Shares of Whole Foods Market are getting kicked in the face with organic-covered boots, down 5% and below $30.
It’s the lowest WFM has traded since the company missed estimates and announced a $1 billion debt-funded buyback program last November 4th!
“Stock buybacks are accretive in the short-term and the long term” raved CEO John “No Relation” Mackey. Nothing about that sentence is necessarily true. Coming as it did at the same time as an earnings warning, which the company presumably didn’t see coming, it’s just gibberish talk.
Mackey said he intended to spend most of the $1 billion in the first half of the year (meaning starting immediately as this WFM’s Q1 2016 started November 1st). So presumably some of the money chasing WFM higher in December came from the company itself. It’s unclear if WFM is still buying now that shares are at 2011 levels.
Remember, retired shares aren’t re-issued. They just disappear along with the money it takes to buy them on the open market (or the other ways WFM mentioned). What remains are the debt payments.
Whole Foods has an organic margin problem with no easy solution. It knows profits are declining yet insists buying shares is a good idea despite the fact that doing so comes with interest payments that make future profitability less likely.
Shareholders have a larger share of a less profitable business with reduced potential and higher debt.
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