Nordstrom: A Retail Survivor With Potential Upside Catalysts

It was just last year when the Nordstrom family explored a deal to take their retailing company private for $50 per share in cash. The board of Nordstrom (JWN) rejected the offer as insufficient and bankers will unwilling to lend more capital to the family at attractive rates in order for them to raise their bid. With the stock now trading around $28 there are reports that suggest the family is looking at ways to up their stake, even if 100% ownership is not possible due to board obstruction.

It looks to me that JWN is a long-term survivor in the competitive market for apparel and accessories. Wall Street is shunning the stock due to its department store exposure, but the Rack business (a higher end version of TJ Maxx) is overlooked and should continue to grow.

The traditional weaknesses that have plagued larger format clothing-focused chains in the past, most notably high leverage and a bloated store base, are pretty much non-issues for JWN. The company's capital structure is conservative (net leverage of ~1.5x EBITDA) and there are only about 120 Nordstrom full-line department stores in North America, compared with over 800 for JC Penney (JCP) and over 600 for Macy's (M).

With such a small relative store base, JWN has been able to build locations only in very strong, upscale markets and has avoided geographic concentration. And since interest expense is minimal relative to store-level cash flow, the company can service debt easily and still invest for the future. The end result is a company that has built out a strong e-commerce business (30% of total sales) all while producing free cash flow year in and year out to fund a generous dividend (over 5% at the current share price) and impressive stock buybacks (share count has dropped from 220 million in 2009 to 156 million in 2019).

With the stock at nearly half the price the Nordstrom family offered last year, JWN shares are dirt cheap (4.5x my estimate of 2019 EBITDA) and pay a great yield of 5.2%. The dividend is also well-covered by cash flow. Unless you think the Rack business is set for declines, like many predict for their 120 full-line department stores, JWN is unlikely to see a material drop in sales and earnings. We can debate how fast they can grow in the future, but Wall Street is pricing the stock as if growth is impossible anyway.

And then there is the chance that the family makes a bid to increase their now 30% stake to 50% or more. I would guess a tender offer at $37 would get a lot of action, and investors could partially cash out at a 30% premium to the current price. Simply put, before we lump JWN in with M and JCP perhaps we should consider the entirety of their company, the large insider ownership, and the cash flow and balance sheet characteristics of a business with fewer than 400 stores open globally across both the namesake and Rack banners.

Full Disclosure: The author and/or his clients were long shares of JWN at the time of writing, though positions may change at any time.

My Recent Target Experience and How The Chase for E-Commerce Market Share is Killing Retailer Margins

There is a Target (TGT) store very close to my house that my family visits frequently. We even keep a shopping list on the fridge labeled "TGT" to simplify our trips.

Given the vast selection of products Target carries, sometimes it is harder to find something in the store than you would think, even if you are very familiar with the layout. To minimize the time we meander up and down various aisles, I have the Target app installed on my phone, which will tell me which aisle each product is located at my local store.

In recent months I have noticed that the prices on the app for many categories are materially cheaper than they are in store. This becomes obvious when you lookup the location of something on the app, see the price, and then 30 seconds later you pick it off the shelf and see a clearly higher price. I would say the discounts average about 10% (just a guesstimate) and are focused on certain categories such as toiletries and cleaning products.

After several trips of noticing the pattern, I became pretty annoyed. If my bill totaled $100 I invariably felt like I was getting ripped off by shopping in-store, even if only to the tune of $10 or so. I looked up Target's online price matching policy and sure enough, they will match their online pricing for in-store purchases.

The process for collecting the difference is far from helpful, though. Rather than visiting the customer service area and having them scan your receipt or something easy like that, you need to show evidence of the lower price online while the cashier rings up your purchases. So if you have a dozen items that are cheaper online, you need to show the cashier each item on your phone app individually and they will then manually enter the cheaper price for each item. Not only is this time consuming, but it will make the check-out experience awful for the people in line behind me, as they wait for me to bring up each and every item on my phone. As a result, I refuse to do this and am ticked off that I need to in the first place.

The other day I decided that I could have the best of both worlds. Even though the store is right down the street from my house, I can order the items online, have them delivered in 2 days, and save money on top of that by getting the lower online prices. So I fired up the app and began adding items to my cart.

Without a Target Red Card, there is a $35 minimum order to get free 2-day shipping. I was short of that level initially, so I decided to see if they would actually deliver cat litter for free (many retailers have weight limitations for free shipping). I thought it was a long shot since each box of litter weighs over 25 pounds, but sure enough, cat litter is eligible for free shipping. By adding 2 boxes I reached $36 and submitted my order.

