Healthy Results For Whole Foods

Whole Foods Market Inc. (WFMI: 34.35 +3.83 +12.55%), one of the leading natural and organic foods supermarkets, recently reported better-than-expected first-quarter 2010 results buoyed by strong sales and cost cuts.
 
The quarterly earnings of 32 cents a share surpassed the Zacks Consensus Estimate of 26 cents, and surged 62% from the prior-year quarter. The stringent cost-control measures, effective inventory management, improved store-level performance and increase in lower-priced brands drove earnings growth.
 
The quarterly earnings topped the Zacks Consensus Estimate by 23.1%. In terms of earnings surprises, Whole Foods outperformed the Zacks Consensus Estimate in fourth-quarter 2009 by 11.1% and by 26.3% in the third quarter.
 
Based on stronger-than-expected results, Whole Foods now expects fiscal year 2010 earnings between $1.20 and $1.25 per share, up from its previous guidance range of $1.05 to $1.10.
 
Whole Foods sustained its growth momentum in the top-line for the third consecutive quarter. After rising 2% year on year in the third quarter and 2.3% in the fourth quarter of 2009, revenue climbed 7% to $2,639.2 million in first-quarter 2010, showing signs of revival. Consumers, who cut back their spending during the recession, are now returning to the chain.
 
Comparable-store sales climbed 3.5% in the first quarter of 2010, reflecting a sequential improvement over declines of 0.9% in the fourth quarter and 2.5% in the third quarter of 2009. Comps had fallen 4% in the year-ago quarter.

Identical-store sales rose 2.5% in the first quarter of 2010 compared to a decline of 4.9% in the prior-year quarter but improved sequentially over declines of 2.3% in the fourth quarter and 3.8% in the third quarter of 2009. The uptrend in comparable and identical-store sales was due to improved transaction counts.

Whole Foods expects the sales growth momentum generated in fiscal 2009 to continue through fiscal 2010. Management now anticipates an increase of 8.5% to 10.5% in total sales, driven by a 3.5% to 5.5% rise in comparable-store sales and a 2.9% to 4.9% growth in identical-store sales.
 
Previously, Whole Foods had anticipated an increase of 5% to 8% in total sales, a 1% to 4% rise in comparable-store sales and flat to 3% growth in identical-store sales.

The Austin, Texas-based company, Whole Foods said that EBITDA for the quarter rose 26% to $186 million. Management now expects EBITDA in the range of $655 million to $685 million up from the previous guidance range of $625 million to $650 million.
 
Whole Foods has been revamping its pricing strategy and concentrating more on lower-priced offerings to withstand competition from other supermarket operators - Kroger Company (KR: 21.73 +0.15 +0.70%), Safeway Inc. (SWY: 23.20 +0.43 +1.89%) and Supervalu Inc. (SVU: 15.44 +0.24 +1.58%).
 
The company currently operates 289 stores and expects to open 51 stores in the next four years. During first-quarter 2010, Whole Foods opened 6 stores, and expects to open 10 more stores in the remainder of the year.
 
The company ended first-quarter 2010 with cash and cash equivalents of $241.4 million, total long-term debt and capital lease obligations of $734.1 million and shareholders’ equity of $2,111.8 million.
 
Capital expenditures for the quarter were $82.5 million. For fiscal 2010, management expects capital expenditures in the range of $350 million to $400 million. Whole Foods generated free cash flow of $78.9 million during the quarter.