Whole Foods Market Inc. (WFM) recently posted better-than-expected fourth-quarter 2011 results on the heels of strong sales as shoppers flocked to the grocery chain. The company has been gaining market share compared with other supermarket chains.
Let’s Dig Deep
Austin, Texas based company – Whole Foods – said that quarterly earnings of 42 cents a share beat the Zacks Consensus Estimate by a penny, and jumped 27.3% from 33 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 12.2% to $2,353.8 million in the quarter but falling short of the Zacks Consensus Estimate of $2,360 million.
Consumers, who had cut back their spending during the recession, are now gradually returning to the chain. However, rising gasoline and food prices remains a matter of concern, since passing on increased costs to customers through price rise, may boomerang through a shift from higher priced organic products to cheaper private label brands. Therefore, the company must be observant while passing on extra burden to the consumers.
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 34.9%.
Whole Foods said that comparable-store sales rose 8.7% in the quarter flat compared with the prior-year quarter but up from 8.4% in the previous quarter. In the first five weeks of first-quarter 2012, comparable-store sales jumped 8.7%.
The company also notified that identical-store sales climbed 8.4% in the quarter compared with 8.7% in the prior-year quarter and 8.1% in the previous quarter. In the first five weeks of first-quarter 2012, identical-store sales jumped 8.2%.
Whole Foods indicated that adjusted EBITDA for the quarter surged 12.3% to $186 million, whereas EBITDA margin remained flat at 7.9%. Operating income for the quarter jumped 16.2% to $117.3 million, whereas operating margin increased 20 basis points to 5%.
Stores Update
Whole Foods currently operates 316 stores. The company opened 5 stores, including 2 relocations during the quarter. So far, in the first quarter of 2012, the company has opened 5 stores, and plans to open 1 more store. The company plans to open 24 to 27 stores in 2012 and 28 to 32 stores in 2013. The company opened 18 stores in fiscal 2011. The company believes that there exists a room for 1,000 stores in the long run, and sees expansion opportunity in Canada and the United Kingdom as well.
Other Financial Details
Whole Foods ended the quarter with cash and cash equivalents of $212 million, total long-term debt and capital lease obligations of $17.9 million, shareholders’ equity of $2,991.3 million.
Whole Foods during the quarter generated cash flow from operations of $159.6 million and incurred capital expenditures of $93.4 million, resulting in free cash flow of $66.3 million.
The company recently raised its dividend by 40% to 14 cents a share to be paid on January 24, 2012 to shareholders of record as on January 13, 2012. Whole Food’s Board of Directors also announced a new share buyback program of $200 million to be exhausted by November 1, 2013.
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.
Management Guided
Whole Foods now expects an increase of 13%-15% in total sales, underpinned by a 6.8%-8.8% rise in comparable-store sales and a 6.5%-8.5% growth in identical-store sales in fiscal 2012. Management projects EBITDA in the range of $960 million to $980 million, and expects operating margin between 5.7% and 5.8%. Capital expenditures are forecasted to be in the range of $410 million to $460 million.
The company predicts earnings between $2.21 and $2.26 per share for fiscal 2012. Analysts polled by Zacks, estimates fiscal 2012 earnings at $2.26.
Currently, we have a long-term Outperform rating on the stock. Moreover, Whole Foods, which competes with The Kroger Company (KR), holds a Zacks #2 Rank, which translates into a short-term Buy recommendation.
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