What a Wonderful World With Whole Foods
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Whole Foods Market (NASDAQ: WFM) is now in the travel biz, organizing foodie tours, wellness adventures, hands on cooking, global volunteering, and more for a total of 15 separate tours. And so far I have not read one word about it in the financial press.
Take me away, Whole Foods!
The organic and natural grocer chain of 355 stores in the US, Canada, and the UK has buyers crossing the globe for its products and ingredients for its 360 private label brand. Co-CEO John Mackey in a letter entitled Dear Traveler says Whole Journeys is "an experiential travel company designed to bring you closer to the source of the products we sell in our stores. " Talk about destination retail!
Unusual yes, surprising, no. The company has been at the forefront of fair trade, GMO labeling, employee benefits, and forward thinking retail initiatives. There was probably plenty of muttering behind Walt Disney's back when he first discussed Disneyland. That's turned out pretty well for Disney (NYSE: DIS) with its resorts, cruises, and timeshares comprising an important revenue stream, almost a third of revenues.
In 2012 the parks and resorts division created $1.9 billion in operating profit up 22%. And its cruises like the Disney Fantasy do have theme or experiential voyages like a planned film-themed cruise for Turner Classic Movies later this year.
Whole Foods is taking applications now from tour operators and travel agents for future itineraries. And maybe it's not so out of place because Costco Warehouse has member travel opportunities, but not organized as much with a philosophy or mission as Whole Foods. And remember their affluent crunchy customer base can afford a $3,000 trip to Peru to meet with micropreneurs and hike Macchu Pichu or a $4,300 bike tour through France. Compared to prices I've seen it's competitive.
This World Journeys initiative is hard to value, although it's reasonable to assume that with 15 trips limited to 15 or fewer travelers at an average per person price of $4,000, this adds up to less than a million dollars. The variable is how often annually the trips take place, and that info is lacking . But even if it's monthly, $12 million doesn't move the needle for Whole Foods as it raked in $3.02 billion in revenue in Q3.
Speaking of raking it in, the company just reported Q3 earnings of a 21% increase in sales. Gross margin expanded to 36.6%. The stores are generating $996 per square foot and attracting 1 million customers per day. Despite what would normally be seen as a good quarter the stock sold off after hours as analysts felt growth was decelerating.
That is perplexing as the company sees room for 1,000 US stores and already has signed leases for 90 stores, a three year supply. And the company is moving into diverse neighborhoods from high end Danbury, CT to Detroit, MI. However, the company has had to make "price investments, sacrificing a little margin in some of the new neighborhood stores.The company saw 20% EPS growth for the quarter but guided higher for 12-14% sales growth and 17-18% EPS growth.
Bring it on
On the call the JP Morgan analyst alluded to the IPO of Sprouts Farmers Market on August 1; Co-CEO Walter Robb said," We love competition. It makes us better. We get to respond and innovate and grow. So bring it on." (source Seeking Alpha transcript).
Whole Foods has a dominant position in the organic grocer industry much as Disney does in media and resorts. Competitors like The Fresh Market don't have the size or breadth, and traditional grocers don't have the loyal shoppers, trained cheese and fishmongers and butchers, and variety of organic and natural foods. Whole Foods is really a niche unto itself, a lifestyle grocer. And none of these competitors has the innovation that Whole Foods has.
That's why Whole Journeys may gain traction after a few years. As of right now it may be just a,"run it up the flagpole and see who salutes," trial but its loyal foodie and natural lifestyle customers could go for it in a big way.
Experiential travel is a growing trend according to trade publication Hotels News Now. American Express Spending & Savings Tracker found that 42% of travelers wish to have the more authentic, personal experiential travel experience.
Who else should get in the travel game
As a founder run concept that has been a very successful growth story just as Disney was it's most similar to Starbucks (NASDAQ: SBUX) with its sense of community, better than average treatment of employees, and global sourcing with attention paid to fair trade practices.
If Whole Journeys takes off (excuse the pun), Starbucks could easily try something similar, Java Journeys, maybe. Cocoa and coffee themed expeditions to far flung coffee farms would also be of interest to their loyal, if not addicted, customers.
Visits to the more exotic of their 18,000 stores around the world are not out of the realm of the imagination.
How they compete as stocks
All three of these have been superior performers over the last ten years with Whole Foods and Starbucks trading in lockstep.
All three pay a dividend: Starbucks 1%, Disney 1.2%, and Whole Foods .7%. Surprisingly, Disney is expected to grow more slowly (an expected 5-year EPS growth rate of 12.30% per annum) than both Starbucks and Whole Foods (at 19.63% and 17.98% respectively). But Disney has the lowest trailing P/E at 19.58 compared to 40.1 at Whole Foods and 34.1 at Starbucks.
The Foolish take me away
I think a portfolio could reasonably hold all three although I would want to see Whole Foods sell off until it is trading at a 35 trailing P/E with a slightly higher yield.
Starbucks and Disney both have the advantage of being iconic global brands. Starbucks may be the best grower here, but Whole Foods' expansion seems moderated and well thought out.
I like that Whole Foods is exploring a new revenue stream. Disney could do with more experiential travel itself. And if Starbucks does ever start a Java Junket, count me in.
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AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Starbucks, Walt Disney, and Whole Foods Market. The Motley Fool owns shares of Starbucks, Walt Disney, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!