Whole Foods Delivers on the Quarter

A one-time investment gain helps the upscale retailer report strong earnings and revenue growth.
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Updated from 5:20 p.m. EDT

Helped by a one-time gain,

Whole Foods

(WFMI)

on Wednesday reported strong sales and earnings growth in its third quarter.

In its quarter ended July 6, Whole Foods earned $28.7 million, or 45 cents a share. That was up from the year-ago period, in which the company earned $22.1 million, or 39 cents a share.

Revenue at the company climbed 15.5% to $749.04 million.

Included in the company's bottom line was a $3 million gain related to the sale of an investment. Excluding that and the interest payments made on the company's convertible debt, Whole Foods would have earned $27.9 million, or 42 cents a share.

On this basis, analysts were expecting the natural foods grocery chain to earn 42 cents a share in its third quarter on $742.67 million in sales. Whole Foods had earlier projected that it would earn 41 cents to 42 cents a share in the quarter.

For its fourth quarter, Whole Foods expects to earn 38 cents to 39 cents a share. Meanwhile, the company reaffirmed its previous full-year guidance. Whole Foods expects to earn at the low end of its $1.62 to $1.69 a share range, excluding the investment gain.

Wall Street projects the company will earn 39 cents a share in the fourth quarter and $1.64 for the year. Analysts expect the company to pull in $740.12 million in revenue in the fourth quarter and $3.12 billion for the year.

In the first 40 weeks of its 2003 fiscal year, Whole Foods has earned $79.9 million, or $1.28 a share, on $2.4 billion in sales. Extrapolating from that and its fourth-quarter guidance, the company expects to earn about $1.63 to $1.64 for the year.

Whole Foods also gave its first guidance for its 2004 fiscal year. The company estimates earnings of $1.87 to $1.95 next year, with sales growing 15% to 20%.

Shares in the grocery chain closed regular trading up 71 cents, or 1.4%, to $52.63. In recent after-hours trading, the company's shares were off $1.22, or 2.3%, to $51.41.

In addition to strong overall sales growth, Whole Foods also posted impressive same-store sales growth. Such sales, which compare results at outlets open more than one year, grew by 7.6% in the quarter. That growth came on top of 10.5% comparable-store sales growth in the year-ago quarter.

But Whole Foods saw mixed results on its expenses in the quarter. For instance, the company's top-line costs, which include what it pays suppliers for its products and its occupancy expenses, increased 16% to $490.4 million. As a portion of sales, such expenses increased by 33 basis points to 65.47%.

On a conference call with investors and analysts, Whole Foods officials blamed the increase primarily on growing occupancy costs, including higher rent and utility expenses and increased property taxes.

But the company gained ground on its operating expenses. Such expenses grew slower than sales, increasing by 13.7% to $213.2 million. As a portion of sales, such expense decreased by 45 basis points to 28.02%.

The company's direct store costs increased by 15.8% -- a rate faster than sales -- to $186.9 million. However, the grocery chain's general and administrative costs grew by just 4.4% in the quarter to $23.9 million and the company's store opening and relocation costs fell by 27.6% to $2.4 million.