Whole Foods Market, Inc.
) continues with its positive earnings surprise trend by posting
better-than-expected fourth-quarter fiscal 2013 bottom-line
results. Earnings of 32 cents a share beat the Zacks Consensus
Estimate by a penny and rose 7% from 30 cents earned in the
prior-year quarter as shoppers flocked to the grocery chain.
However, the top line fell short of our expectation as other
prominent players are gradually expanding their market presence
by offering more natural or organic products, thus compelling the
company to revise its price.
Consequently, Whole Foods trimmed its sales forecasts. Not
surprisingly, shares tumbled 9.2% in aftermarket trading hours,
yesterday. Even the announcement of a dividend hike failed to
calm the jitteriness of investors.
Let's Unveil the Picture
Whole Foods, a leading natural and organic foods supermarket,
sustained its top-line growth momentum with revenue climbing 2%
to $2,976 million in the quarter, but falling short of the Zacks
Consensus Estimate of $3,036 million. On a comparative 12-week
basis, sales were up 10.8%.
Effective inventory management and improved store-level
performance 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 3 fiscal years, gross
margin has been in the range of 34.8% - 35.5%.
Whole Foods stated that comparable-store sales rose 5.9% in
the quarter, indicating the soft growth the company witnessed in
fiscal 2013. For the first 5 weeks of first-quarter fiscal 2014,
comparable-store sales jumped 5.8%.
The company also notified that identical-store sales climbed
5.5%, down from the improvement of 6.7% registered in the
preceding quarter. For the first 5 weeks of first-quarter fiscal
2014, identical-store sales jumped 5.2%.
Whole Foods indicated that gross profit rose 3% to $1,061
million, whereas gross margin grew 37 basis points to 35.6% as
cost of goods sold and occupancy costs shriveled as a percentage
Store contribution jumped 7% to $305 million. As a percentage
of sales, store contribution increased 43 basis points to
Adjusted EBITDA for the quarter rose 8% to $298 million,
whereas adjusted EBITDA margin expanded 50 basis points to 10%.
Operating income for the quarter jumped 9% to $192 million,
whereas operating margin increased 50 basis points to 6.5%.
Whole Foods currently operates 367 stores. The company opened
12 outlets during the fourth quarter. So far in the first quarter
of fiscal 2014, the company has opened 5 stores, and plans to
open 5 more stores.
The company plans to open 33 to 38 stores in fiscal 2014 and
35 to 40 stores in fiscal 2015. The company opened 32 stores in
fiscal 2013, after opening 25 outlets in fiscal 2012. Moreover,
it believes that there exists room for 1,000 stores in the long
run, and envisions expansion opportunities in Canada and the
Other Financial Details
Whole Foods ended the quarter with cash and cash equivalents
of $290 million, long-term capital lease obligations of $26
million, and shareholders' equity of $3,878 million.
During the quarter, Whole Foods generated cash flow from
operations of $191 million and incurred capital expenditures of
$160 million, resulting in free cash flow of $31 million. The
company paid $37 million in quarterly dividends and bought back
$37 million worth of shares.
The company's board of directors also increased the dividend
payout by 20% to 12 cents a share. The next dividend will be paid
on Jan 28, 2014 to stakeholders of record as of Jan 17, 2014. The
board also authorized a new $500 million share repurchase
program, to be exhausted through Dec 31, 2015, in addition to the
existing authorization of $300 million to be utilized through Dec
The company has been utilizing its cash flow for opening new
stores, paying down debt and returning cash to shareholders
through dividends and share repurchases.
Strolling Through Guidance
Whole Foods project an escalation of 11% to 13% in total sales
for fiscal 2014 on the back of an expected 5.5% to 7% rise in
comparable-store sales and 5% to 6.5% growth in identical-store
Earlier, management had forecasted 12% to 14% sales growth
buoyed by a 6.5% to 8% rise in comparable-store sales and a 6% to
7.5% jump in identical-store sales.
Management provided EBITDA guidance of $1.36 billion to $1.39
billion, and projected operating margin between 6.9% and 7%. The
company anticipates capital expenditures between $600 million and
Management now envisions earnings between $1.65 and $1.69 per
share, portraying a year-over-year jump of 12% to 15%, down from
a range of $1.69 to $1.72 forecasted earlier. Analysts polled by
Zacks, estimate fiscal 2014 earnings at $1.73, which may witness
a downward revision in the coming days.
Zacks Rank for Whole Foods
Currently, Whole Foods carries a Zacks Rank #2 (Buy). However,
there are certain other stocks that warrant a look, such as
Pinnacle Foods Inc.
The J. M. Smucker Company
Treehouse Foods, Inc.
), all carrying a Zacks Rank #2 (Buy).
PINNACLE FOODS (PF): Free Stock Analysis
SMUCKER JM (SJM): Free Stock Analysis Report
TREEHOUSE FOODS (THS): Free Stock Analysis
WHOLE FOODS MKT (WFM): Free Stock Analysis
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