On The Fly: What to watch in Whole Foods earnings report

Whole Foods Market (WFM) is scheduled to report results of its third quarter after the market close on Wednesday, July 27, with a conference call scheduled for 5:00 pm EDT. What to watch for: 1. SLUGGISH SALES: Whole Foods' comparable store sales have been soft for over two years, though RBC Capital said recently that trends likely improved in June and results rebounded significantly in the quarter. RBC, which cut its Q3 comparable store sales estimate to -2.5%, said the company has a "path toward flat comparable sales." Macquarie recently upgraded Whole Foods to Outperform and said the company is well positioned for strong performance driven by a same-store-sales inflection point. Credit Suisse said the chain's comps may be bottoming as it carries out new strategic initiatives and comparisons ease. 2. NEW CHAIN PERFORMANCE: In Q3, Whole Foods opened the first of its new 365 by Whole Foods Market stores. Analyst and investors will look for an update on the chain's performance, and whether the stores have taken sales away from its full-format stores. RBC Capital said the 15 new 365 stores appear to be accessing areas that are "more diverse" and "younger." The firm continues to predict that the 365 stores will account for the majority of the company's new stores by fiscal 2018 and increase its ROIC. 3. INCREASED COMPETITION: In a June 15 note, Northcoast downgraded Whole Foods to Sell as the company struggles to establish a more "value" oriented reputation. The firm said that the food marketing industry's competitive environment is forcing the company to try to establish a more "value" oriented reputation. The company is no longer alone in selling high-quality organic, natural and fresh foods and that the 365 by Whole Foods format will not be "significant" enough to improve the retailer's sales momentum. In addition to traditional retailers like Kroger (KR) and Wal-Mart (WMT), Whole Foods also competes with offerings from Amazon (AMZN). On July 26, Goldman cut Whole Foods to Sell, noting that the company is losing share in its core natural and organic business to a variety of competitors. 4. HEALTH VIOLATIONS: In a warning letter issued to Whole Foods on June 8, the FDA identified a number of "serious violations" of food handling regulations at a company facility in Everett, Massachusetts. The alleged violations included preparing food under dripping ceilings and surfaces, as well as holding food and equipment in close proximity to uncovered handwashing stations. Analysts and investors will listen for comments from the company on whether these issues have been resolved. 5. GUIDANCE: Whole Foods may also offering commentary on fiscal 2016 guidance, which is for earnings per share of up to $1.53 and revenue growth of up to 3%, reflecting comps of up to -2%. In May, the company said it expected to be at the low end of its EPS and revenue ranges, reflecting sales trends and investments in marketing technology in the second half. Whole Foods said expected comps to improve over the course of the year.