With plans to nearly triple its store base and operate more than 1,000 units, Whole Foods has a long growth runway in a segment of the grocery market with limited (but increasing) competition.
Higher private-label penetration should allow Whole Foods to further increase industry-leading gross and operating margins since private-label products can generate 25%-30% higher gross margins.
Whole Foods' store employee incentives help to generate high labor productivity and service levels and enhance its brand intangible asset. Read more
Peak operating margins and the highest valuation multiples in the retail defensive sector suggest there is more downside risk than upside potential.
The high returns on invested capital the company generates are starting to attract new entrants such as The Fresh Market, which will probably lead to increased competition from rival concepts over time.
Traditional grocers, mass merchants, and wholesale clubs are expanding their natural and organic food assortments. Price competition could become very fierce if these firms tap their scale and negotiating power to enter the market. Read more
We assign Whole Foods an Exemplary Stewardship Rating, as we believe management's capital allocation policies have bolstered the firm's economic moat. Whole Foods' return on invested capital (including goodwill) has increased to approximately 15% from Read more
Whole Foods Market is the world's leading retailer of natural and organic foods and is the first Certified Organic grocer in the U.S. Whole Foods' only operating segment Read more