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Whole Foods (WFM) Q3 Earnings Beat, Comparable Sales Decline

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After two straight quarters of in-line earnings, Whole Foods Market, Inc. managed to post positive earnings surprise of 5.9% in the third quarter of fiscal 2017. The company posted adjusted earnings of 36 cents a share that beat the Zacks Consensus Estimate by a couple of cents but came a penny below the year-ago quarter figure. Meanwhile, the top line improved 0.6% year over year to $3,725 million and also edged past the Zacks Consensus Estimate of $3,721 million, marking the second successive quarter of revenue beat.

However, the company witnessed a 1.9% dip in comparable-store sales (comps) during the quarter, following a 2.8% decline in the preceding quarter. This was the eighth consecutive quarter of comps decline. Analysts believe stiff competition, food price deflation, an aggressive promotional environment and waning store traffic are the primary headwinds plaguing the sector.

Nevertheless, Whole Foods, which accepted the $13.7 billion buyout offer of Inc. (AMZN - Free Report) , has been revamping pricing strategy, concentrating on value offerings and introduced a new store concept, "365 by Whole Foods Market", in view of heightened competition as more companies are expanding their presence in the Organic & Natural food business. These players include The Kroger Co. (KR - Free Report) , Sprouts Farmers Market, Inc. (SFM - Free Report) and Wal-Mart Stores Inc. (WMT - Free Report) .

Whole Foods Market, Inc. Price, Consensus and EPS Surprise


Whole Foods Market, Inc. Price, Consensus and EPS Surprise | Whole Foods Market, Inc. Quote

We believe that the deal could provide Whole Foods a competitive edge. At one end it will allow the company to reach a wider customer base that prefer shopping online, while on the other end it will help lower procurement costs, given Amazon’s huge bargaining power. Not to forget, Amazon’s technological prowess could be of significant advantage to Whole Foods against peers – who are aggressively expanding their online presence – and could help lower operating costs.

The buyout news propelled the shares of this Austin, TX-based company. Shares of this Zacks Rank #3 (Hold) company have increased 15% in the past three months compared with the industry’s growth of 2.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

During the quarter under review, EBITDA fell 10.1% to $293 million, while EBITDA margin contracted 90 basis points to 7.9%.

Store Update

Whole Foods currently operates over 465 stores in the U.S., Canada and U.K. The company opened six outlets during the reported quarter, including one relocation. So far in the fourth quarter, the company has opened two outlets. The company plans to open two more Whole Foods Market outlets and two Whole Foods Market 365 stores, including one relocation.

Other Financial Details

Whole Foods ended the quarter with cash and cash equivalents of $279 million, total long-term debt and capital lease obligations of $1,048 million and shareholders’ equity of $3,458 million.

During the quarter, the company generated cash flow from operations of $277 million and incurred capital expenditures of $132 million, resulting in free cash flow of $145 million. The company paid $44 million in quarterly dividends.

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