member (employee) base.

Earlier this year, WFM let 100 team member go ... given this economic climate storm, I expect more job cuts at WFM. Something has to be cut to better prepare WFM to weather this storm and job cuts, while not preferred, are probably the most readily way to curb costs. Tough decisions.

I agree with you, WFM's mission, model, and merchandise is destined to outlast this storm. (Not without some painful decisions though.)

[Ginger Makela]

I love Whole Foods, but I've had to really cut back my spending there -- look for more bargains, be more strategic about what I buy from where and when. Which is a really good thing. Organics and food are still really important to us -- after our mortgage, our largest monthly expense is food -- but we have to keep it conservative right now. I like that Whole Foods is trying to present lower-cost ideas, but I'd like more things like that from them. Coupons, etc.

[Elsie Escobar]

Wow. I'm pretty amazed that they are doing so badly. I live in Pittsburgh and we only have one Whole Foods, which is constantly packed!
We have also had to cut back on our spending there, shaving off all the 'extras', like the hot food bar, and other prepared food items.

We really don't know what we would do without Whole Foods. Our family does not shop at any of the local markets, only Whole Foods and our Co-op. We believe in their model, support organic and local foods, and are very health conscious. This is truly our only choice. I believe in it and hope they become more profitable again...

I just hope that doesn't mean even higher prices!

[Stop Smoking]

While we shop there all the time -and, yes, its usually pretty packed here as well- they unfortunately sell more and more conventional stuff. this is especially true in produce

[hampers]

Nothing can beat the importance of eating only whole, pure, toxic-free and organically grown foods. This food list should be at the top of the list. We cannot bet our health for cheap food stuff that are not proven to be healthy. So we should "help" stores that only supports healthy stuff for sale.