Healthy Profits For Whole Foods - Forbes

Healthy Profits For Whole Foods - Forbes
Miriam Marcus, 02.16.10, 05:30 PM EST
Grocery chain tops quarterly estimates, ups full year outlook.


Shares of Whole Foods Market surged in afterhours trading Tuesday after the health food grocery chain posted fiscal-first-quarter earnings well ahead of analysts’ expectations.

Whole Foods Market ( WFMI - news - people ) said it earned $49.7 million, or 32 cents per share, in the 17 weeks that ended Jan. 17, compared with a year-earlier profit of $27.8 million, or 20 cents per share. The figures beat expectations for earnings of 26 cents per share. Quarterly revenue of $2.6 billion was in line with Wall Street’s predictions. Whole Foods shares gained 2.6% to close at $30.52, ahead of the earnings report, and then pushed up another 6.2% in afterhours activity.

Chief Executive John Mackey pointed out that Whole Foods’ pricing shift last year “from being fairly reactionary” to “being much more strategic” has played out successfully, producing “strong year-over-year improvement in gross margin and comparable store sales growth.” The grocery chain was hit hard by economic recession as cash-strapped consumers cut back on a range of spending, including groceries and particularly on the high-end and premium organic products that Whole Foods peddles.

The company’s pricing shift clearly paid off. In the recent quarter, same-store sales increased 3.5%, leading the Austin, Tex. company to up its expectations for full-year sales. Whole Foods now expects sales to grow as much as 10.5% this year, with comp sales growing as much as 5.5%. In line with its renewed forecast, Whole Foods also raised its full-year earnings guidance to a range of $1.20 to $1.25 per share, well ahead of analysts’ expectations for EPS of $1.10. Whole Foods conceded that its fourth quarter will be weakest as a result of seasonal swings in grocery trends.

While Whole Foods picked up in high-end grocery shopping, packaged-food maker Kraft Foods ( KFT - news - people ) said Tuesday that its quarterly earnings jumped to $710 million, from $178 million last year, and it is counting on the $18.6 billion Cadbury ( CBY - news - people ) acquisition to help steer future growth. (See “Kraft Counts On Cadbury, Increasing Demand.”) Shares of Kraft closed down 0.4% to $28.97 while American depositary receipts of Cadbury added 0.7% to close at $53.07 on Tuesday.

In 2007 a federal appeals court cleared the way for Whole Foods to buy rival organic grocer Wild Oats Markets, denying a request by the Federal Trade Commission to block the $565 million merger. (See “Court Frees Whole Foods To Swallow Wild Oats.”)