If you simply looked at the Dow Jones Industrials and S&P 500 for the week, you’d see a respective gain of 0.5% and 0.06%, and you wouldn’t think much happened. But you may have missed the news of a game-changing acquisition by Amazon.com, Inc. (NASDAQ:AMZN), among other notable developments this week. So let’s dig in.
The future of groceries?
In our sensationalist world, it’s good to take care not to overuse terms like “game-changing.” But in this case it’s entirely appropriate: Amazon is forking over $13.7 billion in a bold move to acquire Whole Foods Market (NASDAQ:WFM). That works out to $42 per share, roughly a 27% premium to Whole Foods’ Thursday closing price.
Few industries are free from Amazon’s reach. And if Amazon wants to get into the grocery business and have an intriguing opportunity for decades down the road, this is a pretty brilliant move.
First, we know that Amazon is incredible at squeezing suppliers and knows how to get products delivered. We also know that Whole Foods Market has struggled with its operations and technology to help improve its cost position. That means there’s some synergy to be had here, despite the two wildly different companies.
Amazon is interested in delivering you groceries, and what better way to do that than to buy an organic chain store with a premium image, a wealthier consumer dynamic, and 456 high-quality markets? Let’s also not be surprised if we all look back to this moment as the beginning of what turns out to be a fleet of driverless vehicles delivering groceries — and probably pharmaceutical drugs. In a way, not only did Amazon buy brick-and-mortar grocery stores; it also bought a grocery distribution network.
Even further, Amazon is making this move while the rest of the tech and automotive industry works to develop driverless-vehicle technology and yet-to-be public companies such as Uber and Lyft are the leaders in advancing ride-hailing technology.
Jan Rogers Kniffen, CEO of Retail Consultancy J. Rogers Kniffen WWE, sums it up well: “I think that I would not like to be somebody playing in the grocery space right now.”
Boost of confidence
As if Tesla (NASDAQ:TSLA) CEO Elon Musk needed any more ammunition to boost the company’s story that has driven its stock price sky high in recent years, he got some more early this week. Tesla’s Model X electric SUV became the first SUV to be awarded a five-star safety rating in every category and every subcategory, according to the National Highway Traffic Safety Administration (NHTSA).
Key to the Model X’s success was simply that its all-electric architecture and powertrain perform better in a crash than its gasoline-powered competitors do. Even further, the testing shows that the Model X has the lowest probability of injury during a crash of any SUV the NHTSA has ever tested. It’s even second to all cars ever tested — falling short only of its own companion Model S.
And while the news will certainly fuel more hype for the company that has a loyal following of investors and consumers, it won’t matter much if Tesla can’t execute during the second half of this year, when it brings its Model 3 to market and attempts to churn out 5,000 vehicles per week by year’s end.
The Cheesecake Factory (NASDAQ:CAKE) delivered the bad news first. Ahead of two presentations with positive spins — its 2017 investor presentation and the 37th annual Piper Jaffray Consumer Conference — the company released an update to its second-quarter guidance that would push the stock 8% lower for the week.
The restaurant chain let investors know its comparable sales guidance was expected to fall 1% from the prior guidance that called for an increase of between 1% and 2%. When restaurants blame the weather, eyes tend to roll, but management insists that poor weather in its East and Midwest region caused reduced patio usage and that many of its other regions and markets were posting comparable sales growth.
Despite posting one of its worst stock-price declines in eight years on Monday, Cheesecake Factory is still one of the best options in the industry, with a strong brand image and good operating metrics. It’s also true that the restaurant industry has struggled over the past year, so investors should be keeping an eye on whether this is a continuing trend or a speed bump.
John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool’s board of directors. Daniel Miller has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Tesla, and Whole Foods Market. The Motley Fool has a disclosure policy.