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 market
share compared with other supermarket chains.
These inflicted a sense of confidence in management's mind about
the company's performance in 2012, which was quite evident through
an upbeat outlook.
Let's Unveil the Picture
Austin, Texas based company, Whole Foods, said that 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
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.
Consumers, who had cut back their spending during the recession,
are now gradually returning to the chain. However, a rise in
gasoline and food prices remains a matter of concern, since passing
on increased costs to customers through price rise may boomerang
through a shift of customers' preference from higher priced organic
products to cheaper private label brands. Therefore, the company
must be observant while passing on extra burden to the
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 five fiscal years,
gross margin has been in the range of 34% to 35%.
Whole Foods said that comparable-store sales rose 8.7% in the
quarter, down from 9.1% in the prior-year quarter, but flat
compared with the previous quarter. In the first three weeks of
second quarter of 2012, comparable-store sales jumped 9.4%.
The company also notified that identical-store sales climbed
8.2% in the quarter compared with 9.1% in the prior-year quarter
and 8.4% in the previous quarter. In the first three weeks of
second-quarter 2012, identical-store sales jumped 9%.
Whole Foods indicated that adjusted EBITDA for the quarter
surged 20.5% to $283 million, whereas EBITDA margin expanded 50
basis points to 8.3%. Operating income for the quarter jumped 29%
to $190.3 million, whereas operating margin increased 70 basis
points to 5.6%.
Whole Foods currently operates 317 stores. The company opened 6
stores during the quarter, and plans to open 3 stores in the second
quarter of 2012. The company plans to open 24 to 27 stores in 2012
and 28 to 32 stores in 2013. The company opened 18 stores in fiscal
2011. In total, there are 69 stores in the development pipeline.
The company believes that there exists a room for 1,000 stores in
the long run, and sees expansion opportunity in Canada and the
United Kingdom as well.
Other Financial Details
Whole Foods ended the quarter with cash and cash equivalents of
$530 million, total long-term debt and capital lease obligations of
$19.3 million, shareholders' equity of $3,182.7 million.
During the quarter, Whole Foods generated cash flow from
operations of $260.9 million and incurred capital expenditures of
$111.3 million, resulting in free cash flow of $149.6 million.
Whole Foods paid $17.8 million in dividends and bought back $3.6
million of shares during the quarter.
The company has been utilizing its cash flows in the opening of
stores, paying down debt and returning cash to shareholders through
dividends and share repurchases.
Strolling through Guidance
The better-than-expected 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
The company predicts earnings between $2.28 and $2.32 per share
for fiscal 2012. Analysts polled by Zacks, estimates fiscal 2012
earnings at $2.30.
Earlier, Whole Foods had projected 13%-15% increase in total
sales, driven by a 6.8%-8.8% rise in comparable-store sales and a
6.5%-8.5% growth in identical-store sales in fiscal 2012. EBITDA
was forecasted to be in the range of $960 million to $980 million,
and operating margin was expected between 5.7% and 5.8%. The
company had previously predicted earnings between $2.21 and $2.26
per share for fiscal 2012.
Currently, we have a long-term 'Neutral' rating on the stock.
Moreover, Whole Foods, which competes with
The Kroger Company
), holds a Zacks #2 Rank that translates into a short-term 'Buy'
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