RealMoney Silver - Wild Oats Hits Whole Foods' Bottom Line

Wild Oats Hits Whole Foods' Bottom Line
By Tim Melvin
RealMoney.com Contributor
5/13/2008 6:15 PM EDT

Whole Foods Markets (WFMI) reported earnings for their fiscal second quarter ended April 13 of $40 million, or $.29 a share. The consensus analyst expectation for the company was $.30 for the 12-week period. Total sales were up 27.6% to $1.9 billion, including the acquired stores from the Wild Oats markets acquisition in 2007.

Comparable-store sales were up 6.7%. The company estimated that without the expenses of integrating the 62 Wild Oats stores it has retained, earnings would have been $.35 for the quarter. This is a slight improvement on the $.33 a share Whole Foods earned in the year-ago period.

As expected, the company opened two new stores in the quarter, bringing the total number of stores to 272 since the end of the quarter. Since the end of the period, they have closed four of the acquired stores and opened one new one, lowering the total store count to 269 as of today. The have signed three new leases and expect to open those stores in the third quarter.

The combination of aggressive store openings and expenses from the Wild Oats purchase continue to be a cash drain for Whole Foods. While the company generated cash in the quarter of approximately $86 million and received cash from option exercise of $ 9 million, capital expenditures were over $100 million in the quarter. They spent $61 million on opening new Whole Foods locations and $10 million in Wild Oats stores.

The company also paid out $28 million in dividends for the quarter. CEO John Mackey defended the expenditures in his statement, stating in the press release accompanying the report, "We believe the investments we are making today in our new, acquired and existing stores will result in strong earnings growth in the future, and we are continuing to move forward with executing our long-term growth plans."

Whole Foods continues to project between 25% and 30% for the full year, with 5% to 7% in comparable-store sales gains. Without the Wild Oats Stores, company officials say sales growth would have been between 15% and 20%. They also expect General and Administrative expenses to fall to levels more in line with the historical levels, as the costs of the integration decline in the second half of the year.

They have already opened one store in the third quarter and anticipate 12 more new Whole Foods location by the end of the fiscal year. Total capital expenditures for fiscal 2008 are estimated to be in the range of $575 to $620 million with at least 65% of that amount spent on new stores.

Shares of the organic and natural grocer dropped after the report, falling better than 7% in after-hours trading.

For Melvin's preview heading into the Whole Foods conference call, please click here.