(By Mani) As we were looking at the quarterly results of Whole Foods Market, Inc.
), it was evident that the natural foods supermarket chain sells more than just burritos as many had thought.
The third-quarter results of Whole Foods Market, a leading retailer of natural and organic foods, had everything one could ask for: accelerating sales, strong leverage, robust new store performance metrics, increased guidance, and plans to further accelerate square footage growth in fiscal 2014.
Austin, Texas-based Whole Foods earned $116.85 million or 63 cents a share, up from $88.47 million or 50 cents a share last year. Analysts polled by Thomson Reuters expected earnings of 61 cents a share for quarter. Quarterly sales grew 14 percent to $2.73 billion, which came in line with Street view.
Comparable store sales, a key metric to measure retailer performance, grew 8.2 percent and includes a negative impact of 62 basis points from Easter shifting to the second quarter this year from the third quarter last year.
Gross margins advanced 62 basis points to 36 percent driven primarily by equal improvements in occupancy costs and cost of goods sold.
It is appreciable that the company has able to post this kind of results when the entire industry is struggling to improve sales and margins as weak economic conditions and slow job growth force consumers to spend less.
"This quarter argues for meaningful multiple expansion, especially in light of the recent sell-off in sympathy with CMG's results," RBC Capital Markets analyst Edward Aaron wrote in a note to clients.
Strong sales trends are driving significant occupancy and merchandise expense leverage, which provides Whole Foods with increased flexibility to improve its price competitiveness and sustain strong sales trends.
In addition, the company noted that stores opened in the past five quarters produced store contribution margins of nearly 6 percent. Not long ago, contribution margins from new stores were running negative.
Whole Foods is gaining at the the expense of bigger peers like Kroger Co. (NYSE:KR), Safeway, Inc. (NYSE;SWY) and Supervalu, Inc. (NYSE:SVU) as it is moving ahead with plans to construct new stores across the U.S. it opened nine new stores, including one relocation, in the third quarter.
In the fourth quarter, the company has opened one store and expects to open six additional stores, for a total of 25 new stores opened during the fiscal year. The company currently has 329 stores totaling approximately 12.5 million square feet. Whole Foods also recently signed 12 new leases averaging 37,700 square feet in size. These stores currently are scheduled to open in fiscal year 2014 and beyond.
No wonder, the company raised its outlook for fiscal 2012. The company now expects earnings of $2.51 to $2.52 a share, up from prior view of $2.44 to $2.47 a share. Sales is currently expected to grow 15.6 to 15.8 percent from prior range of 14.8 to 15.6 percent. Analysts currently expect earnings of $2.47 per share on revenues of $11.68 billion for the full year.
Whole Foods also guided fourth-quarter earnings above consensus in the range of 59 to 60 cents a share on revenue growth of 22.9 to 23.9 percent. Currently, analysts expect earnings of 57 cents a share on revenues of $2.90 billion for the fourth-quarter.
The company also introduced a fiscal 2014 new store target, which reflects a further step-up in square footage growth to the 8-9 percent range.
During the past one year, shares of Whole Foods have increased 42 percent, while shares of Kroger, Safeway and Supervalu have dropped 12 percent, 24 percent and 78 percent, respectively.
Over the long term, Whole Foods considers 1,000 stores to be a reasonable indication of its market opportunity in the United States as the brand continues to strengthen, coupled with consumer demand for natural and organic products continues to increase. In addition, the company's flexibility on new store size opens up additional market opportunities.