Whole Foods Market Q3 Profit Rises; Lifts FY09 EPS Forecast; Shares Up

WFMI 080409

Tuesday, natural and organic foods supermarket Whole Foods Market, Inc. (WFMI) reported a moderate increase in its third-quarter profit, as revenues grew 2%. In addition, Whole Foods raised its fiscal 2009 earnings forecast, and said it is maintaining a conservative outlook for sales. Following the news, the company's stock traded 13.05% higher in the after hours.

The Austin, Texas-based company reported net income available to common shareholders of $34.97 million or $0.25 per share, compared with $33.92 million or $0.24 per share in the year-ago quarter.

On average, fourteen analysts polled by Thomson Reuters expected the company to earn $0.20 per share for the quarter. Analysts' estimates typically excludes special items.

The earnings results include a LIFO credit of $5.8 million, or $0.02 per share, compared to a $2.7 million charge last year and $6.8 million, or $0.03 per share, in non-cash asset impairment charges primarily related to the Federal Trade Commission or FTC settlement agreement.

Revenues for the quarter increased 2% to $1.88 billion from $1.84 billion in the prior-year quarter. Twelve analysts had a revenue consensus of $1.86 billion for the third quarter.

Comparable store sales decreased 2.5% versus a 2.6% increase in the prior year. Identical store sales, excluding nine relocations and two major expansions, dropped by 3.8% versus a 1.9% growth in the prior year.

Excluding the negative impact of foreign currency translation, comparable store sales decreased 2.0%, and identical store sales declined 3.3%.

John Mackey, Chairman, Chief Executive Officer, and Co-founder of Whole Foods Market said, "We saw our first sequential improvement in comparable store and identical store sales trends in six quarters driven by both average transaction count and basket size trends."

In the preceding second quarter, net earnings slumped to $27.3 million or $0.19 per share from $40.0 million or $0.29 per share in the prior year. Sales decreased to $1.857 billion from $1.866 billion in the same quarter of last year.

As a percentage of sales, gross profit in the recent quarter increased 79 basis points to 35.2% from 34.4% in the previous year quarter.

Excluding LIFO, gross profit increased 33 basis points to 34.8% from 34.5% in the same quarter last year, with an improvement in cost of goods sold more than offsetting higher occupancy costs as a percentage of sales.

During the quarter, Whole Foods Market generated $159.6 million in cash flow from operations and invested $66.9 million in capital expenditures, of which $54.5 million related to new stores.

The company opened four stores in the third quarter, three of which were relocations. Since the company's second quarter earnings release, it has terminated two leases, totaling about 121,100 square feet for stores previously scheduled to open in fiscal years 2012 and 2013.

For the nine-month period, net income available to common shareholders declined to $90.09 million or $0.64 per share from $113.02 million or $0.81 per share in the comparable period of 2008. Sales for the first nine months of fiscal 2009 grew to $6.20 billion from $6.16 billion in the year ago period.

looking forward, for the fourth quarter, the company expects earnings of $0.16 - $0.18 per share, while analysts project $0.14 per share for the quarter.

For the full year 2009, the company now expects earnings in the range of $0.80 - $0.82 per share, up from its prior forecast of $0.65 - $0.70 per share. The Street expects earnings of $0.75 per share for the year.

For 2010, the company said it would provide forecast in its fourth quarter earnings announcement in early November, due to uncertain economic outlook.

In addition, the company provided information about its estimated store openings in fiscal years 2010 through 2013 based on the current development pipeline. In total company estimates 53 openings, 7 relocations and 8 new markets through 2013.

WFMI closed Tuesday's regular trading at $24.82, up $0.02 or 0.08%, on a volume of 6.04 million shares. In after hours, the stock is trading at $28.05, up $3.24 or 13.05% on the Nasdaq. In the last 52-week period, the stock trended in a range of $7.04 - $25.14, with a three-month average volume of 3.45 million shares.

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