Whole Foods Market (WFM, Financial) is one of America’s healthiest grocery stores. Its mission is to be a grocery store featuring good, wholesome food, not a "health food" store filled with pills and potions. Much of the growth of this company has been accomplished through mergers and acquisitions. Today, it is among the world leaders with around 433 stores in North America and United Kingdom.
The company reported fourth-quarter results in November. In the face of stiff competition, the company is not standing still and is making measurable progress on many of the strategic initiatives over the past year while producing industry-leading sales per gross square foot of $970, a record $1.1 billion in cash flow from operations and healthy returns on invested capital.
Fourth-quarter results
During the quarter, total sales increased by 6% and were a record $3.4 billion. Comparable store sales decreased by 0.2% on a constant currency basis.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) were $196 million, or 5.7% of sales, and diluted earnings per share were 16 cents.
EBITDA margin was 8.0% and return on invested capital was 15%.
The company returned close to $700 million to the shareholders through share repurchases and dividends.
During the quarter, cashflow from operations were $132 million.
Capex was $172 million.
Total cash and cash equivalents were approximately $582 million.
The company repurchased $60 million or 2.0 million shares of common stock.
SG&A increased 68 basis points to 29.1% of sales.
During the quarter, the company opened 10 new stores and plans to open one new additional store.
Outlook for 2016
The company expects the following:
- Sales growth to be around 3% to 5%.
- Capex to be around 5% of sales.
- Square footage growth of 7% or greater.
- EBITDA margin of around 8.5%.
- Opening of approximately 30 new stores.
- The company intends to spend the majority of the $1 billion buyback authorization in the first half of the fiscal year.
Recent developments
The company announced a new capital allocation strategy that reflects confidence in the company’s future growth and cash flow generation while expanding its commitment to return capital to shareholders. As part of this strategy, the company’s board of directors authorized a new $1 billion share repurchase program and declared a 4% increase in the quarterly dividend to 13.5 cents per share. In addition, the company recently entered into a $500 million five-year revolving credit facility and announced its intent to incur additional long-term debt of up to $1 billion prior to the end of the first quarter.
The amount and composition of this debt will depend on market conditions and capital allocation considerations at the time the debt is incurred. The company may also incur additional short-term debt of up to $350 million, which would be repaid with proceeds from the long-term debt. Proceeds from any debt incurred would be used for general corporate purposes, including the repurchase of stock.
Infor, a leading provider of beautiful business applications specialized by industry and built for the cloud, and Whole Foods announced a partnership designed to redefine retail management software. The companies will build a new, Cloud-based retail management solution for Whole Foods Market that is expected to enable the grocer to operate faster and more efficiently while enhancing customer experience. The new retail management suite, Infor CloudsuiteTM Retail, will also be made available to companies in the retail industry.
(Source: Company’s Website)
Strong attributes of the fourth quarter
- Robust cash flows.
- Store developments.
- Strategic investments.
On a concluding note
“There has never been a time when customers have had more interest in what they eat, where it comes from and who's growing it. Our company mission, commitment to transparency and culture of innovation are more relevant than ever, and we see tremendous growth potential as food consciousness continues to evolve,” said Walter Robb, co-chief executive officer of Whole Foods Market. “We recognize the need to move faster and go deeper to rebuild traffic and sales and create a solid foundation for long-term profitable growth and are taking the necessary steps to better communicate our differentiation, improve our value perception and fundamentally evolve our business.”
The company sees potential for 1,200 Whole Foods Market stores in the United States, with the new 365 format expanding the growth opportunity beyond 1,200 stores. It is a growth stock and is poised to grow. Whole Foods Market employs approximately 91,000 team members and has been ranked for 18 consecutive years as one of the “100 Best Companies to Work for in America" by Fortune magazine.
Disclosure: I do not hold any position in the company.
