Whole Foods Market, Inc. (WFM): A Differentiated Business Model in a Tough Industry

While department stores like Sears Holdings and J.C. Penney Company, Inc. (NYSE:JCP) have struggled to recoup lost ground, Macy’s, Inc. (NYSE:M) has managed to grow its top line in each of the past four years and doubled its profit margins along the way.

An increasing focus on customer service has helped support that, and should continue to help the company grow its top and bottom lines over the next few years. A nice price advance, however, makes the shares most appropriate for growth and momentum investors. That said, Whole Foods will continue to benefit from its customer focus for years to come, too.

Room to grow

Kroger has more than 2,400 stores. Whole Foods Market, Inc. (NASDAQ:WFM) has only around 330. While Kroger caters to a wider audience than Whole Foods, which means it can support more stores, Whole Foods clearly has room to continue growing its store count. Even if you assume that Whole Foods can only support half the stores that Kroger has, that means Whole Foods can grow its store count to nearly four times of what it is today.

The company opened 25 stores last year, the highest level in the last five years. If you assume 900 additional store openings, the company has more than a decade of store growth ahead. Although the shares are reaching all time highs again, there’s plenty of growth potential to support a premium valuation. Like Macy’s, Inc. (NYSE:M), growth and momentum investors should like what they see here.

Its own drummer

Whole Foods dances to the beat of a different drum in the grocery space. That’s allowed the company to succeed on a relative and absolute basis in an industry that has been suffering from increased competition and low margins. Kroger, an industry big wig, is also seeing its shares reach new highs, but it doesn’t have the strong fundamentals or growth prospects of Whole Foods Market, Inc. (NASDAQ:WFM).

The article A Differentiated Business Model in a Tough Industry originally appeared on Fool.com and is written by Reuben Brewer.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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