Two days later a large flat shipping box was left on my porch by UPS. The box was nearly coming apart, as both boxes of litter had been placed flat/sideways in the shipping box, with some soap and toothpaste tossed in as well without much in the way of padding. I have no idea how much UPS charged Target to deliver this 50 pound box to me in 48 hours, but I would have to say somewhere between $5-10, right? There is no way Target made a profit on this online order and I am not paying them an annual membership fee (like Amazon Prime) to help cover the cost.

Why am I telling this boring retail story? Because when we consider the economics of the decisions Target is making here, it makes no sense. My local Target store has high fixed costs. They should want me to drive to the store, pick my own items off the shelves, go through the self-checkout lane, and drive home. That route will maximize their profit by leveraging their fixed costs and minimizing labor expense, which is only rising (and is now $15 per hour here in Seattle).

Instead, they are offering me higher prices if I visit the store, and that is made obvious to me when the lower online prices are shoved in my face whenever I use the smartphone app (which they encourage me to use in-store to boost the shopping experience). From an economic perspective, they should be trying to coax me into the store by offering perks for doing so. Instead, they are almost begging me to order online, where they will likely barely earn a profit on each order, if at all.

And on the flip side, they are offering cheaper prices online, with free 2-day shipping, and including products such as 25 pounds of cat litter in the free shipping offer. At least make me drive to the store to pick up the cat litter!!!

So, here I am planning to order more of my Target purchases online, which will crush their margins both on the retail side (as store traffic declines) and on the online side (where 2-day shipping via UPS will eat their already reduced margin).

The result is that Target succeeds in their goal of keeping my business and not donating it to Amazon (AMZN) or Wal-Mart/jet.com(WMT). Okay, great, your same store sales will hold up nicely in a very competitive retail world. And your margins will erode quickly, resulting in the same absolute profit dollars earned on higher volumes. Seems like the opposite of what should be happening (keep prices low and make it up on volume).

In fact, there are some items at Costco (COST) that are cheaper in store than they are online, even though this flies in the face of what chains like Target are doing. And that pricing strategy is from a company that chooses volume over per-item margin all the time. In fact, Costco marks up their items (from their cost) the least of any retailer I am aware of. Smartly, they are not getting sucked into this notion that to compete online and keep their stock price up, they need to give away products through the e-commerce channel.

Call me crazy, but some of these hybrid online/in-store business models don't seem very well thought out, and surely won't benefit shareholders much in the long run. I love shopping at Target, but it is hard to see how they are going to materially increase per-share profit.

Full Disclosure: No position in Target, long or short, just baffled by the pricing dynamics they currently have in place and believe it reinforces that we are now seeing retailers focus on same store sales and not profits, even at mature, established companies which clearly are not second-comings of Amazon.

Canada Goose: Brings Back Memories Of Other Fashion Stock Heydays

In the spirit of fashion, let me begin this article off with a runway of sorts, even if it is a lineup of stock charts rather than models.

Here is a chart of Michael Kors (KORS)  stock since its late 2011 IPO. Notice the move from $20 to $100 by early 2014:

Here is Coach stock -- now called Tapestry (TPR)-- since its IPO in 2000. In this case there were two separate astronomical run-ups, neither of which could be maintained.

Abercrombie and Fitch (ANF) was scorching hot when I was in high school in the late 1990s:

And one more: UnderArmour (UAA):

There are many things these companies have in common, and not all bad actually. For instance, notice how all of these brands have survived and built sustainable multi billion dollar businesses?

But on the flip side, the stocks have been duds over long periods of time. While they have been volatile (making for plenty of trading opportunities in both directions), the reason why none of them have been good long-term buy and hold candidates is because fairly early on in their stints as public companies the brands were so popular that the stocks became massively overvalued. So even though the businesses continued to grow, the stocks turned out to be poor investments.

It has been a little while since we have seen a surging fashion brand on Wall Street (UnderArmour likely the most recent), but recent IPO Canada Goose fits the mold. Here is the chart since the 2017 IPO:

GOOS currently is valued at $6 billion USD, versus expected 2018 revenue of $420 million, for an enterprise to sales ratio of ~15x. Even with 20% growth in 2019, to $500 million (the current Wall Street analyst consensus estimate), the multiple is ~12x.

