Updated from 4:44 p.m. EST

Whole Foods Markets'

(WFMI)

fiscal fourth-quarter report was a mixed bag: The company fell short of Wall Street's earnings expectations, but raised guidance for its current quarter.

Separately, Whole Foods declared its first-ever dividend. The company plans to pay a dividend of 15 cents a share on Jan. 16 to shareholders of record as of Jan. 6. The company plans to pay similar dividends each quarter going forward.

In its quarter ended Sept. 28, Whole Foods earned $23.8 million, or 38 cents a share. On a per-share basis, earnings were up just 5.6% from the same period last year, when the company posted profits of $22 million, or 36 cents a share.

The small earnings gain came despite a 17.6% jump in revenues from the year-ago period. Whole Foods posted fourth-quarter sales of $750.7 million in the just-completed quarter, up from $638.1 million in the third quarter last year.

Analysts surveyed by Thomson First Call were expecting Whole Foods to earn 39 cents a share in the quarter, on $738.1 million in sales. At the end of last quarter, the company forecast that it would earn 38 cents to 39 cents a share in its fourth quarter.

Saying that it expects to benefit from the current grocery workers strike in Southern California, Whole Foods projects it will earn 56 cents to 58 cents a share in its fiscal first quarter. That's up considerably from Wall Street's projections of 49 cents a share on sales of $1.06 billion.

On a conference call with analysts and investors, company officials said that Whole Foods stores in Southern California had seen a surge in sales since the strike began last month. In the first six weeks of its first quarter, the company's overall store base posted same-store sales growth of 13.7%. Same-store sales compare like results at outlets open more than one year; excluding the results at stores in Southern California, the company's same-store sales grew by about 11% during the six-week period.

While the company expects its first-quarter earnings to be much better than Wall Street's projections, it barely adjusted its full-year forecast. The company now expects to earn between $1.88 and $1.96 a share in fiscal 2004. Previously, the company projected earnings of $1.87 to $1.92 a share.

Analysts had estimated that Whole Foods would earn $1.92 a share in fiscal 2004 on $3.61 billion in sales.

Company officials cautioned that they don't know how long the strike will go on in California or for how long the company will benefit from it. Meanwhile, the company's three Harry's stores have posted above-average sales in part due to easy comparisons with last year. Those comparisons will get more difficult in coming quarters.

Also, the company plans to open 15 new stores next year. It will open the bulk of them in the second half of they year, and preopening expenses could weigh on its earnings then, company officials said.

In its fourth quarter, revenue at the natural foods grocer benefited from both strong comparable-store sales and square-footage growth in the quarter. The company's same-store sales, which compare results at like outlets open for more than one year, increased 8.8% in the quarter.

Meanwhile, the company's square footage rose 10% in the quarter from the same period last year, to end the year with about 4.5 million square feet. The company currently has about 1.6 million square feet of space under development.

But while Whole Foods posted a strong revenue gain, much of that was consumed by a rise in its product costs. The company's gross profit margin, which is the difference between what consumers pay for its products and what the company pays suppliers for them, fell 84 basis points as a portion of sales to 34.3%.

Company officials attributed the margin decline in large part to inventory changes. Last year, the company recorded a $3.4 million inventory credit, while it experienced a $159,000 inventory charge this quarter.

But the company also had to write off some of its inventory in stores affected by the blackouts on the East Coast last quarter and by Hurricane Isabel.

The company held the line on some other expenses. General and administrative costs fell 44 basis points to 3% of sales. Store operating expenses dropped 6 basis points to 25.5% of revenue.

But, in perhaps a preview of more to come in fiscal 2004, the company's preopening expenses soared in the quarter. Such expenses more than doubled to $3.9 million, and now account for 0.52% of sales.

Whole Foods shares closed regular trading down $1.26, or 2.1%, to $58.73 on Wednesday. In after-hours trading, the company's stock gained $3.27, or 5.6%, to $62.