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 the United Kingdom.
The company reported strong first-quarter results. 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. The company is stepping up value efforts and had record sales during this quarter.
First-quarter results
During the quarter, cash flows from operations were $232 million.
Capex was $179 million.
Gross margin decreased by 83 bps and was 34% of sales.
SG&A improved four basis points to 28.4% of sales.
Sales were a record $4.8 billion (it was an increase of 3% from the prior-year quarter).
Comparable store sales, on a constant currency basis, decreased by 1.8%.
Diluted earnings per share were 46 cents.
During the quarter, the company repurchased $634 million or 21.2 million shares of common stock.
During the quarter, the company returned $45 million in quarterly dividends.
Strong attributes of the first quarter
- Robust cash flows.
- Store developments.
- Strategic investments.
- Improved cost structure.
- Record sales of $4.8 billion.
Expectations for 2016
The company expects the following:
| Ă‚ | Range |
| Sales growth | 3%-5% |
| Square footage growth | 7% or greater |
| EBITDA margin | 8.5% (approx.) |
| Capex | Around 5% of sales |
| ROIC | >13.5% |
| New stores | 30 new stores, including three 365 stores and two to three relocations |
| Decline in operating margin | Of up to 70bps |
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)
Strategic initiatives
- First national brand campaign.
- Value efforts in production.
- Announcement of new 365 format by Whole Foods Market.
- Launch of new mobile app.
- Fundamental restructuring of costs.
- Innovation.
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 U.S., 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.
The company has high quality of standards and differentiation. It is continually evolving its business and is expected to create shareholder returns.
Disclosure: I do not hold any position in the company.
