Whole Foods Market Outperforms

Whole Foods Market (WFMI: 28.33 -0.37 -1.29%) recently reported better-than-expected third quarter 2009 results with low single-digit growth in both the top-line and bottom-line. EPS came in at 25 cents, surpassing the Zacks Consensus Estimate of 19 cents, and up 4.2% year over year compared to 24 cents reported in the prior-year quarter, driven by stringent cost-control measures and improved store-level performance.

On account of the better-than-expected results, management raised its full-year earnings outlook. The company now expects fiscal year 2009 EPS in the range of 80 cents to 82 cents, up from 65 cents to 70 cents forecasted earlier. For the fourth quarter 2009, EPS is expected to be in the range of 16 cents to 18 cents.

Whole Foods’ total revenue climbed 2% to $1,878.3 million, after falling 0.5% in the second quarter of 2009, and increasing 0.4% in the first quarter, showing signs of revival with higher sales of organic products. The comparable-store sales dipped but at a slower rate, falling 2.5% in the reported quarter, as it improved sequentially over 4.8% decline in the second quarter of 2009, and a 4% decline in the first quarter. Comparable-store sales in the prior-year quarter increased 2.6%.

Identical-store sales also fell, down 3.8% in the quarter under review compared to 1.9% increase in the prior-year quarter but improved sequentially over 5.8% decline in the second quarter of 2009, and a 4.9% decline in the first quarter.

The uptrend in comparable- and identical-store sales was due to improved transaction counts and basket size.

Comparable-store sales and identical-store sales for the first four weeks of fourth quarter 2009 declined 1.1% and 2.7%, respectively. Based on the trend to date, along with the weak economic environment the company has exercised caution in its outlook. The company expects sales growth of 2.9% for the fourth quarter and 1% for the fiscal year 2009.

However, driving bottom-line growth is the company’s cost reduction initiatives, which boosted EBITDA to $148.2 million, up 21.6%. The company also generated free cash flow of $92.7 million during the reported quarter.

Management raised its fiscal year 2009 adjusted EBITDA guidance to a range of $565 million to $570 million up from $525 million to $545 million earlier expected. For the fourth quarter 2009, adjusted EBITDA is expected in the range of $123 million to $128 million.

Whole Foods Market is engaged in the operation of natural and organic foods supermarkets primarily in the United States, and competes with Kroger Co. (KR: 21.49 -0.02 -0.09%) and Safeway (SWY: 18.69 +0.08 +0.43%).

We have a Neutral rating on Whole Foods Market.