Whole Foods Market Inc.
) healthy performance in the first quarter of 2012 was followed by
a better-than-expected second quarter results. The company carried
the growth momentum into fiscal 2012 on the back of strong sales as
shoppers flocked to the grocery chain.
The company has been gaining a better market share versus other
supermarket chains. These boosted management's expectations
about the company's performance in 2012.
Let's Unveil the Picture
Austin, Texas-based Whole Foods said that quarterly earnings of
64 cents a share beat the Zacks Consensus Estimate of 59 cents, and
jumped 25.5% 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 13.6% to $2,670.3 million in the quarter, which also came
ahead of the Zacks Consensus Estimate of $2,649 million.
Consumers, who had cut back their spending during the recession,
are now gradually returning to the chain. However, rising gasoline
and food prices remain matters of concern, since passing on
increased costs to customers through price increases may boomerang
through a shift of customers' preference from higher-priced organic
products to cheaper private-label brands. Therefore, the company
must be careful while passing on the 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 9.5% in the
quarter, up from 7.8% in the prior-year quarter and 8.7% in the
previous quarter. For the five-week period ended April 29
(including the last two weeks of the second quarter and the first
three weeks of the third quarter), comparable-store sales jumped
The company also notified that identical-store sales climbed 9%
in the quarter compared with 7.8% in the prior-year quarter and
8.2% in the previous quarter. For the five-week period ended April
29 (including the last two weeks of the second quarter and the
first three weeks of the third quarter), identical-store sales rose
The shift of the Easter holiday into the second quarter this
year compared with the third quarter in the last year, benefited
comparable and identical store sales by 55 basis points.
Whole Foods indicated that gross profit rose 15.8% to $969.7
million, whereas gross margin grew 70 basis points to 36.3%. Store
contribution soared 26.1% to $287.9 million. As a percentage of
sales, store contribution increased 107 basis points to 10.8%.
EBITDA for the quarter surged 24.4% to $259.2 million, whereas
EBITDA margin expanded 80 basis points to 9.7%. Operating income
for the quarter jumped 33.2% to $189.4 million, whereas operating
margin increased 110 basis points to 7.1%.
Whole Foods currently operates 324 stores. The company opened 3
stores during the quarter, and plans to open 9 stores in the third
quarter of 2012. So far in the third quarter, the company has
opened 4 stores, and plans to open 5 more stores, including 1
The company plans to open 24 to 27 stores in 2012 and 28 to 32
stores in 2013. The company had opened 18 stores in fiscal 2011. In
total, there are 70 stores in the development pipeline. The company
believes that there exists room for 1,000 stores in the long run,
and sees expansion opportunities in Canada and the United Kingdom
Other Financial Details
Whole Foods ended the quarter with cash and cash equivalents of
$175.4 million, total long-term debt and capital lease obligations
of $19.2 million, shareholders' equity of $3,455 million.
During the quarter, Whole Foods generated cash flow from
operations of $255.8 million and incurred capital expenditures of
$101.9 million, resulting in free cash flow of $153.9 million. The
company paid $25.2 million in dividends during the quarter under
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 fiscal 2012.
Whole Foods now expects an increase of 14.8%-15.6% in total
sales, underpinned by expectations of an 8.2%-8.9% rise in
comparable-store sales and a 7.8%-8.6% growth in identical-store
sales in fiscal 2012. Management projects EBITDA in the range of
$1.03 billion to $1.04 billion, and expects operating margin to be
6.3%. The company continues to expect capital expenditures in the
range of $410 million to $460 million.
The company predicts earnings between $2.44 and $2.47 per share
for fiscal 2012, reflecting year-over-year growth of 26% to 28%.
Analysts polled by Zacks, estimate fiscal 2012 earnings to be
Earlier, Whole Foods had projected 13.5%-15% increase in total
sales, driven by expectations of 7.3%-8.8% rise in comparable-store
sales and a 7%-8.5% growth in identical-store sales in fiscal 2012.
EBITDA was forecasted to be in the range of $980 million to $995
million, and operating margin was expected to be 5.9%. The company
had previously predicted earnings between $2.28 and $2.32 per share
for fiscal 2012.
Currently, we have a long-term Neutral recommendation on the
stock. Moreover, Whole Foods, which competes with
The Kroger Company
), holds a Zacks #2 Rank that translates into a short-term Buy
rating and well defines the company's optimistic outlook.
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