Whole Foods Tops, Pares Forecast - Analyst Blog

Whole Foods Market Inc. (WFMI), one of the leading natural and organic foods supermarkets, recently posted better-than-expected third-quarter 2010 results on the back of strong sales as shoppers flocked to the grocery chain.

Quarterly Discussion

Whole Foods' quarterly earnings of 38 cents per share jumped from 25 cents posted in the prior-year quarter, but matched the Zacks Consensus Estimate.

Whole Foods sustained its top-line growth momentum with revenues climbing 15.2% year-on-year to $2,163.2 million in the quarter and comfortably surpassing the Zacks Consensus Estimate of $2,143 million. Consumers, who cut back their spending during the recession, are now returning to the chain.

Effective inventory management and improved store-level performance have helped the company sustain the downturn and achieve improved sales and profit. Whole Foods has been revamping its pricing strategy and concentrating more on value offerings, while maintaining healthy margins. In the last four quarters, gross margin has been in the range of 34% to 35%.

Whole Foods said that comparable-store sales rose 8.8% in the quarter, reflecting a sequential increase of 10 basis points. Same-store sales fell 2.5% in the same-quarter last year.

The company also notified that identical-store sales climbed 8.4% in the quarter compared to an increase of 7.7% in the previous quarter, and portrayed a substantial improvement over the decline of 3.8% in the year-earlier quarter. In the first four weeks of fourth-quarter 2010, identical store sales climbed 7.7%.

Whole Foods indicated that adjusted EBITDA for the quarter surged 21.5% to $180 million.

Stores Update

Whole Foods, which faces competition from other supermarket operators Kroger Co. (KR), Safeway Inc. (SWY) and Supervalu Inc. (SVU), currently operates 298 stores and plans to open 1 store in fourth-quarter 2010 with another 47 stores planned in the next four years – 17 stores in fiscal 2011, 19 stores in 2012, 9 stores in 2013 and 2 stores in 2014. During the quarter under review the company opened 6 stores, acquired 2 stores and divested 2 stores.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $136.1 million, total long-term debt and capital lease obligations of $513.6 million, shareholders’ equity of $2,299.9 million and an available credit line of $341.1 million. Whole Foods paid down $210 million of $700 million term loan during the quarter.

Capital expenditures for the quarter were $52.7 million. Whole Foods generated free cash flows of $65.2 million during the quarter.

Guidance

However, stiff competition and the uncertainty prevailing in the economy compelled Whole Foods to moderate its outlook.

After registering a growth of 15.2% in total sales, on the heels of an 8.8% rise in comparable-store sales and an 8.4% growth in identical-store sales in the quarter under review, Whole Foods now expects an increase of 12.8% to 13.8% in total sales, driven by a 6.5%-7.5% rise in both comparable-store sales and identical-store sales in fourth-quarter 2010.

For fiscal 2010, management now anticipates an increase of 11.7% to 11.9% in total sales, on the back of a 6.6%-6.8% rise in comparable-store sales and a 6%-6.2% growth in identical-store sales. Earlier, Whole Foods expected an increase of 11%-12% in total sales, driven by a 6%-7% rise in comparable-store sales and a 5.5%-6.5% growth in identical-store sales.

Whole Foods also initiated its fiscal 2011 outlook, guiding a moderate sales growth compared to fiscal 2010. The company predicted an increase of 10%-13% in total sales, reflecting a 5%-7% rise in comparable-store sales and a 4.5%-6.5% growth in identical-store sales.

Management now projects EBITDA in the range of $150 million to $154 million for fourth-quarter 2010, between $698 million and $702 million for fiscal 2010, and between $775 million and $790 million for fiscal 2011.

Whole Foods guided earnings in the range of 27 cents to 29 cents for fourth-quarter 2010, between $1.37 and $1.39 for fiscal 2010, and between $1.59 and $1.64 per share for fiscal 2011. The company had previously forecasted fiscal 2010 earnings in the range of $1.33 to $1.37 per share.

Capital expenditures are anticipated in the range of $50 million to $60 million for fourth-quarter 2010, between $250 million and $260 million for fiscal 2010, and between $350 and $400 million for fiscal 2011.
 
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