Whole Foods (Nasdaq: WFMI): Stock of the Day

by Katharine Schildt, Assistant Editor, The Oxford Club

In a market full of panic, the last thing you’d expect analysts to recommend would be an upscale grocer.

But that’s exactly what happened yesterday, when Whole Foods (Nasdaq: WFMI) was upgraded by two analysts.

“In summary this quarter we saw much better-than-expected cost containment, leveraging of labor costs, further capex [capital expenditure] cuts, plans to rationalize the store base and positive free cash flow,” said Bob Summers, analyst for Pali Capital.

After its earnings report beat expectations, Whole Foods soared a whopping 37%.

Whole Foods Market is the world’s largest natural and organics retailer, released its fiscal first-quarter report on Thursday. Sales were up to $2.47 billion from $2.46 billion a year ago and it has plenty of cash flow – a difficult achievement in the current environment.

One of the biggest reasons for its latest success is their cash flow, which amounted to $142 million. Thanks to cost cutting, this was the first time in three years that it produced positive cash flow from operations.

Strong numbers, cost controls, bargain hunting and short covering were also responsible for Whole Foods’ boost. But that could be just the beginning.

CEO, Chairman and Co-founder of Whole Foods, John Mackey, said, “We are demonstrating we can operationally adjust to lower sales volumes and believe that this flexibility, combined with our improved balance sheet, will enable us to emerge stronger and better positioned over the long term.”

While this might not seem like the best market for a company like Whole Foods, it’s obviously on top of things. And it’s not just management. Whole Foods has a unique structure where employees’ input isn’t just noted, but rather used and implemented.

This relationship allows each store to adapt locally to its markets and, ultimately, increase sales.

With the new green movement and the popularity of organic foods on the rise, Whole Foods might just be able to maintain their sales for the foreseeable future. And if it can survive in this market environment, it speaks to their ability to grow when the market turns the corner later this year.

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