2010 Stock Performance: Whole Foods, Mediafast, S&P 500
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Some familiar names top the list of winners for NBJ's 2010 Stock Awards. Whole Foods won this very award last year, and Medifast took home these honors back in 2008. With stock prices like these, who cares about a Great Recession?

Before we examine the business strategies driving such impressive results, let's take a quick run of the numbers: Whole Foods (ticker: WFMI) took the top prize with stock appreciation of 178% in 2009, plus another 82% in 2010, as of press time. Medifast (ticker: MED) delivered a strong 2009 with a 417% increase in stock price, but 2010 proved less sensational as the stock traded largely flat, as of press time. It is important to note that NBJ grants these awards not purely on the basis of quantitative return, but also with careful diligence paid to the larger story such outsized peformance tells about industry.

There's Real Value in WFMI

“Great sales, great earnings,” says Andy Wolf, managing director at BB&T Capital Markets. “The core customer has come back in a big way, and Whole Foods is once again attracting new customers to the sector.”

During this prolonged period of recessionary behavior, Whole Foods beat the odds by delivering impressive same-store-sales growth, a measure of financial health independent of new store construction and non-organic growth inputs. “Whole Foods reestablished the cash-flow power of the business, and its growth credentials,” says Wolf. “It's a stronger platform overall now, because their value image is the best it's ever been.”

That value proposition is a key component of Whole Foods continued successes, as the company adapts with speed and skill to the changing terrain of natural products retail. Wolf again: “Whole Foods made the right decisions to slow down new store growth, improve the value image, and run a leaner business. And then they executed on every front.”

As for the near future, Wolf sees the company aging gracefully into bigger, less fleet shoes. “Whole Foods is becoming more of a traditional growth company, and that's just fine” he says. “People still want to convert to natural food, which brings new customers to the channel. There's plenty of final demand.”

MED Ups the MLM Ante

With sales growth of 61% in 2009, and another 53% estimated for 2010, Medifast deserves a kick in the stock price. “The company is in a very significant growth cycle that's just too powerful for the economy to hit,” says Scott Van Winkle, research analyst with Canaccord Genuity.

Medifast posted strong returns last quarter across all of its major business units — 37% growth in its clinic business, 21% in direct response, and 57% in Take Shape for Life (TSFL), the company's MLM platform. Given the consistent news flow surrounding obesity, the focus on weight-loss as a cornerstone of the national healthcare deabte, and an active White House advocating for healthy eating trends, betting against Medifast seems one sour prospect.

The company now supports a network of 9,000 health coaches through TSFL, up 55% year-over-year. “Sales per coach have recently been flat to slightly up,” says Van Winkle, “but this is atypical for an MLM growing at this rate. Sales per distributor are often declining at this point in the cycle.”

Medifast invests in marketing to an unusual degree for the industry. “In the direct response channel, it's all about the marketing spend,” says VanWinkle. “If you advertise more, and your advertising is effective, and the product delivers, sales will grow.” That's exactly what happened, as marketing expenses through this channel rose 35% in 2010 to $22 million. Is this more than the competition? “Exponentially more,” says Van Winkle. “Traditional MLMs do not spend on advertising. It's consumer-to-consumer. The marketing spend for direct response at Medifast benefits the other divisions, and then franchise operators of clinics chip in with radio advertising, so there's real synergy across the sales channels.

As for the future, “Keeping up with growth is the biggest issue this company faces,” says Van Winkle. What a great problem to have.