Whole Foods Shares Tumble As Q2 Results Miss View, Lowers Full-year Outlook

(RTTNews) - Whole Foods Market, Inc. (WFM) tumbled almost 14 percent in extended trades Tuesday after the grocery chain's financial results for the second quarter missed analysts' expectations and it again lowered its full-year outlook amid intensifying stiff competition in the natural and organic food sector.

However, Whole Foods said it was confident in its ability to gain market share and expect sales to approach $25 billion over the next five years.

The company's profit for the second quarter was flat with last year, as a double-digit increase in sales was offset by higher costs and expenses.

Austin, Texas-based Whole Foods reported net income for the second quarter of $142 million or $0.38 per share, the same as in the year-ago period. On average, 30 analysts polled by Thomson Reuters expected the company to report earnings of $0.41 per share for the quarter. Analysts' estimates typically exclude special items.

However, total sales for the quarter rose 10 percent to $3.32 billion from $3.03 billion in the year-ago period. Analysts had a consensus revenue estimate of $3.34 billion for the quarter.

Comparable store sales for the quarter increased 4.5 percent, on top of a 6.9 percent increase in the year-ago period. Comparable store sales includes a negative impact of about 50 basis points from Easter shifting from the second quarter last year to the third quarter this year.

Cost of goods sold and occupancy costs in the quarter increased 10 percent to $2.13 billion from $1.93 billion last year.

Gross margin for the quarter declined 51 basis points to 35.9 percent due primarily to an increase in cost of goods sold as a percentage of sales.

Looking ahead to fiscal 2014, Whole Foods forecasts earnings in a range of $1.52 to $1.56 per share, down from the prior range of $1.58 to $1.65 per share. The company now forecasts sales growth in a range of 10.5 percent to 11 percent, down from the prior range of 11 percent to 12 percent.

Analysts currently expect the company to report earnings of $1.61 per share for the year on revenue growth of 11.20 percent to $14.36 billion.

The company now projects comparable store sales growth for the year of 5.0 percent to 5.5 percent, compared to its prior growth range of 5.5 percent to 6.2 percent.

The company expects the Easter shift to positively impact comparable store sales growth in the third quarter by about 50 basis points.

Since the end of the first quarter, the company has added eight stores in six new markets and also opened three new stores in the second quarter.

So far in the third quarter, Whole Foods has opened one new store and completed its acquisition of four New Frontiers Natural Marketplace stores in Flagstaff, Prescott and Sedona, Arizona; and San Luis Obispo, California.

Whole Foods expects to open seven additional stores in the third quarter and another 11 to 14 stores in the fourth quarter. The company expects its back-end loaded store opening schedule to result in higher pre-opening and relocation costs in the second half of the year.

The company currently has 379 stores totaling about 14.4 million square feet, and expects to cross the 500-store mark in 2017.

On a go-forward basis starting in fiscal year 2015, Whole Foods expects to deliver earnings per share growth equal to or in excess of sales growth. The company forecasts earnings per share for fiscal 2015 to grow 15 percent to $2.65 per share on sales growth of 14 percent to $24 billion.

WFM closed Tuesday's regular trading at $47.95, down $0.33 or 0.68 percent on a volume of 9.44 million shares. In after-hours, the stock further declined $6.66 or 13.89 percent to $41.29.