Whole Foods caps record year with caution

by Monica Watrous
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AUSTIN, TEXAS — On the heels of a record year, Whole Foods Market, Inc. is lowering its sales and earnings outlook for fiscal 2014.

“On a broad level, inflation continues to moderate, and we are not immune to the larger macro environment,” said Cindy McCann, vice-president of investor relations, during a Nov. 6 earnings call with analysts. “As several retailers are reporting, discretionary spending has been impacted as consumer confidence has dropped to a six-month low. While the current uncertainty in the economy might be impacting our ability to attract new crossover customers at the same rate, our core customers appear to be fairly resilient. Year-over-year, we have continued to see shifts toward organic products and discretionary categories, as well as meaningful increases in $50-plus size baskets.”

For the fiscal year ended Sept. 29, net income increased to $551 million, equal to $1.48 per share on the common stock, up from $466 million, or $1.28 per share, the year before. Net sales reached a record $12.9 billion during the year, up 10% from $11.7 billion during fiscal 2012. Comparable store sales increased 6.9%.

Looking to fiscal 2014, the company expects sales growth of 11% to 13%, with comparable store sales growth between 5.5% and 7% and diluted earnings per share growth of 12% to 15% to $1.65 to $1.69.

“While resetting expectations is always difficult, we want to underscore that we have just delivered our fourth consecutive year of increases in new store openings while producing improvements in operating margin and higher returns on invested capital and our outlook for fiscal year 2014 reflects a continuation of these trends,” Ms. McCann said. “Each week, over 7 million customers visit our 367 stores in 40 states and three countries. In 2005, it was a major milestone for us to report that we had six stores averaging $1 million in sales per week. We now have over 50 stores achieving that level. Yes, food retailing is more competitive than ever and with the growing demand for fresh, healthy foods, it seems like everyone is adding to or expanding their offering of natural and organic products. However, we believe the strength of these numbers highlights our ability to innovate and to compete, the unique power of our brand and the excitement our stores create within their community.”

During the year, Whole Foods Market opened 32 stores, with a record 12 in the fourth quarter. So far in fiscal 2014, the company has opened five stores for a total of 367 stores, and expects to add five more.

“With 47 new leases signed over the last 12 months, we have 94 stores in our development pipeline and see demand for 1,000 Whole Foods Market stores in the United States alone,” Ms. McCann said.

For the fourth quarter, the company had net income of $121 million, equal to 33c per share, up 16% from $104 million, or 30c per share, during the same period of the prior year. Net sales rose 2% to $3 billion from $2.9 billion last year.
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