Whole Foods Beats, Stays Bullish – Analyst Blog

Whole Foods Market Inc. (WFMI), one of the leading natural and organic foods supermarkets, recently posted better-than-expected second-quarter 2010 results on the back of strong sales, sending the stock up 6.5% or $2.60 to $42.85 per share in after-market trading on Wednesday. Shoppers are flocking to the grocery chain as the economy eases.

 

Austin, Texas-based company Whole Foods said that the quarterly earnings of 38 cents a share outpaced the Zacks Consensus Estimate of 34 cents, and surged 58.3% from 24 cents posted in the prior-year quarter.

 

On a reported basis, including one-time items, earnings for the quarter under review came in at 39 cents, reflecting a twofold increase from 19 cents delivered in the year-ago quarter.

 

The stronger-than-expected results prompted management to raise the fiscal 2010 earnings guidance. Whole Foods guided earnings in the range of $1.33 to $1.37 per share that came well ahead of the guidance range of $1.20 to $1.25 predicted earlier, and the current Zacks Consensus Estimate of $1.25.

 

Whole Foods sustained its growth momentum in the top-line with revenue climbing 13.4% year over year to $2,106.1 million in the quarter. Consumers who cut back their spending during the recession are now returning to the chain.

 

The stringent cost-control measures, effective inventory management, and improved store-level performance have helped the company to sustain during the recession and achieve improved sales and profit.

 

Whole Foods also has been revamping its pricing strategy and concentrating more on value offerings, while maintaining healthy margins. In the last four quarters, gross margin has been in the range of 34% to 35%.

 

Whole Foods said that comparable-store sales rose 8.7% in the quarter, reflecting a sequential increase of 520 basis points. Comps had fallen 4.8% in the year-ago quarter.

 

The company also notified that identical-store sales climbed 7.7% in the quarter compared with an increase of 2.5% in the previous quarter, and portrayed a substantial improvement over the decline of 5.8% in the year-earlier quarter.

 

Whole Foods expects the sales growth to continue through fiscal 2010. Management now anticipates an increase of 11% to 12% in total sales, driven by a 6%−7% rise in comparable-store sales and a 5.5%−6.5% growth in identical-store sales.

 

Previously, Whole Foods had anticipated an increase of 8.5% to 10.5% in total sales, a 3.5%−5.5% rise in comparable-store sales and a 2.9%−4.9% growth in identical-store sales.

 

Whole Foods indicated that adjusted EBITDA for the quarter surged 26.9% to $182.5 million. Management now expects EBITDA in the range of $685 million to $700 million up from the previous guidance range of $655 million to $685 million.

 

Whole Foods, which faces competition from other supermarket operators Kroger Company (KR), Safeway Inc. (SWY) and Supervalu Inc. (SVU), currently operates 295 stores and plans to open another 47 stores in the next four years. In fiscal 2010, the company plans to open 16 stores, of which 12 have already been opened so far.

 

The company ended the quarter with cash and cash equivalents of $215.2 million, total long-term debt and capital lease obligations of $729 million and shareholders’ equity of $2,217 million.

 

Capital expenditures for the quarter were $64.5 million. For fiscal 2010, management expects capital expenditures in the range of $300 million to $350 million. Whole Foods generated free cash flow of $117 million during the quarter.