Going by the recent performance of former market darling Whole Foods Market (WFM), investors may think that the once-hot trend for organic and natural foods is cooling down. After all, the leading organic grocer has lowered its guidance three times this year alone.
Shares of Whole Foods Market -- one of the market's bigger winners over the past decade as consumer appetite for natural foods widened -- have been disappointing lately. The stock has plunged by more than 40 percent since peaking late last year. The market has generally been kind to consumer stocks this year, but Whole Foods Market has shed nearly a third of its value in 2014.
If you think that the prices at Whole Foods Market are high, think about the investors that now have even less to spring on soy milk and 5-Step Animal Welfare-rated meats. However, stock watchers writing off the organic industry based on a weak bellwether may be missing the boat on an industry that's still booming and blooming.
In Hain Sight
Hain Celestial (HAIN) reported better than expected quarterly results on Wednesday. The company behind Terra snack chips, WestSoy soy milks, Earth's Best baby foods and Celestial Seasonings natural teas saw net sales climb 26 percent to $583.8 million in its fiscal fourth quarter relative to the prior year. Adjusted earnings from continuing operations soared 45 percent.
To be fair, this isn't all "organic" growth. Hain Celestial collects smaller companies like Justin Bieber collects bad publicity. It's been a great model for Hain Celestial. It can take small companies making organic or natural foods and health products in small batches and expand their distribution through its growing outlets. Hain Celestial is a big supplier for Whole Foods, but it also sells to faster-growing organic grocer Sprouts Farmers Market (SFM) and most major supermarket and mass merchandise chains. Hain Celestial revealed during Wednesday morning's earnings call that Amazon.com (AMZN) is one of its 10 largest accounts.
Even if the heady sales growth was padded by acquisitions earlier this year of Rudi's Organic Bakery and Tilda, Hain Celestial is still getting a lot of mileage out of its workhorses. Its 13 biggest brands -- accounting for the lion's share of its revenue -- grew at an average clip of 7 percent over the past year.
It's not just Hain Celestial running hard. Whole Foods Market rival Sprouts is expected to grow its sales 21 percent this year and 19 percent come 2015.
Heady expansion at Sprouts accounts for some of that octane, but even at the store level the concept is rocking. Comparable store sales growth soared 9.5 percent in its latest quarter, and that's a lot better than the average per-store uptick of 3.9 percent that Whole Foods Market posted.
There's a growing market for organics out there. Don't let a single disappointing stock chart over the past few months convince you otherwise.
The weakness at Whole Foods Market could be a positive for the industry. After all, it's not a lack of sales growth that's holding back the stock. It's not growing as quickly as it used to, but it is at least still growing.
Investors are concerned about the retailer's margins as it competes with grocery stores and now, apparently, Amazon.com. Walmart (WMT) recently said that it aims to slash prices on its private label organic items. Companies don't benefit from an industry price war, but it could go a long way to expand demand for organics.
Even with the potential of a domestic price war on organics, let's not understate the growth potential overseas. A big contributor to Hain Celestial's blowout performance was big gains in the United Kingdom, where the company is now generating more than a third of its sales.
Hain Celestial products can be found in 65 countries, but sales outside the U.S. and U.K. accounted for just a little more than 10 percent of its business. There's a high ceiling out there if Hain Celestial can gain traction in a few wealthier overseas markets.
Hain Celestial's guidance for the new fiscal year -- calling for 17 percent to 23 percent earnings growth and as much as 30 percent in net sales growth -- is encouraging. Even Whole Foods Market could be appealing at this point. It is trading at 25 times this fiscal year's profit target. That is not low, but it is for Whole Foods, which has historically traded at much higher P/E multiples.
Don't fear the organic stocks. The trend's alive and well with plenty of growth to be harvested.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Hain Celestial and Whole Foods Market. The Motley Fool owns shares of Amazon.com, Hain Celestial and Whole Foods Market. John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Try any of our newsletter services free for 30 days.
