AUSTIN, Texas — Whole Foods Market here said last week the regional pricing and promotional strategy it developed last fall helped boost financial results for the first fiscal quarter, which analysts and investors saw as encouraging news.
Edward Aaron, a Denver-based analyst with RBC Capital Markets, Toronto, called it “a bulletproof quarter.”
“Sales, gross margins, direct store expenses, and general and administrative expenses were all better than forecast. We have to go back a long way in our Whole Foods research archives to find a quarter like that,” he said. “Notably, the strengthening comps are coming entirely from traffic, [and] it seems probably basket growth will ultimately follow, especially if inflation pressures resurface.”
After spending most of last year reacting to pricing by other supermarket operators, Whole Foods decided it could set its own strategy, Walter Robb, co-president and co-chief operating officer, told investors during a conference call.
“As we started to see things picking up last summer and then through the fall, we realized we could set a strategy where we could really make our mark, so we adopted pricing that was a little bit different in each region, and obviously that strategy has been working for us,” he said. “We feel pretty good about it and don't feel like we have to make a lot of adjustments at this point.”
John Mackey, chairman and chief executive officer, said the rise in sales is coming from customers who are increasing their transaction sizes, from returning customers and from new customers. “We know a large majority of our customers only spend a certain amount of their basket in our stores, but with our improved value offerings this year, we have gotten even our regular customers to buy more than they did before,” he noted.
Net income for the 16-week quarter rose 70.6% to $55.2 million, while sales rose 7% to $2.6 billion and comparable store sales increased 3.5% — results that exceeded the company's own expectations, Mackey said.
However, he's not sure whether the results mark a return to the company's historic growth rates, he added.
“A year from now, we will have a better indication of what our comp trends are going to be,” he said. “But we are certainly excited now, after wandering around in the wilderness for two years, to see our comps moving in the right direction. And we feel we are building momentum again.”
With sales for the first 20 weeks of the year ending Feb. 14 up 7.8% and comps up 4.2%, Whole Foods said it is raising its financial outlook for the year, projecting net income of $1.20 to $1.25 per share, compared with an earlier range of $1.05 to $1.10; projecting sales growth of 8.5% to 10.5%; and projecting comp sales growth of 3.5% to 5.5%
“Given the strong momentum we are seeing, there are many reasons to be bullish about our future results,” Mackey said, “[though] it is relatively early in our recovery and there is still a lot of uncertainty regarding where the economy, the consumer and competition go from here.”
“The story of the quarter was strong top-line momentum,” said Andrew Wolf, an analyst with BB&T Capital Markets, Richmond, Va., “[which] is due to a substantially improved value image coupled with a relatively more upbeat demographic [in which] upscale shoppers are more confident and likely to spend more than average consumers.”
Mackey said average weekly sales per store for all Whole Foods units increased approximately 4% to $572,000, equal to sales per square foot of approximately $800. The smaller, 47,000-square-foot stores the company is now opening are producing average weekly sales of $650,000 — 27% higher than the average — and sales per square foot of approximately $707.
A.C. Gallo, co-president and co-chief operating officer, said the former Wild Oats stores are generating double-digit comp increases through improved product selection but without much capital investment.
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