Whole Foods 4Q Net Soars; Shares Drop On EPS View, Dilution

DOW JONES NEWSWIRES

Whole Foods Market Inc.'s (WFMI) fiscal fourth-quarter earnings soared as revenue climbed and unusual items took less of a bite from the bottom line, leading the high-end grocer to declare that its sales have "officially turned the corner."

The company expects the sales growth to continue in its new fiscal year, with increases of 5% to 8% in overall sales and 1% to 4% in comparable-store sales. Whole Foods noted that total sales are up 5% in the first five weeks of the fiscal year, with comparable-store sales up 1.6%. Analysts were recently projecting a sales increase of 6% to $8.54 billion, according to Thomson Reuters.

However, Whole Foods forecast earnings of $1.05 to $1.10 a share, just below the analyst average of $1.11.

Whole Foods also said it expects Leonard Green & Partners to convert its $425 million of preferred stock by Nov. 27, saving the company $34 million in preferred dividends. The redemption will balloon shares outstanding by 29.7 million, but the company doesn't expect any material effect on diluted earnings per share. The company had an average 140.5 million shares outstanding during the fiscal fourth quarter.

But investors frowned on the dilution, sending Whole Foods' shares down 9.2% to $29.12 in after-hours trading. The stock has pulled back from a 52-week high of $34.40 hit a couple weeks ago, but it remains up more than quadruple from the low nearly a year ago.

With shoppers looking for bargains and grocers engaged in a full-scale price war, Whole Foods has been balancing its upscale image with a value message in its marketing. While it has made progress--offering meals that feed a family of four for $15--the company has still pared store openings and suspended its dividend.

For the quarter ended Sept. 27, Whole Foods reported earnings of $36.4 million, or 20 cents a share, compared with $1.5 million, or 1 cent a share, a year earlier. The latest quarter included a gain of 1 cent a share related to inventory accounting, while the year-ago included a host of charges that brought earnings down about 15 cents.

Revenue climbed 2.3% to $1.83 billion. Comparable-store sales fell 0.9%. Meanwhile, identical-store sales, which exclude eight relocations and two expansions, dropped 2.3%.

Whole Foods expected earnings of 16 cents to 18 cents a share and sales growth of 2.9%, both above Wall Street expectations when the view was given in August.

Gross margin edged up 0.46 percentage point to 34% excluding the inventory- accounting gain, as lower food costs more than offset higher occupancy costs.

Looking ahead, Whole Foods still expects to open a total of 53 stores in the next four years. It currently has 286 stores.

-By Jay Miller, Dow Jones Newswires; 212-416-2355; jay.miller@dowjones.com

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  11-04-091657ET
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