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 company's growth has been accomplished through mergers and acquisitions. Today, it is among the world's leaders with around 433 stores in North America and the U.K.
The company reported its second-quarter results recently. It witnessed record sales and operating cash flow. Despite challenging sales environment, it delivered strong EBITDA.
In the face of stiff competition, the company is not standing still and is making measurable progress on many of its strategic initiatives over the past year. The company is stepping up value efforts and had record sales during this quarter.
Second-quarter results
During the quarter, total sales increased to a record $3.7 billion.
Comparable store sales decreased by 3.0%.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) were $353 million, or 9.5% of sales.
Diluted earnings per share were 44 cents, and adjusted return on invested capital was 14%.
Gross margin declined 103 basis points and was 34.9% of sales.
SG&A improved 39 basis points and was 27.8% of sales.
Share repurchases and dividends
During the quarter, the company had $343 million in cash flow from operations and invested $159 million in capital expenditures, returned $44 million in quarterly dividends to shareholders and repurchased $100 million or 3.5 million shares of common stock. The company ended the quarter with $1.1 billion of total debt and $1.3 billion of total available capital. Subsequent to the end of the quarter, the company repurchased $50 million or 1.7 million shares of common stock.
Expectations for 2016
| Ă‚ | Range |
| Sales growth | To increase by 3% |
| EBITDA margin | To be around 8.5% |
| Capex | To be around 5% of sales |
| ROIC | > 13.5% |
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.
Focus
- Commitment to transparency.
- Innovation.
- Rebuilding traffic and sales.
- Taking the necessary steps to better communicate differentiation.
- Improve value perception.
- Fundamentally evolve its business.
Launch of 365 format
The company is launching by Whole Foods Market a complementary brand that will broaden its reach to new customers and new markets. Guided by the same industry-leading quality standards, the stores will allow it to address the value-quality proposition in a new way while maintaining the integrity the Whole Foods Market brand represents in the marketplace. With this, the company is ready to cater to a wider audience.
As the consciousness about fresh, healthy foods is awakening, and the ways in which people want to buy their food evolve, the market opportunity continues to expand.
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. 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 now expects to be at or below the low end of its prior sales and earnings per share ranges, reflecting recent sales trends and additional investments in marketing and technology in the second half of the year. It is hopeful that comps will improve over the course of the year as comparisons get easier and sales-building initiatives gain traction.
It is innovating and creating environments where people can connect and find a sense of community in its stores and in the digital world. Its strategy revolves around leading a race to the top in terms of a differentiated customer experience: continuing to raise the bar on quality and selection, providing new levels of transparency and accountability, and leveraging technology to deliver an improved shopping experience.
The company has high quality 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.
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