Cramer: Whole Foods Needs to Understand Only Comparable Sales Matter

 | May 11, 2017 | 6:44 AM EDT
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pnra

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Look, it's a simple stat. It's called comparable store sales growth. When a retailer has it, institutions buy its stock. When it doesn't, they sell it.

Yep, comparing like-for-like, determining how your stores did this year vs. last year. There's really not much more to it.

Positive numbers signal health. Negative numbers equal sickness; prognosis negative.

For years, I have tried not be bound by comparable store sales. Periodically I will say, you know what, that outfit is so good, I will simply overlook that their comparable store sales are faltering. In fact, the experience at that store is so good, I will just waive my rules and focus on other metrics, ones that are more touchy-feely -- a really good shopping experience -- or are about items on the come, like affinity programs or new ways to pick up or order online or be delivered. I'd get subjective.

Every time I have done that, every time I have left my discipline, I have been wrong. Comparable store sales, like organic growth numbers don't lie. They give you the real health of a company.

And that's why I didn't care about all of the mumbo jumbo on the Action Alerts PLUS charity portfolio holding Whole Foods (WFC) call last night. Yeah, big affinity program; terrific. More cost cuts; fabulous. A big boost in the dividend; amazing and unexpected. All sorts of new board members, including Cramer faves Ken Hicks from Footlocker (FL) and Ron Shaich from Panera Bread (PNRA) ; fantastic. A new, engaged, chairwoman; dynamite. A new CFO from the exacting Kohl's (KSS) ; bravo. Still one more buyback; extraordinary. The highest sales per square foot of any retailer; super.

And how were the Whole Foods comps? Minus 2.8%.

Then, never mind. Forget about all of those other goodies. I am not buying your stock. That's the pulse, the only thing that matters. Or, to put it another way, "other than those comp stores, how was the play Mrs. Lincoln?"

Throughout the sickening decline into morbidity of this stock, until hardnosed activist, Jana Partners, got involved to stir things up with the addition of fresh outside board members, there was always something Whole Foods was slinging at you to make you feel that you weren't being coherent in demanding comp store growth. They made you feel petty and foolish for insisting that they beat the comps.

They still ignore the plea for normalcy. Worse, they have new goals: they are pledging to make enough changes to get the company to plus 2% comp store growth by 2020.

All I can say is, if that is their plan, they will lose the company by then. There is no way that this company can continue to be independent if it has such high sales per square foot and such low comparable store sales numbers. It will either be bought by another company -- no doubt the real intention behind what Jana wants -- or it will be taken private, with all of that cash flow and be re-opened with whole swaths of layers of management gone, including the vaunted regional tams teams that had been the hallmark of the growth...until the growth ended.

It's worse than that. At one point, the company is asked why the dividend boost. The response: "We increased the dividend to get, frankly, to 2% yield. We think a 2% yield will attract a certain investor class that maybe hasn't looked at Whole Foods until we get to that yield."

Here's some bad news: there are a couple of ways to get to 2%. One is you boost the dividend. Two is you keep the dividend steady and you keep putting up negative comparable store sales. Believe me, you will get to 2% over time, no problem.

So, despite all of the changes and new blood, I still think that Whole Foods doesn't get it. Growth is the metric. Same store growth. Don't try to think outside that box. The box is normative and rational.

It doesn't work to rationalize about not mattering. It didn't work if you are Abercrombie & Fitch (ANF) . It didn't work if you are Sears (SHLD) . It didn't work if you are Sports Authority and it didn't work if you are Woolworths or WT Grants or Gantos or Caldor or Jamesway or, well, I can give you dozens.

It won't work here, either, which is why this stock didn't go down last night. Because Jana's not done. It knows that a plan to get to 2% comp growth by 2020 is the new status quo.

There can no longer be status quo for this incredibly profitable, no-growth retailer. The marketplace just won't allow it to stay independent that much longer. The stock goes up because it's too juicy a chance to fix, and they don't have the heart or the guts or the smarts to fix it. So someone else will.

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