Updated from 5:01 p.m. EDT
Whole Foods Market
posted an 8.9% decline in third-quarter profits Tuesday as the grocery chain continued to be hit by costs to open new stores.
The results, however, topped analysts' forecasts, sending shares surging $3.66, or 9.9%, to $40.70 in after-hours trading.
The Austin, Texas-based company reported net income of $49.1 million, or 35 cents a share, for the quarter ended July 1, down from $53.9 million, or 37 cents a share, in the same period last year. Analysts projected earnings of 33 cents share, according to Thomson Financial.
Revenue jumped 13.2% to $1.51 billion from $1.34 billion a year earlier, short of analysts' forecast of $1.54 billion. Same-store sales climbed 7%.
"As expected, fiscal year 2007 has been an investment year as we have accelerated our new store openings while cycling over tough year-ago comparable store sales growth comparisons," said Chief Executive John Mackey in a statement. "We believe that our third quarter results, combined with our 7.6% comparable store sales increase in the fourth quarter to date, is an indication that our comparable store sales growth has stabilized."
Pre-opening and relocation costs were $15 million, or 6 cents a share, up from $7.9 million, or 3 cents a share, last year. Capital expenditures totaled $128 million, of which $95 million went toward new stores.
Whole Foods has opened 18 new stores in the last year, and it plans to continue its build-out through next year. Mackey said he doesn't expect the same year-over-year increase in the company's total pre-opening expenses.
"We are very excited to see the acceleration in our new store openings materialize as we expect these new stores to drive strong sales and comparable store sales growth in the not-so-distant future," he said.
Capital expenditures for the year are expected to be in the range of $525 million to $575 million, of which about 70% to 75% is related to new store openings. Mackey stuck to his guidance for the year, with total sales expected to grow 13% to 17% and same-store sales to grow 6% to 8%.
The earnings report comes on the first day of a two-day hearing to evaluate the Federal Trade Commission's challenge to Whole Foods' plan to buy its competitor,
. The FTC maintains that both Whole Foods and Wild Oats are two of the biggest competitors in the organic and natural foods sector and combining them will result in price hikes and diminished services.
Whole Foods and Wild Oats claim that enough traditional supermarkets, like
, have moved into organic and natural foods that there is no risk of a monopoly.
At the hearing Tuesday, Whole Foods argued that the FTC has not considered relevant economic data such as price changes at its stores after Wild Oats exited markets where the two competed, according to the
The FTC countered that the pricing data is inadequate. It further argued that in some instances, enough time has not passed to determine whether the store closures affected Whole Foods' prices, the
A ruling on the case is expected in mid-August.
Whole Foods has been under fire in recent weeks after it was revealed that Mackey had been boosting his company's profile by posting
comments on Yahoo! Finance message boards under the pseudonym "Rahodeb" over a seven-year period. He also used the forum to criticize Wild Oats.
The Securities and Exchange Commission has begun an inquiry into the matter. Mackey has issued an apology to shareholder for the "error in judgment."
On Thursday, Mackey acknowledged the negative publicity from the case, but noted that it hasn't hurt sales.
"We're hopeful that the Wild Oats merger will go through -- that'll be good PR," he said.