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Whole Foods Market Inc. (WFM - Analyst Report), one of the leading natural and organic food supermarkets and an S&P 500 company, is slated to report its fourth-quarter 2012 financial results on Wednesday, November 7, 2012. The current Zacks Consensus Estimate for the quarter stands at 60 cents a share, reflecting an estimated year-over-year increase of about 42.9%. Revenue, as per the Zacks Consensus Estimate, is $2,905 million.

The current Zacks Consensus Estimate for fiscal 2012 is $2.52 per share. Further, analysts polled by Zacks expect full year revenue to be $11,696 million.

Recap of Third-Quarter 2012

Austin, Texas based Whole Foods, posted quarterly earnings of 63 cents a share that beat the Zacks Consensus Estimate by a couple of cents, and jumped substantially from 50 cents earned in the prior-year quarter.

Whole Foods sustained its top-line growth momentum with revenue climbing 13.6% to $2,727.3 million in the quarter. However, it fell short of the Zacks Consensus Estimate of $2,733 million. Comparable-store sales rose 8.2% in the quarter, although it was down from 8.4% in the prior-year quarter and 9.5% in the previous quarter.

Whole Foods now expects total sales to increase from 15.6% to 15.8%, underpinned by expectations of an 8.6% to 8.8% rise in comparable-store sales and an 8.2% to 8.4% growth in identical-store sales in fiscal 2012.

The company predicts earnings between $2.51 and $2.52 per share for fiscal 2012, reflecting year-over-year growth of 30% to 31%.

Agreement of Estimate Revisions

During the last 30 days, only 1out of 24 analysts covering the stock revised the estimate upwards for the fourth quarter and fiscal 2012, while none lowered the estimates over the same time frame. Moreover, none of the analysts revisited their estimates in the last 7 days.

Magnitude of Estimate Revisions

No movement was noticed in the Zacks Consensus Estimate for the fourth quarter and fiscal 2012 either in the last 30 or 7 days.

Positive Surprise History

With respect to earnings surprises, Whole Foods has topped the Zacks Consensus Estimate over the last four quarters in the range of 2.4% to 8.5%. The average remained at 5.6%, indicating that the company has surpassed the Zacks Consensus Estimate by the same magnitude in the trailing four quarters. Given the past performance, we expect the company to outperform the Zacks Consensus Estimate in the upcoming quarterly results.

Our Take

Being one of the leading natural and organic foods supermarkets, Whole Foods Market with a strong brand image, and marketing and merchandising expertise, offers investors one of the strongest growth profiles in the industry. The stock is poised to surge once the economy revives and demand for healthier and natural food improves.

The stringent cost-control measures, effective inventory management, and improved store-level performance are driving earnings growth. Whole Foods has also 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 35%.

All these are well defined from the company’s Zacks #2 Rank that translates into a short-term ‘Buy’ recommendation.

Despite these growth catalysts, lingering macro concerns and cautious consumer spending limits growth in the near term.

Whole Foods’ top-line growth faces downside risk from a shift in consumers focus from higher priced organic products to cheaper private label brands triggered by negative impact of interest rate hikes, credit availability, unemployment levels, and high household debt levels on disposable income. Moreover, rising competitive pressure from The Kroger Company (KR - Analyst Report) and Supervalu Inc. (SVU - Analyst Report) is raising concerns for the stock.

Consequently, we have a long-term ‘Neutral’ recommendation on the stock.

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