Whole Foods Market,
Inc.’s (WFM) first-quarter fiscal 2013 earnings of 78
cents a share came a penny ahead of the Zacks Consensus Estimate,
and surged 20% from 65 cents earned in the prior-year quarter as
shoppers flocked to the grocery chain. However, the Austin,
Texas-based company reiterated its earnings per share
projection.
Management hinted that the rate of
growth in earnings per share in the remaining part of the fiscal
year would not be at a similar level as that of the first quarter
as gross margin would remain under pressure, primarily in the
second and third quarters. This is due to tough year-over-year
comparison, along with competitive pricing strategy to gain market
share against other supermarket chains.
Let’s Unveil the
Picture
Whole Foods, a leading natural and
organic foods supermarket, sustained its top-line growth momentum
with revenue climbing 13.7% to $3,856 million in the quarter, but
fell short of the Zacks Consensus Estimate of $3,875 million.
Effective inventory management and
improved store-level performance have 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 5 fiscal
years, gross margin has been in the range of 34% to 35.5%.
Whole Foods said that
comparable-store sales rose 7.2% in the quarter, down from 8.7% in
the prior-year quarter and from 8.5% in the previous quarter. For
the first 3 weeks of the second quarter, comparable-store sales
jumped 6.4%.
The company also notified that
identical-store sales climbed 7.1% in the quarter compared with
8.2% in the year-ago quarter and 8.3% in the preceding quarter. For
the first 3 weeks of the second quarter, identical-store sales
jumped 6.1%.
It seems that comparable and
identical store sales growth trend is softening. Consequently,
Whole Foods narrowed its sales outlook.
Whole Foods indicated that gross
profit rose 14.4% to $1,348 million, whereas gross margin grew 22
basis points to 35%. Store contribution soared 20.2% to $369
million. As a percentage of sales, store contribution increased 52
basis points to 9.6%.
Adjusted EBITDA for the quarter
soared 18.5% to $365 million, whereas adjusted EBITDA margin
expanded 40 basis points to 9.5%. Operating income for the quarter
jumped 23.7% to $235 million, whereas operating margin increased 50
basis points to 6.1%.
Stores
Update
Whole Foods currently operates 345
stores. The company opened 10 outlets during the first quarter of
fiscal 2013. So far in the second quarter, the company has opened 1
store, and plans to open 5 more stores. The company also acquired
leases of 6 outlets from Johnnie's Foodmaster, thereby increasing
its count to 26 stores in the Greater Boston area.
The company plans to open 32 to 34
stores in fiscal 2013 and 33 to 38 stores in fiscal 2014. The
company had opened 25 stores in fiscal 2012. The company believes
that there exists room for 1,000 stores in the long run, and sees
expansion opportunity in Canada and the United Kingdom.
Other Financial
Details
Whole Foods ended the quarter with
cash and cash equivalents of $152 million, total long-term capital
lease obligations of $25 million, and shareholders’ equity of
$3,543 million.
During the quarter, Whole Foods
generated cash flow from operations of $303 million and incurred
capital expenditures of $155 million, resulting in free cash flow
of $148 million. The company paid $397 million in dividends and
bought back $26 million of shares.
The company has been utilizing its
cash flows for opening new stores, paying down debt and returning
cash to shareholders through dividends and share repurchases.
Strolling through
Guidance
Whole Foods now projects an
escalation of 10% to 11% in total sales for fiscal 2013 on the back
of an expected 6.6% to 8% rise in comparable-store sales and 6.3%
to 7.7% growth in identical-store sales.
Earlier, management had forecasted
10% to 12% growth in sales, 6.5% to 8.5% rise in comparable-store
sales and 6% to 8% jump in identical-store sales.
Management maintained its EBITDA
guidance of $1.18 billion to $1.20 billion, and operating margin
projection of 6.6% to 6.7%. The company continues to anticipate
capital expenditures between $565 million and $615 million.
Management reiterated its earnings
forecast of $2.83 to $2.87 per share, portraying a year-over-year
jump of 12% to 14%. Analysts polled by Zacks, estimate fiscal 2013
earnings at $2.90.
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 Flowers Foods, Inc. (FLO)
and J&J Snack Foods Corp. (JJSF), both of
which hold a Zacks Rank #1 (Strong Buy) and are expected to
continue with their upbeat performances. Another stock that should
be merited is The Hershey Company (HSY), which
holds a Zacks Rank #2 (Buy).
FLOWERS FOODS (FLO): Free Stock Analysis Report
HERSHEY CO/THE (HSY): Free Stock Analysis Report
J&J SNACK FOODS (JJSF): Free Stock Analysis Report
WHOLE FOODS MKT (WFM): Free Stock Analysis Report
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