MarketWatch had an interesting piece about Whole Foods yesterday that read, in part:
“What about Whole Foods Market so enthralls value-oriented advisors? The bullish case for the stock boils down to the company's capacity for continued double-digit sales growth (given the growing demand for healthy foods in this country as well as in Europe, where Whole Foods plan to expand) and the high profit margins that result from the prices one can charge on organic foods.
“What particularly catches value-oriented advisors' attention, though, is that this rapid growth comes from a company that pays a dividend, which is usually associated with companies that are growing more slowly.
“Furthermore, this company has a large cash position, which also is relatively unique for a growth company. This cash will enable the company to finance growth without requiring it to go into debt.”
However, MarketWatch notes that not every analyst is enthralled by Whole Foods, and quotes Richard Russell, editor of Dow Theory Letters, as writing:
"I spent an hour in Whole Foods on Sunday. I'm amazed at the sheer numbers of every item they carry. A dozen oils, 10 different varieties of peppers, masses of prepared foods, just a huge inventory. I turned to (my wife) and said, 'I don't see how this outfit stays in business. How can they carry this huge inventory of stuff? A lot of it probably moves slowly.' The big supermarkets only stock what sells in a hurry. They're also starting to carry some of the specialty and organic stuff that Whole Foods carries. Competition is starting to hit Whole Foods. The stock is now down 20% from its high. It may be that their picnic is over."
“What about Whole Foods Market so enthralls value-oriented advisors? The bullish case for the stock boils down to the company's capacity for continued double-digit sales growth (given the growing demand for healthy foods in this country as well as in Europe, where Whole Foods plan to expand) and the high profit margins that result from the prices one can charge on organic foods.
“What particularly catches value-oriented advisors' attention, though, is that this rapid growth comes from a company that pays a dividend, which is usually associated with companies that are growing more slowly.
“Furthermore, this company has a large cash position, which also is relatively unique for a growth company. This cash will enable the company to finance growth without requiring it to go into debt.”
However, MarketWatch notes that not every analyst is enthralled by Whole Foods, and quotes Richard Russell, editor of Dow Theory Letters, as writing:
"I spent an hour in Whole Foods on Sunday. I'm amazed at the sheer numbers of every item they carry. A dozen oils, 10 different varieties of peppers, masses of prepared foods, just a huge inventory. I turned to (my wife) and said, 'I don't see how this outfit stays in business. How can they carry this huge inventory of stuff? A lot of it probably moves slowly.' The big supermarkets only stock what sells in a hurry. They're also starting to carry some of the specialty and organic stuff that Whole Foods carries. Competition is starting to hit Whole Foods. The stock is now down 20% from its high. It may be that their picnic is over."
- KC's View:
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This sort of illustrates why we don’t take Wall Street very seriously when it comes to how it views and ranks retailing companies. Those guys may know a lot about stocks, but they generally know diddly about stock keeping units (SKUs).
It is entirely possible that Whole Foods’ stock is down because a bunch of glorified accountants think that it only ought to sell stuff that moves quickly, as opposed to creating a compelling and aspirational shopping experience that seeks to expand people’s minds and palates. Because the company’s sales are up, and the segment in which it operates is growing.
One MNB user, who sent us the MarketWatch piece, wrote:
“Back when I worked for Wegmans, when Dominick's was in its glory and Genuardi's meant something special, there was a very basic school of thought- Anyone can sell a steak and try to beat the competition on price- What good grocers sell is the ‘experience’ of eating that steak-how it will look, smell, taste-and how it will be enjoyed- A grocer that does this well, will not be the selling the lowest price steak, but I'll bet they will be selling the most steak! “
This is why we admire executives like Costco’s Jim Sinegal and Whole Foods’ John Mackey so much. They seem focused on doing what’s right for the customer and the employees, not what’s right for stock analysts. More retail executives ought to stop reading the stock tables and spend more time bagging groceries, walking store aisles and chatting with the customers.
