Shares of natural-foods grocery chain Whole Foods fell up to 6.7% in AH trading Wednesday after the company reported a greater-than-expected 11.2% drop in quarterly profit on store-opening costs and competition from traditional grocers. Fiscal Q2 net income fell to $46 million ($0.32/share) from $51.8 million ($0.36) in the year-ago quarter. Revenue rose to $1.46 billion from $1.31 billion. Analysts were expecting EPS of $0.36 on revenue of $1.49 billion. Same-store sales were up 6% in the quarter against an 11.9% rise a year ago. Preopening and relocation costs surged to $15.6 million ($0.07/share) from $7.3 million ($0.03) a year ago; the company opened a record six stores during the quarter. Whole Foods is forecasting full-year 2007 total sales growth of 13-17% and same-store sales growth of 6-8%. The company's goal is to achieve $12 billion in sales in fiscal year 2010. Whole Foods' shares have fallen 39% over the past year, their first annual decline in seven years, on intensifying competition from Wegman's, Trader Joe's and Safeway. Adding to the company's woes, the Federal Trade Commission has expressed concern about the anticompetitive implications of Whole Foods' pending $565 million acquisition of competitor Wild Oats Markets and has yet to decide if it will contest the deal.
Sources: Whole Foods Market Earnings Call Transcript F2Q07 (Qtr End 4/8/07), MarketWatch, Reuters, Bloomberg, TheStreet.com
Commentary: Whole Foods: Margin Concerns Persist • Downside in Store for Whole Foods • Whole Foods: Love the Company, Avoiding the Stock
Stocks/ETFs to watch: Whole Foods Market, Inc. (WFMI), Wild Oats Markets (OATS). Competitors: Safeway Inc. (SWY), WalMart Stores Inc. (WMT), The Kroger Co. (KR). ETFs: Consumer Staples Select Sector SPDR (XLP), Vanguard Consumer Staples ETF (VDC), PowerShares Dynamic Consumer Staples (PSL)
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