Whole Foods Market, Inc.’s (WFM - Analyst Report) third-quarter fiscal 2013 earnings of 38 cents a share beat the Zacks Consensus Estimate by a penny, and surged 20% from 31 cents earned in the prior-year quarter as shoppers flocked to the grocery chain.
Let’s Unveil the Picture
Whole Foods, a leading natural and organic foods supermarket, sustained its top-line growth momentum with revenue climbing 12.1% to $3,058 million in the quarter, but falling short of the Zacks Consensus Estimate of $3,090 million.
Effective inventory management and improved store-level performance 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 3 fiscal years, gross margin has been in the range of 34.8% – 35.5%.
Whole Foods stated that comparable-store sales rose 7.5% in the quarter, down from 8.2% growth registered in the prior-year quarter but up from 6.9% increase witnessed in the previous quarter. For the first 3 weeks of the fourth quarter, comparable-store sales jumped 5.8%.
The company also notified that identical-store sales climbed 7.2% in the compared quarter with 8% in the year-ago quarter and 6.6% in the preceding quarter. For the first 3 weeks of the fourth quarter, identical-store sales jumped 5.5%.
Whole Foods indicated that gross profit rose 14.1% to $1,119 million, whereas gross margin grew 61 basis points to 36.6% as cost of goods sold and occupancy costs shriveled as a percentage of sales.
Management anticipates a major increase in pre-opening and relocation costs in the fourth quarter due to 12 new store openings coupled with a significant number of store openings in the first quarter of fiscal 2014.
Store contribution soared 15.8% to $338 million. As a percentage of sales, store contribution increased 35 basis points to 11%.
Adjusted EBITDA for the quarter soared 17.6% to $328 million, whereas adjusted EBITDA margin expanded 50 basis points to 10.7%. Operating income for the quarter jumped 21.3% to $228 million, whereas operating margin increased 60 basis points to 7.5%.
Whole Foods currently operates 355 stores. The company opened 4 outlets during the third quarter of fiscal 2013. So far in the fourth quarter, the company has opened 4 stores, and plans to open 8 more stores.
The company plans to open 32 stores in fiscal 2013 and 33 to 38 stores in fiscal 2014. The company opened 25 stores in fiscal 2012. Moreover, it believes that there exists room for 1,000 stores in the long run, and envisions expansion opportunities in Canada and the United Kingdom.
Other Financial Details
Whole Foods ended the quarter with cash and cash equivalents of $311 million, long-term capital lease obligations of $26 million, and shareholders’ equity of $3,785 million.
During the quarter, Whole Foods generated cash flow from operations of $228 million and incurred capital expenditures of $113 million, resulting in free cash flow of $115 million. The company paid $37 million in quarterly dividends and bought back $25 million worth of shares.
The company has been utilizing its cash flow for opening new stores, paying down debt and returning cash to shareholders through dividends and share repurchases.
Strolling Through Guidance
Whole Foods project an escalation of 11% in total sales for fiscal 2013 on the back of an expected 7.2% to 7.3% rise in comparable-store sales and 6.8% to 7% growth in identical-store sales.
Earlier, management forecasted 10% to 11% sales growth buoyed by a 6.7% to 7.5% rise in comparable-store sales and a 6.5% to 7.2% jump in identical-store sales.
Management provided EBITDA guidance of $1.20 billion to $1.21 billion, and projected operating margin of 6.8%. The company anticipates capital expenditures between $525 million and $550 million.
Management now envisions earnings between $1.45 and $1.46 per share, portraying a year-over-year jump of 15% to 16%, up from a range of $1.43 to $1.45 forecasted earlier. Analysts polled by Zacks, estimate fiscal 2013 earnings at $1.45.
Zacks Rank for Whole Foods
Currently, Whole Foods carries a Zacks Rank #3 (Hold). However, there are certain other stocks that warrant a look, such as B&G Foods Inc. (BGS - Snapshot Report), which holds a Zacks Rank #1 (Strong Buy) and is expected to continue with its upbeat performance. Other stocks that should be merited are The J. M. Smucker Company (SJM - Analyst Report) and Treehouse Foods, Inc. (THS - Snapshot Report), both of which sport a Zacks Rank #2 (Buy).