Consider what types of enterprise value-to-revenue multiples the large fashion brands currently trade for:

Tapestry 2.5x

Michael Kors 2.3x

Ralph Lauren 1.5x

Tiffany 3.9x

Nike 3.5x

UnderArmour 1.8x

There is simply no way to justify such a sky high revenue multiple for GOOS. The median revenue multiple from the group of 5 comparables above is 2.5x. So how much does GOOS need to grow over the next decade to simply justify the current stock price? The numbers come out to an 18% compounded annual growth rate from 2018 through 2028, which gets the company to roughly $2.2 billion of annual revenue:

$420M * 1.18^10 = ~$2.2 billion

Put another way, if the business grows from $420 million this year to $2.2 billion in 10 years, and the shares trade at 2.5x EV/revenue at that point in time, the stock price will go nowhere even though sales would have grown by 424%!

The only way these numbers don't work is if GOOS has somehow figured out  a way to sell clothes for far higher profit margins than the leading fashion companies in the world, which have already amassed multi-billion dollar businesses. Betting on that outcome seems ridiculous to me.

As a result, although it can be tempting to jump on highflying recent IPOs like GOOS, thinking it could be the next big thing in fashion, it is important to realize how lofty the valuations can be. And if stock prices reflect plenty of growth already in future years, the share price will not have to follow suit.

One last example, outside of the fashion space -- remember how bonkers investors went for the Shake Shack IPO back in January 2015? Take a look at how the shares have done since hitting $96 in May 2015:

And that is despite SHAK's revenue surging 137% from $190 million in 2015 to an expected $450 million in 2018.

GOOS buyers beware.

Amazon Shares Pierce $1,430 And Sit Firmly Above 3x 2018 Forecasted Revenue

Valuing shares of Amazon (AMZN) has always been a difficult task since the company does not at all care about short-term profit margins. Investors are left with trying to estimate, based on the company's various businesses, how large each will get and what type of margins will likely be achieved once each reaches maturity.

Of course, such an approach becomes nearly impossible when you have no sense of which businesses Amazon will choose to enter over time (or maybe the better question is which they will "not" enter). Traditional retail was one thing, but now with cloud services and advertising revenue, margins are going to be all over the map.

I recently trimmed many of my clients' positions, as I have done once or twice since I made the investments beginning in 2014. My methodology has been inexact, to account for the aforementioned issues regarding Amazon's various ventures, but it generally involves looking at AMZN on a price-to-sales basis and then seeing what margin/multiple assumptions are baked into such valuations. For instance, if you think they will ultimately earn a 10% profit margin at maturity, you might be willing to pay 20 or 30 times normalized profits, which would equate to 2-3 times annual revenue.

Given the company's growth, my personal view is that anything up to 3x revenue is at least somewhat reasonable, as I don't see margins going above 10% given the company's desire to remain value-based in the eyes of consumers, and anything over 30x profits for a growth company makes me nervous. And if someone argued that they will never reach 10% margins and a 30x multiple is too high, I can totally understand that view. I just think some valuation flexibility is warranted given that Bezos might actually get as close as anyone in business to total world domination.

So below I have posted updated graphs that show Amazon's stock price over the last two decades or so (not very helpful when trying to evaluate the valuation), as well as their year-end price to trailing 12-month revenue ratio (far more helpful in doing so). Note: the 2018 data points are based on today's stock price and consensus 2018 sales estimates.

As you can see, AMZN stock hovered around the 2.0x price-to-sales ratio level between 2004 and 2014, with a range of 1.5x-2.5x or so. In recent years, as momentum stocks have led the market higher, that number has surpassed 3x and currently sits around 3.2x.

Given that position sizing in portfolios is always important to me, this graph tells me that now is not a bad time to trim AMZN. Trading above 3x revenue would seem to indicate that investor sentiment is quite high. There may be good reasons for that, of course, but as the company gets bigger and bigger, its growth rate is sure to slow. In fact, in order to grow by the 29% rate that Wall Street analysts are expecting in 2018, total sales need to rise by a stunning $51.5 billion. That very well might happen (and acquisitions like Whole Foods will only help), but when growth slows to only 10 or 15%, investors might not want to pay 3.2x revenue any longer. In my mind, anything above 3.0x tells me to tread carefully.

What do you all think? What kind of profit margins do you think AMZN will earn at maturity (i.e. when its growth rate is in-line with the average company)? What multiple of revenue seems right to you?

