Whole Foods Sees Consumers Rebounding

AUSTIN, Texas — Citing indications that its customers are spending more freely, Whole Foods Market said last week it is optimistic about its prospects for fiscal 2011.

In a conference call discussing fourth-quarter results, John Mackey, co-chief executive officer, said customer confidence is continuing to ramp up.

“Year-over-year branded-product sales growth continued to outpace exclusive-brand growth, and customers selectively traded up to higher-priced items in certain discretionary areas such as seafood, cheese and housewares,” he explained.

The company raised its financial outlook for the current fiscal year, anticipating earnings per share increases of 16% to 20%, sales increases of 10% to 12% and identical-store sales growth of 5% to 7%. ID sales for the first five weeks of the 16-week first quarter were up 8.9%.

Analysts were generally upbeat about Whole Foods' prospects.

Andrew Wolf, managing director for BB&T Capital Markets, Richmond, Va., said he's raising his forecasts for Whole Foods based on the assumption “the operating environment becomes less challenging for all food retailers, and Whole Foods therefore should maintain solid top-line momentum without sacrificing margins.”

Scott Mushkin, an analyst with Jefferies & Co., New York, said the chain “has strong growth prospects as market-share gains combine with favorable industry trends and a better higher-end consumer to drive sales. At the same time, the company has demonstrated solid expense control, suggesting better sales can fall to the bottom line.”

Edward Aaron, an analyst with RBC Capital Markets, New York, said he believes Whole Foods' comparable-store sales guidance is conservative, leaving “ample room for moderation against tougher comps [without incorporating] any benefit from inflation, which we expect later in the year.”

However, Ajay Jain, senior analyst with Hapoalim Securities, New York, had a more negative outlook, citing tougher sales comparisons as the year progresses and the possibility of price investments as a “potential source of earnings risk.”

For the 12-week fourth quarter that ended Sept. 26, Whole Foods said net income jumped 57.9% to $57.5 million, while sales climbed 14.7% to $2.1 billion. Identical-store sales increased 8.7%, including a 7% increase in transaction counts and a 2% increase in basket size.

For the fiscal year, net income rose 67.5% to $245.8 million, while sales increased 12.1% to $9 billion and ID sales were up 7.1%.

Average weekly sales per store for all stores increased 9% in 2010 to $583,000, or $810 in sales per square foot, Mackey said; for stores opened in 2010, weekly sales averaged $549,000, or $642 per square foot.

Karen Short, an analyst with BMO Capital Markets, New York, said stores less than 2 years old were comping at 15.5% during the quarter, while those over 11 years old have the chain's weakest results, at 6.2% for the quarter.

Walter Robb, co-CEO, said Whole Foods plans to open nine new stores this year, including two in the United Kingdom, and a higher number of new stores in fiscal 2012.

“From a financial perspective we are well-positioned to reaccelerate our new-store growth,” Robb said, noting that the company has signed 20 new leases over the last 12 months.

Q4 RESULTS