Whole Foods Market Inc.
) commenced fiscal 2012 with a bang, posting better-than-expected
first-quarter 2012 results on the back of strong sales as shoppers
flocked to the grocery chain.
The company has been gaining better market share compared to
other supermarket chains. This inflicted a sense of confidence in
management's mind about the company's performance in 2012, which
was quite evident through an upbeat outlook.
In the paragraphs that follow, we cover the recent earnings
announcement, subsequent estimate revisions by analysts as well as
the Zacks Rank and long-term recommendation for the stock.
Last Quarter Synopsis
Whole Foods reported its first quarter financial results on
February 8, 2012. The quarterly earnings of 65 cents a share beat
the Zacks Consensus Estimate of 60 cents, and jumped 27.5% from 51
cents earned in the prior-year quarter.
Whole Foods, one of the leading natural and organic foods
supermarkets, sustained its top-line growth momentum with revenue
climbing 12.9% to $3,390.9 million in the quarter, which also came
ahead of the Zacks Consensus Estimate of $3,384 million.
Austin, Texas-based Whole Foods said that comparable-store sales
rose 8.7% in the quarter, down from 9.1% in the prior-year quarter.
The company also notified that identical-store sales climbed 8.2%
in the quarter compared with 9.1% in the year-ago quarter.
(Read our full coverage on this earnings report:
Whole Foods' Healthy Performance
The healthy results, prompted management to raise its
expectations for the top and bottom lines, and operating
Whole Foods now expects an increase of 13.5%-15% in total sales,
underpinned by a 7.3%-8.8% rise in comparable-store sales and a
7%-8.5% growth in identical-store sales in fiscal 2012. Management
projects EBITDA in the range of $980 million to $995 million, and
expects operating margin to be 5.9%. The company continues to
expect capital expenditures in the range of $410 million to $460
Agreement of Estimates Revision
The agreement of estimate revisions indicates that a mixed
sentiment was palpable among the analysts following Whole Foods'
first-quarter 2012 results.
In the last 7 days, 10 out of 19 analysts covering the stock
increased their estimates, whereas 4 analysts lowered the same for
the second quarter of 2012. For the third quarter, 5 analysts
changed their estimates upwards and 6 analysts made a downward
For fiscal 2012 and 2013, 16 and 15 analysts, respectively,
revised their estimates upward in the last 7 days.
What Drives Estimates Revision
It is evident from above that the analysts were not
unidirectional in making revisions to their estimates for the
second and third quarters of 2012. However, they showed a strong
consensus in making upward revisions to their estimates for fiscal
2012 and 2013.
The better-than-expected first-quarter 2012 results and an
upbeat guidance impressed the analysts. However, some of them
remained on the back foot as the growth in the comparable and
identical-store sales was slightly below their expectations.
Moreover, they also remained concerned about the sluggish recovery
in the economy with a cautious consumer spending, and a rise in
gasoline and food prices.
Magnitude of Estimates Revision
The magnitude of estimate revisions by the analysts is clearly
reflected through changes in the Zacks Consensus
The Zacks Consensus Estimates for both the second and third
quarters of 2012 remained constant at 58 cents in the last 7 days,
as the up and down revisions in the estimates neutralizes the
For fiscal 2012 and 2013, the Zacks Consensus Estimates jumped 6
cents and 8 cents to $2.33 and $2.67, respectively, in the last 7
Being one of the leading natural and organic foods supermarkets,
Whole Foods Market with a strong brand image, and marketing and
merchandising expertise, offers investors one of the strongest
growth profiles in the industry. The stock is poised to surge once
the economy revives and demand for healthier and natural food
The stringent cost-control measures, effective inventory
management, and improved store-level performance are driving
earnings growth. Whole Foods also has been revamping its pricing
strategy and concentrating more on value offerings, while
maintaining healthy margins. In the last five fiscal years, gross
margin has been in the range of 34% to 35%.
Whole Foods has been spurring its sales through new store
openings, acquisitions and comparable store sales growth. Given the
fragmented food retailing industry, the company has a track record
of successfully integrating regional acquisitions. The company has
been gaining market share compared with other supermarket
Whole Foods has been also actively managing its cash flows, by
generating healthy free cash and making prudent capital
investments. The company's strong liquidity, positions it to drive
future growth. The company has also been utilizing its cash flows
in the opening of stores, paying down debt and returning cash to
shareholders through dividend and share repurchase.
However, the company's customers remain sensitive to
macro-economic factors including interest rate hikes, increase in
fuel and energy costs, credit availability, unemployment levels,
and high household debt levels, which may negatively impact their
disposable income triggering a shift in focus from higher priced
organic products to cheaper private label brands. This may
adversely affect Whole Foods top-line growth.
Currently, we maintain our long-term Neutral recommendation on
the stock. However, Whole Foods, which faces stiff competition from
other supermarket operators such as
The Kroger Company
), holds a Zacks #2 Rank that translates into a short-term Buy
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force impacting
stock prices. He turned this ground breaking discovery into two
of the most celebrating stock rating systems in use today. The
Zacks Rank for stock trading in a 1 to 3 month time horizon and
the Zacks Recommendation for long-term investing (6+ months).
These "Earnings Estimate Scorecard" articles help analyze the
important aspects of estimate revisions for each stock after
their quarterly earnings announcements. Learn more about earnings
estimates and our proven stock ratings at
KROGER CO (
): Free Stock Analysis Report
SUPERVALU INC (
): Free Stock Analysis Report
WHOLE FOODS MKT (
): Free Stock Analysis Report
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