Full Disclosure: Long shares of Amazon at the time of writing (even after selling a chunk at $1,400 recently), but positions may change at any time

What A Difference A Strong Holiday Season Makes: Retailing Stocks Back From The Dead

Back in the second quarter of 2017 I wrote a four-part series of posts on the bricks and mortar retailing sector (Part 1: department stores - DDS & KSS | Part 2: mall owners - SKT & SPG | Part 3: balance sheet strength | Part 4: possible LBOs - JWN, DDS, URBN) focused on how Wall Street was pricing many companies as if they were essentially finished as profitable businesses.

Here we are after a strong holiday shopping season where online and bricks and mortar stores shared in the cheer and investor sentiment has shifted dramatically. This is notable because the businesses are the same today as they were back in May and June.

While the mall operators are largely unchanged, aside from above-average dividend payouts, profitable retailers with strong balance sheets have been on a tear. For example, Kohl's (KSS) is up nearly 100%, hitting $67 today on an analyst upgrade. Similarly, Urban Outfitters (URBN) has doubled from $17 to $34 and Dillards (DDS) has jumped nearly 50% from $48 to $70.

The Kohl's situation is interesting because the stock is jumping $2 today after a Jefferies analyst raised his price target by a whopping 50% to $100 per share (from $66). If that sounds like a crazy number, it is. While I was positive on the company in the $35-$45 area, after a move into the 60's it warrants a skeptical eye going forward.

I had been using a $60 fair value estimate, based on 6x EV/EBITDA and 10x free cash flow. After all, this is a department store chain that will report lower revenue in 2017 ($19.0 billion) than it had five years ago in 2012 ($19.3 billion) and I wanted to use conservative estimates. Profitable and stable off-mall retailer? Check. Solid balance sheet with lots of owned properties to offer a margin of safety? Check. Growth company that stands to take market share? Not so much.

Slow/no growth department stores (JCP, DDS, M, KSS) have traditionally traded for 6x EBITDA. Unless you believe KSS can grow their business materially, a $100 stock price seems overly aggressive at 9x EBITDA and 17x free cash flow.

Although retail sales will continue to rise in the low single digits thanks to inflation and population growth, department stores will likely still cede market share slowly over time to online channels, as well as new store concepts. That trend likely explains KSS's flattish five-year sales performance.

After a huge run, investors now believe that these companies will survive and do decently well, which is a huge shift in sentiment from 6-12 months ago. I consider many of the stocks trading at/near a fair price today, especially considering that revenue growth will still be hard to come by. In addition, the odds are low that media headlines focusing on the Amazon  threat, dead malls across the country, and bricks and mortar bankruptcies are a permanent thing of the past. Like many trends in the financial markets, I suspect we will get another good entry point in traditional retailers down the line when sentiment shifts yet again.

As for riding KSS from $67 to $100, I will leave that bet for Jefferies to make, as the stock is far less attractive today from a risk-reward perspective than it was at $36 last year. Most of these stocks seems like contrarian, sentiment-timed intermediate term trading vehicles more than multi-year, buy-and-hold investments.

Full Disclosure: Long shares of AMZN common, DDS debt, JWN common, KSS common, and SKT common at the time of writing, but positions may change at any time.I have been selling down existing positions in KSS recently, although not every share has been sold yet. 

AutoZone Three Months Later: Sentiment Shifts Dramatically Again

We are not quite three months from my last piece on AutoZone (AZO), which back in mid September was in the midst of a nasty stock price decline, and now investors seem to feel a lot better about the company's business. Of course, this is bizarre because AZO is a very large player ($11 billion of annual revenue) in a very stable industry and should therefore be mostly insulated from stock market volatility and immense shifts in short-term investor sentiment.

Below is the five-year stock price chart of AZO I shared back in September when investors were overwhelmed with negativity:

And here is an updated version that shows the last 12 months:

Why exactly a company of this size, with no material change in its business outlook could trade for as low as $497 on August 15th and as high as $763 on December 5th shows just how much the current bull market has lost a sense of rationality. That is a 53% move, for a $20 billion market cap company, in a matter of months.

So how does this happen? My guess is that the markets today are mostly driven by index funds, exchange traded funds, hedge funds, and computerized algorithms. The fundamental bottom-up investors are dwindling in numbers by the day. It is not uncommon for me to meet people who are struck by the notion that I pick individual stocks. The market has been so strong for the last nine years that indexes are now considered to be the only wise investment. It is amazing how much views shift based on where we are in the market cycle. You didn't have famous investors extolling the virtues of index funds from 2000-2008 (a nine-year period where the market had negative average annual returns), but now that the following nine years have produced +15% average annual returns, all of the sudden they are a "no-brainer" investment.

