Blantonw1

Whole Foods: A Stuffing After the Turkey

seems the company is growing so quickly because the stores are so successful...same store sales are accelerating!...revenu... foot $950 vs industry average (safeway, kroger etc) of $450...the strength/durability of the whole foods business allows them to press the bet while the competition is struggling...trouble ahead for the traditional food retailers because here comes whole foods...

seems the yahoo message board even understands the margin dynamic...i've copied and pasted for your education...

"the company has been investing heavily in new store openings...due to abstract GAAP accounting rules, the company has to recognize lease expenses on the income statement before the store actually opens (consequently no corresponding revenues and therefore downward pressure on margins) -- however this is just an accounting dynamic that has no implications for the cash margins of the business...

further, new stores by their very nature carry lower cash margins than mature stores due to lower sales volumes...consequently... in periods with large numbers of new store openings, margins will naturally experience some downward pressure -- this is NOT an implication of weak business trends...quite the contrary, it reflects new store openings, which are tremendously POSITVE for shareholders...as revenues grow in the new stores, the corresponding margins will approach those of the mature stores...

in addition to opening a record number of new stores in fiscal 2008, the company will also be incurring one time expenditures related to the integration of wild oats, which will temporarily pressure margins...these one time outlays should largely be over as we head into the fourth quarter of fiscal 2008...and the longer term benefit of such one time expenditures will be enormous as the wild oats stores realize sales volume and efficiency gains similar to those of a whole foods store, resulting in meaningful incremental cash flow in the future...

in 2008, the company will continue to invest in industry leading healthcare coverage for employees....this is a great investment -- happy employees = productive employees and happy customers, the combination of which will help margins rise in the future...whole foods has repeatedly been recognized as one of the best employers in the country, which further strengthens the company's position as an employer of choice...given that whole foods is so far ahead of its competitors in terms of investing in employee healthcare, any future expenditure increases on this front should have modest impact on margins as the combined benefits outweigh the cash outlays...

with all of that said, it is still NOT clear that margins will decrease in any meaningful way during fiscal 2008, which provides good insight into how strong the business is performing...and guess what is crystal clear -- margins will EXPAND in fiscal 2009 as the temporary pressures on margins subside....

as for valuation, your arbitrary assertion re the appropriate PE multiple for whole foods represents the height of ignorance...the E you use in your analysis is artificially depressed and therefore not relevant....personally... i have no clue what the stock price will do over the near term but i do know that the stock price will be MUCH, MUCH higher over the long term...

and here is the most important fact for shareholders to digest...comparable store sales are ACCELERATING during a period when fear mongers are asserting that the US is experiencing a recession, borderline depression in some states...specifically, for the first seven weeks of the fiscal 2008 first quarter, comparable store sales growth was 9.5% and identical store sales growth was 7.2%. In the immediately preceding quarter (4Qfiscal 2007), comparable store sales increased 8.2% and identical store sales increased 6.0%. This company’s business is continually IMPROVING during a period when virtually every other retailer is struggling…Whole Foods has a tremendously strong and robust business that will benefit shareholders for many years to come."