An Alternative to Whole Foods
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Whole Foods (NASDAQ: WFM) is a tough thing to deal with. Although their offerings are consistently superb, the pricing is, of course, pretty "superb" as well. This author suffers from a hangover after a splurge at Whole Foods, similar to that which comes after an extravagant meal out, "wow that was great, but it's the $1 menu for me for at least the next month." Luckily, Whole Foods has enough new and returning customers to compensate for the Laowai's lack of regular business. Whole Food's Q3 was a blowout: 14% revenue growth, new customers up by 7%, profit up 32%, and EPS of $.63 vs. estimates of $.50. Correspondingly, the news drove the stock up an exceedingly healthy 11% as well. Though WFM is forecasting pretty heady growth, including 28-32 new stores in 2013, 33-38 in 2014 and a total of 1000 stores (vs. current 329) in the US, they are still trading at a P/E ratio of 39, double the industry average. Safeway (NYSE: SWY), for instance, albeit a different market, trades at a P/E of 8.
Whole Foods' new growth is coming from the parts of the country one really wouldn't expect: the flyover states. Kansas, Iowa, Oklahoma, the areas that might sneer at the crunchy, organic image of Whole Foods and the coasts. Though Whole Foods is an Austin, TX based company, they are heavily dependent on the wealth of the coasts and large cities (329 stores: 59 in California, 12 in New York City, 17 in Chicago). WFM's growth plans would indicate these deep-pocketed locations are tapped out, and it remains to be seen if 1000 stores is actually possible.
To throw another kink into the plans, Whole Foods has to keep its eye on the growth of the recently IPO'd Natural Grocers (NYSE: NGVC), aka Vitamin Cottage. The Colorado based chain raised $100 Million in their offering and their newly minted shares closed up 19% on their first day of trading. NGVC currently has only 53 stores and 12 of those are in Colorado, though they reckon there is room in the US for 1100 stores total. NGVC is a much closer comp to WFM than Safeway or Kroger, and they provide a more viable natural foods alternative. Though NGVC focuses less on gourmet and more on health, now that they are public they could be forced to mimic more of Whole Foods' success. As WFM gets more and more overpriced, a look at NGVC could be a good bet.
TheLaowai has no positions in the stocks mentioned above. The Motley Fool owns shares of Whole Foods Market. Motley Fool newsletter services recommend 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.If you have questions about this post or the Fool’s blog network, click here for information.