As someone who strongly believes in the cyclicality of the economy, financial markets, and investor sentiment, the AutoZone example is evidence that picking individual stocks is not silly and the markets are far from efficient. Moves like those in AZO in recent months make my job much more difficult in periods like this, when individual stock moves often make little or no sense based on fundamental research, but as long as opportunities continue to present themselves, I plan to maintain my role as an active manager of client assets. There will always be a place for index investing (for my clients it is mostly through their work retirement plan), but the ease at which it produces stellar returns will continue to ebb and flow with the market cycle.

As for AZO itself, it is hard to argue the shares are anything but fairly valued today. It will be hard for the company to grow their business (in unit terms) given the maturity of the U.S. economy and online competition, and the stock now trades for roughly 18x my estimate of normalized fee cash flow, versus just 12.5x when the shares fetched $500 each. That sounds about right to me.

Full Disclosure: Long shares of AutoZone at the time of writing (holdings have begun to be reduced recently and those trades will continue into 2018), but positions may change at any time

AutoZone's Numbers Don't Suggest Amazon Will Replace Them Or Their Competitors

After a huge rally over the past five years, shares of auto parts retailer AutoZone (AZO) have taken a beating in recent months as investors fret over Amazon's ability to become a full service parts supplier.

What is interesting, however, is that auto parts industry observers are far less optimistic about Amazon's desire and ability to break into a business that often requires super fast delivery (far less than even two hours) and a huge selection of SKUs. Simply put, auto body shops suddenly dumping their relationship with AutoZone seems unlikely. In that case, AZO's share price slump from $800 to $500 lately is probably unjustified.

There is little doubt that non-time sensitive auto-related purchases have a place in the online world. If you want to stock up on car air fresheners or get a new license plate holder, Amazon is a good place to look. But for more specialized needs, where price is not always the most important factor (getting your car back as soon as possible is), the distribution networks powering the large national auto parts retailers should still provide certainty, comfort, and value.

To see exactly how much AutoZone's business has been impacted by Amazon, I looked back over the last 15 years to see the trend for the company's sales per retail square foot. After all, if auto part sales are moving online in a material way, the average AutoZone retail store should be seeing sales declines. This would show up in sales per square foot since a store's size is constant even if more stores are built.

Here is a graph of AutoZone's sales per square foot since 2003:

Can you see Amazon's impact in that graphic? When did they really accelerate their auto parts selection? Does it look like they are having the same chilling effect on AutoZone's business as they are on, say, JC Penney? I just don't see it.

For those expecting the impending doom of auto parts retailers like AZO, I think their death may be greatly exaggerated in Wall Street circles lately. In fact, it is notable to point out that over the last five years (when e-commerce growth has really started to disrupt traditional retailers), AutoZone's revenue has grown from $9 billion to $11 billion, leading to an increase in free cash flow from $27 to $34 per share.

Full Disclosure: Long shares of AZO and AMZN at the time of writing, but positions may change at any time

Dillards Short Squeeze Makes LBO Less Likely Near-Term

It has been a little more than two months since my multi-part series on retailers highlighted the low valuations and negative sentiment on various companies, including department store chain Dillards (DDS).

In recent weeks the stock has soared, in part due to speculation that a massive short squeeze could be imminent. It looks like we are seeing signs of one right now, as the stock has moved from $48 in May to nearly $77 today.

Not only has the recent move narrowed the gap between market prices and intrinsic value, but it also greatly reduces the odds of a management-led buyout in the near-term. When the stock was in the 40's, a $60 or $65 bid could very well have gotten done. But at current prices, offering a premium would very likely make a transaction less attractive. As a result, I would not be surprised to see the share price retreat after the current spike in short covering comes to a close.

Full Disclosure: Long Dillards debt securities at the time of writing, but positions may change at any time

Amazon and Kenmore: A Mismatch Made in Desperation

For years I have wondered why Sears chose not to sell Craftsman tools on Amazon's web site. It just seemed like an obvious move to monetize a brand name they owned, given that their own stores are slowly disappearing due to customer disinterest. Earlier this year Sears sold the brand to Stanley Black and Decker to raise much-needed capital, and I suspect it is only a matter of time before the new owner utilizes Amazon to boost market share for the reputable Craftsman brand.