13 Ways Beyond Coupons to Save on Groceries
While Whole Foods Wilts, Other Organic Food Sellers Bloom
The best deals of the week go to loyalty card users. These items often include what are known as "loss leaders" -- items sold at little or no profit for the store. Why do stores do this? To draw you into the store, with the hope that you'll pick up other items as you shop. Some stores also reward you for spending more. Safeway (SWY) and Stop & Shop offer discounts at partner gas stations. Deals are also advertised in the weekly circular, and you can scan those savings onto your smartphone through apps such as Spoofee.com or SundaySaver.com.
You might like to see and feel every apple or potato you put into your shopping cart, but you can save as much as 36 percent by buying bags of produce. The same is true for multipacks of grocery items such as soap, toilet paper, soda and yogurt, especially at stores such as Walmart (WMT) and Target (TGT).
Many popular deli meats and cheeses sliced fresh at the deli counter may cost less than the pre-packaged variety. SmartShop found the same brands (including Boars Head and Alpine Lace) as much as 30 percent cheaper at the deli counter. You also get to buy the exact amount you need, reducing potential waste.
These racks, usually found in the back of the store, include a hodgepodge of items marked down by as much as half. That's because there is an imperfection in the packaging or the item is being discontinued. Check the expiration date to make sure that you're not buying something that's been sitting on the shelf too long.
Several new subscription services rival Amazon.com's (AMZN) Subscribe & Save service. ShopSmart likes FamilyCircle.com, Plated.com and Target Subscriptions. FamilyCircle.com offers organic produce and seasonal items that can be shipped to your home weekly. It's only available in Washington state, Idaho, Alaska and San Francisco, but there are plans to expand. Plated.com provides measured ingredients to make a chef's recipe from scratch. Target offers household and personal care items at a 5 percent discount (10 percent for REDCard holders). It also offers food, even though the selection is limited. The best thing about them: membership is free.
Shoppers can save as much as 60 percent by choosing the store brand over a national brand. Many people find the taste and quality of store brands to be just as good as the more costly brand names.
Walmart and Target, the big players in this category, offer savings of up to 70 percent on toiletries, drugs and other items. A recent Consumer Reports survey ranked Target better for customer service, quality of perishable items and cleanliness, while Walmart came out slightly ahead on price. Both will price match items you find cheaper at other stores.
There may be a stigma to shopping at dollar stores, but if you can get past that you can find some real bargains. Many leading dollar stores have been increasing the number of food items they sell. Family Dollar Stores (FDO) -- which agreed this week to be acquired by Dollar Tree (DLTR -- recently added 400 food items. Savings of up to 28 percent can be found at dollar stores over supermarket prices.
Club membership is down, but Costco (COST), Sam's Club and others are still great places to save if -- and this is a big if -- you have the space to store bulk purchases. ShopSmart found savings of up to 63 percent on some items. It also gives high ratings to some of Costco's Kirkland brand, including its bacon, laundry detergent and toilet paper.
Most times it makes economic sense to buy the large size package of cereal, paper towels, etc. But there are some items that you get just as much bang for your buck on the medium size. Check the unit price. SmartShop found the medium size price is the same as the jumbo size for Cheerios, Hellman's mayonnaise and Skippy peanut butter, but go for the super size of Heinz ketchup and Folgers coffee.
Boxed gives you warehouse prices (and sizes) without paying a membership fee. Checkout 51 offers weekly specials on items such as Campbell's (CPB) soup or Prego sauces. You also get cash back for every $20 you spend. Flipp is great for checking store circulars for weekly specials. You can put items right onto your shopping list, and the app helps identify the best deals. All three of these apps work on Android and Apple (AAPL) phones and tablets.
Convenience stores and drug stores may be easy to run into and pick up some essentials, but you'll pay top dollar for that convenience. ShopSmart's price check found these stores consistently charged a lot more, often more than double the price at supermarkets, Target and Walmart on basics such as milk, bread and eggs. A half gallon of milk at 7-Eleven costs $3.12. Compare that to the average supermarket price of $2.30. And a loaf of whole wheat bread at CVS (CVS) cost $2.91. At a dollar store the same loaf costs -- yes, you guessed it -- $1