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Whole Foods Reports Record FY13 Results, But Cools 2014 Outlook

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Last updated on November 8th, 2013 at 02:55 pm

When is forecasting 11 percent to 13 percent sales growth and identical stores sales growth in the range of 5 percent to 6.5 percent not a positive thing?

The answer: when the company doing the forecasting is Whole Foods Market.

Despite record earnings, record store openings and record total sales in fiscal year 2013, investors were unhappy with next year’s outlook as provided by the Austin, Texas-based grocery company. Its stock fell from $64.47 to $57.26 on Nov. 7, the day after it reported its fourth quarter earnings, and on Nov. 8, Goldman Sachs analyst Stephen Grambling downgraded Whole Foods from “buy” to “neutral,” the Austin American-Statesman reported.

Whole Foods Market reported total sales of $3.0 billion in the 12-week fourth quarter, an increase of 2 percent vs. the 13-week period a year ago. Diluted earnings per share grew 7 percent vs. the fourth quarter of last year.

For the 52-week fiscal year 2013, total sales reached a record $12.9 billion, up 10 percent from the 53-week period the previous year; comparable stores sales increased 6.9 percent; and diluted earnings per share increased 17 percent vs. the previous year.

As for its outlook, Whole Foods previously projected total sales growth of 12 to 14 percent and same store sales growth of 6 percent to 7.5 percent for fiscal year 2014.

“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,” said John Mackey, co-CEO, during the company’s earnings call Wednesday. He added that the company sees those trends continuing in fiscal year 2014.

Whole Foods Market’s enviable 5.9 percent growth in comparable store sales in the fourth quarter was the slowest the company has reported in 15 quarters. In the first three quarters of fiscal year 2013, comparable sales growth increased 7.2 percent, 6.9 percent and 7.1 percent, respectively. Whole Foods projects 5.8 percent comparable store sales growth for the first quarter of 2014.

Investors didn’t like that deceleration, which Mackey attributed in part to cannibalization, as well as recent price investments and growing competition.

“We also think there could be macro-environmental impacts here. We think the economy is falling down a little bit,” said Mackey, adding that there “could be factors that we haven’t been able to identify yet…So at the end of the day, of course, we never really know exactly what makes comps go up and what makes comps go down, and we make our best guesses that we can.”

In the fourth quarter, Whole Foods opened a record 12 stores. Five were in Boston in former Johnnie’s Foodmaster locations. It is almost certain there was cannibalization in that market. Mackey believes that is “a temporary effect,” and one nearly guaranteed to happen in other markets as the company continues to grow.

Whole Foods opened 32 stores last year and 10 were in new markets. Eight of 14 leases the company signed during the fourth quarter are in new markets.

The company has long predicted it will reach 1,000 locations in the U.S. It currently has 367 locations.

“We have barely scratched the surface of what we think is possible,” Mackey said.

Analysts wanted to know the company’s vision for home delivery in the U.S.

Walter Robb, co-CEO of the company, said that in the U.K. it only represents a 5 percent to 6 percent share, and that is a more mature market for it, so “last mile delivery” is not a top priority for the company.

Robb also said that Whole Foods is experimenting with “click-and-collect” in two markets. He said he believes that the majority of business will continue to be in physical stores even a decade from now. It will be retailers that integrate the physical experience with the mobile platform or click-and-collect model that ultimately will win the day. At Whole Foods it is called the “extended experience.”

Whole Foods coming to Hughes Landing on Lake Woodlands

In other Whole Foods news, The Howard Hughes Corp. and its wholly-owned subsidiary The Woodlands Development Co. recently announced that Whole Foods Market will soon begin construction in Hughes Landing on Lake Woodlands, a 66-acre mixed-use development within The Woodlands, Texas. Hughes Landing is anticipated to be a dynamic environment featuring up to 11 office buildings, shopping, dining and entertainment, an upscale hotel, a fitness center and up to 800 multi-family residences.

“Local residents have long expressed strong interest in having a Whole Foods Market in The Woodlands,” said Paul Layne, EVP of master planned communities for The Howard Hughes Corp. “It will be an exceptional destination within Hughes Landing and across The Woodlands, adding to the many benefits of living, working and playing in this vibrant community.”

Whole Foods Market plans to open its new 40,000-s.f. store in Hughes Landing in 2015. The main entrance will be situated off Lake Front Circle, near the intersection of Lake Front and Lake Woodlands Drive. Ample surface parking will be located adjacent to the market.

“The Woodlands is a great fit for us,” said Mark Dixon, president of Whole Foods Market’s Southwest region. “We are excited about the Hughes Landing development and its central location that is easily accessible to residents of The Woodlands and surrounding areas.”



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