Yesterday the financial markets reacted quite strongly to the news that Sears will now sell Kenmore products on Amazon (the company still owns the Kenmore and Diehard brand names). Sears and Amazon rallied, while shares of competitors like Home Depot, Lowe's, and Whirlpool fell sharply.

Unlike the Craftsman brand, which I believe resonates with most every demographic, Kenmore seems like an odd fit for Amazon. Clearly, Sears is feeling the pressure to stabilize its business and the country's largest e-commerce retailer would seem to be a logical place to turn.

The problem is that the Kenmore brand has a loyal customer base, but those people are largely older, whose families have shopped at Sears for appliances for multiple generations and have come to trust the brand. In other words, the only customers Sears has left that shop in their physical stores, and more importantly, the last people who are going to consider buying a washer and dryer on Amazon.

Wall Street's knee-jerk reaction (granted, most likely from computers, not humans) was to flee from the big box appliance retailers. This appears overdone because appliances only represent a small proportion of revenue at those chains, and they should be more Amazon-proof than many other bricks and mortar companies. The odds of this news materially impacting a Best Buy, Home Depot, or Lowe's is minuscule, in my view. And the idea that the Kenmore brand is going to be reborn merely due to it being more prominent on Amazon's site is wishful thinking. As a result, yesterday's stock moves are likely to be short-lived, and they have provided investors with an opportunity.

Full Disclosure: Long shares of Amazon, Lowe's, as well as Sears's corporate bonds that mature in 2018, at the time of writing, but positions may change at any time. 

The Door Is Open For Somebody To Swoop In And Steal Whole Foods Market

It has been nearly three months since I wondered in writing whether anybody would step up and buy Whole Foods Market and a lot has happened since then. By now most people know that Amazon is in the driver's seat with their $42 per share all-cash offer having been accepted by the WFM board of directors last month.

My assessment of the situation back in April was hit and miss. My estimate of fair value for the stock proved to be spot-on ("low 40's") but I dramatically underestimated Amazon's interest in making a large acquisition. I pegged the odds of a deal at 40%, with the most likely buyers being a private equity firm or another grocery chain. Amazon must really like the idea of a Whole Foods combination, given that I do not believe it has ever offered $1 billion for another company, let alone the $13 billion Whole Foods will cost.

Today Whole Foods released its merger documents in preparation for the shareholder vote and the tidbits we learned were quite interesting. Specifically, four private equity firms and two grocery competitors reached out to the company, in addition to Amazon's interest. Perhaps not surprisingly, Whole Foods focused on a deal with Amazon and never actually opened up the bidding to other interested parties. I suspect this is mainly because the company's founder and CEO wants to keep his job and Jeff Bezos will let him.

In terms of where this deal heads from here, it was also noteworthy that Amazon's initial offer was $41 per share and when Whole Foods countered at $45 Bezos and Co. made a best and final offer of $42. This is interesting because not only were they not really interested in increasing their bid, they also insisted that WFM keep quiet about the negotiations. Amazon even insisted on multiple occasions that they would walk away immediately if the deal was leaked or if other buyers were allowed to join the bidding.

Such a negotiating strategy clearly worked, but it does open up the possibility that a last minute competing bid could emerge. Imagine you are at a private equity firm, or another grocery chain who would be interested in partnering with PE to help fund a bid. Assuming you liked the idea of grabbing Whole Foods, the main reason not to would be the fact that Amazon has deep pockets and would likely be able to prevail most easily in a bidding war. But after reading the details of how this deal came about, it appears that Amazon might not be willing to raise their bid above $42 per share. In that case, as little as $43 or $44 might steal WFM away. You can bet that Jana Partners, the hedge fund whose 8% stake fueled the most recent takeover talk in the first place, would support taking the best offer possible.

Whole Foods stock closed today right at $42.00 per share, so there does not appear to be a high degree of confidence that another bid is coming. That may be true, but all it takes is one interested party who decided to take a shot at it. It could be a very quick turn of events (and relatively easy) if a single bid over $42 prompted Amazon to walk. I won't bother placing odds on this happening given that I didn't think Amazon would bid in the first place, but I don't think it is a stretch to say that the details we learned today could sway another party who has been pondering making a higher offer. After all, they were never really allowed to bid in the first place.

Full Disclosure: Long shares of Amazon and Whole Foods Market at the time of writing, but positions may change at any time.