Earnings Preview: Whole Foods

Whole Foods Market Inc. (WFM), one of the leading natural and organic foods supermarkets, is scheduled to report its third-quarter 2011 financial results on July 27, 2011. The current Zacks Consensus Estimate for the quarter is 47 cents a share. For the quarter under review, revenue is $2,411 million, according to the Zacks Consensus Estimate.

Second-Quarter 2011, a Synopsis

Whole Foods Market posted better-than-expected second-quarter 2011 results on the back of strong sales as shoppers flocked to the grocery chain, thereby lifting its outlook.

Austin, Texas based Whole Foods said that quarterly earnings of 51 cents a share surpassed the Zacks Consensus Estimate of 46 cents, and jumped 30.8% from 39 cents earned in the prior-year quarter.

The company sustained its top-line growth momentum with revenue climbing 11.6% to $2,350.5 million in the quarter but falling short of the Zacks Consensus Estimate of $2,369 million. Consumers, who had cut back their spending during the recession, are now returning to the chain.

Whole Foods said that comparable-store sales rose 7.8% in the quarter compared with 8.7% in the prior-year quarter and 9.1% in the previous quarter.


Whole Foods now expects an increase of 11.7–12.6% in total sales, driven by a 7.9–8.9% rise in comparable-store sales and a 7.8–8.7% growth in identical-store sales in fiscal 2011. Management guided earnings in the range of $1.87 to $1.90 per share for fiscal 2011. The company had previously forecast fiscal 2011 earnings in the range of $1.76 to $1.80 per share.

Third-Quarter 2011 Zacks Consensus

The analysts considered by Zacks, expect Whole Foods to post third-quarter 2011 earnings of 47 cents a share. The current Zacks Consensus Estimate reflects a growth of 23.7% from the prior-year quarter’s earnings. The current Zacks Consensus Estimate for the quarter ranges between 45 cents and 51 cents a share.

Zacks Agreement & Magnitude

Of the 20 analysts following the stock, only 1 analyst has revised the estimate upward and none has lowered the estimates in the last 30 days, thus having no significant impact on the Zacks Consensus Estimate. In the last 7 days, none of the analysts has revisited the estimates, keeping the Zacks Consensus Estimate unchanged.

Mixed Earnings Surprise History

With respect to earnings surprises, Whole Foods has met as well as topped the Zacks Consensus Estimate over the last four quarters in the range of 0.0% to 17.9%. The average remained at 14.0%. This suggests that Whole Foods has beaten the Zacks Consensus Estimate by an average of 14.0% in the trailing four quarters. Given the past performance, we expect the company to meet or outperform the Zacks Consensus Estimate.

Whole Foods in Neutral Lane

Whole Foods Market with a strong brand image offers investors one of the strongest growth profiles in the industry, and the stock is poised to surge, as the demand for natural and organic products improves. The company is revamping its pricing strategy and concentrating more on value offerings, while maintaining healthy margins. The stringent cost-control measures, effective inventory management, and improved store-level performance are driving earnings growth.

In the wake of better-than-expected second-quarter 2011, the company results now expects a sales growth in a band of 11.7% to 12.6% and bottom line increase in a range of 31% to 33% in fiscal 2011. However, stiff competition, inflation and sluggish economic recovery may dent the company’s performance.

Currently, we have a long-term ‘Neutral’ rating on the stock. However, Whole Foods, which faces stiff competition from other supermarket operators such as The Kroger Company (KR) and Supervalu Inc. (SVU), holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ recommendation.

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