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Whole Foods Expansion on Pace; Analysts Upbeat on Financials

AUSTIN, Texas — Whole Foods Market here said last week it is on track to open between 24 and 27 new stores this year and 28 to 32 more next year, with plans to continue to accelerate the pace of new-store openings every year for the next several years.

“We may not get to [the company’s goal of] 1,000 stores within this decade,” said John Mackey, chairman and co-chief executive officer, “but it’s possible it will happen before I hang them up.”

He said the company does not anticipate making any major acquisitions just to gain real estate, “but we are opportunistic acquirers, and we might consider it if the right deal arose at the right price to enter a new marketplace.”

The 317-store chain has 69 stores in development, equal to 2.4 million square feet, or 20% of the 12 million square feet it currently operates, Walter Robb, co-CEO, told analysts during a conference call to discuss financial results for the first quarter, which ended Jan. 15.

For the 16-week quarter net income rose 33.4% to $118.3 million, while sales rose 12.9% to $3.4 billion and comparable-store sales increased 8.7%.

Robb said Whole Foods has sustained the sales momentum into the second quarter, with comps for the first three weeks of the quarter up 9.4%, though that number may not be sustainable throughout the quarter, he noted.

Industry analysts were upbeat in their reactions to the results.

Karen Short, a New York-based analyst with BMO Capital Markets, said the chain’s strong comp trend indicates “Whole Foods continues to gain share by broadening the concept’s appeal to a wider range of income, education and age demographics” — which John Heinbockel, an analyst with Guggenheim Securities, New York, said “suggests sales momentum should remain healthy over the next six to nine months, even as disinflation sets in.”

According to Scott Mushkin, managing director at Jefferies & Co., New York, “A better-than-expected first quarter appears to be further evidence Whole Foods is hitting on all cylinders as steady, robust sales meet impressive cost controls and margin performance.”

 “The company continues to exercise discipline in expanding its store base and build its new-store pipeline, which should lead to further sales and earnings growth. With secular trends providing a nice tailwind, Whole Foods [should] continue its strong sales and earnings growth through 2013 and beyond.”

Andrew Wolf, managing director at BB&T Capital Markets, Richmond, Va., said the return-on-capital for stores less than two years old “continued to improve from the dark days of fiscal 2007 to fiscal 2009.”

“Though the 9% return in the first quarter still trails the 10.5% achieved from fiscal 2002 to fiscal 2006, it improved sequentially from 8% last year,” he said.

Weekly sales per store are averaging $667,000, which translates to near-record sales per square foot of $929, Robb said, with an increase of more than 6% in transaction counts, “reflecting our ability to attract new customers and retain loyal core customers.”

Core customers spent close to three times more than new customers, he pointed out, “so the increase in our average transaction count accelerated; and with inflation moderating during the quarter, we saw the increase in our average basket size moderate to 2%.”

Robb said some of Whole Foods’ success is “because the market has come our way, with more people interested in eating healthier foods, and although we still have only a small sliver of all grocery sales, that number is growing.”

In response to a question about the performance of the chain’s Whole Deal coupons, A.C. Gallo, president and chief operating officer, said redemptions in the quarter were up 22% to 1.2 million, with an average basket for Whole Deal customers of 20 items valued at $73 compared with eight items for $36 for other shoppers, “so we’re still seeing good results from that program.”


Q1 Results
Qtr Ended            1/15/12            1/16/11

Sales                        $3.4B                 $3.0B
Change                  +12.9%
Comp-store            +8.7%
Net Income            $118.3M            $88.7M
Change                  +33.4%
Inc./Share              65 cents            45 cents


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