At Least One Analyst Is Waiting On The Sidelines Ahead Of Whole Foods' Q2 Results

Whole Foods Market, Inc. (NASDAQ: WFM) is set to release its second-quarter results late Wednesday, and Macquarie said the results will be characterized by "accelerating negative comparable store store sales" and margin contraction "which could prove worse than anticipated."

Wall Street expects the organic grocer to post EPS of $0.41 for the first quarter, along with revenue of $3.74 billion. That would compare to the $0.43 per share and $3.65 billion posted in last year's fiscal second quarter.

The 31 Estimize survey respondents are slightly more optimistic, calling for $0.42 in EPS and $3.75 billion in revenue.

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"[W]e remain concerned negative comparable store sales could persist longer than expected and lead to earnings risk," analyst Bob Summers wrote in a note.

Macquarie's Expectations

Summers expects EPS of $0.39, $0.02 lower than the consensus' $0.41 estimate and noted that continued sales drop could lead to earnings risk in the second half of 2016. The analyst estimates comps to fall 2.4 percent for the second quarter.

In addition, the analyst expects 90 basis point operating margin contraction to 6.1 percent and forecasts decline of 100 basis points in gross margin, and Summers said the gross margins should continue to fall at least in the next five to six quarters.

"Moreover, given continued encroachment in the segment combined with the introduction of the 365 concept, gross margin risk may prove more pronounced," added Summers who believes longer-term margin risk could remain an obstacle for investors.

Furthermore, the analyst said the options market is pricing in a high single-digit move (+/- 8.5 percent) in conjunction with the earnings release.

Summers reiterated his Neutral rating and $28 price target on the stock, saying "from a longer term perspective, we believe valuation will prove constrained until investors can assess the new 365 concept and revisit 'core' unit potential."

At time of writing, shares of Whole Foods were down 1.6 percent at $28.29.