Tuesday, Whole Foods Market Inc. (WFMI), an operator of natural and organic foods supermarkets, reported a 31% decline in third quarter profit, owing to the impact of the Wild Oats acquisition as well as the negative economic environment that led to lower-than-expected increase in revenues. The company also suspended its quarterly cash dividend, while the board increased stock repurchase authorization. Additionally, the natural foods grocery chain issued forecast for fourth quarter, 2008 and 2009 earnings below Street expectation. The company's stock plunged over 17% in the extended trade on earnings report.
The Austin, Texas-based company said third quarter net income dropped to $33.92 million or $0.24 per share from $49.07 million or $0.35 per share in the same period in 2007.
The negative impact on net income from the Wild Oats acquisition in the quarter was about $4.9 million or $0.03 per share. The company bought peer Wild Oats last year for $565 million.
On a non-GAAP basis, adjusted to exclude the impact of Wild Oats, net income was $33.92 million or $0.28 per share for the third quarter of 2008. On average, 14 analysts polled by First Call/Thomson Financial expected earnings of $0.31 per share for the quarter.
Third quarter sales increased 21.6% to $1.841 billion from $1.514 billion generated in the same period last year, falling short of analysts' consensus revenue estimate of $1.91 billion. Gross profit decreased 82 basis points from the prior year to 34.7% of sales.
Comparable store sales increased 2.6%, and identical store sales, excluding two relocated stores and two major expansions, rose 1.9%. Sales at the Wild Oats stores in operation during the third quarter were $168.3 million or 9.1% of total sales.
Direct store expenses for the quarter increased to $490.19 million from $394.71 million in the previous year, while administrative expenses advanced to $60.69 million from $49.00 million incurred in 2007. The company ended the quarter with 271 stores totaling 9.6 million square feet.
Cash and cash equivalents at July 6, 2008 was $24.92 million. Accounts receivable was $127.62 million at July 6, 2008 and $105.21 million at September 30, 2007.
Year-to-date, net income declined to $113.02 million or $0.81 per share from $148.81 million or $1.05 per share reported last year. Sales for the period increased to $6.164 billion from $4.848 billion reported in the previous year.
Citing a challenging economic environment, Whole Foods Market reduced the number of stores expected to open in fiscal year 2009 to about 15. The company has cut all discretionary capital expenditure budgets not related to new stores by 50%.
Whole Foods Market has already implemented certain cost containment measures for the remainder of this fiscal year and expects G&A expenses of nearly 3.2% of sales in fiscal year 2009. Further, the company suspended its quarterly cash dividend for the foreseeable future.
Additionally, the company said its Board of Directors has increased the company's stock repurchase authorization by $100 million, bringing the total current authorization to $200 million.
Looking ahead, the company expects earnings per share in the range of $0.13-$0.15 for the fourth quarter. Sales growth is estimated to be 12% for the quarter. Analysts expect fourth quarter earnings of $0.27 per share on revenues of $1.93 billion.
For the full year, the company expects earnings of $0.93-$0.95 per share and sales growth of 23%. The Street looks for 2008 earnings of $1.15 per share on revenues of $8.16 billion.
Earnings per share for 2009 are expected in the range of $1.08-$1.14, including about $0.07-$0.09 per share in dilution from Wild Oats and about $0.06 per share in dilution from the company's U.K. operations.
The company expects total sales growth in fiscal year 2009 of 6% to 10%. Comparable store sales growth is expected to be 1%-5%. Analysts expect 2009 earnings of $1.52 per share on revenues of $9.45 billion.
WFMI closed Tuesday's regular trade at $22.92, up $1.46 or 6.80%, on 8.32 million shares. The stock plunged $3.97 or 17.32% in the extended trade. For the past year, the stock trended in the range of $20.18-$53.65.
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