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Whole Foods' Profit Rises; Accelerated Store Growth on Track

11/07/2012 | 07:03pm US/Eastern
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--Whole Foods' fiscal 4th quarter net up 49%

--Earnings meet analyst expectations

--Same-store sales up 7.3% in first five weeks of current quarter

(Updates with additional comments from executives and same-store sales trends in current quarter.)

 
   By Annie Gasparro and Ben Fox Rubin 
 

Whole Foods Market Inc.'s (>> Whole Foods Market, Inc.) fiscal fourth-quarter earnings rose 49%, as the supermarket chain works to counter its reputation of being overpriced and to expand to smaller, suburban areas.

Whole Foods, whose natural and organic foods are pricier than those of traditional supermarkets, has attracted more shoppers than its peers over the past few years, despite the dismal economy. The chain hopes that appearing less expensive will help its sales in new markets--where rent is lower and stores are smaller, generating a faster return on investment.

"The pace of new store openings and lease signings continues to increase, and our accelerated growth plans are on track," John Mackey, co-founder and co-chief executive, said. "We expect healthy comparable store sales growth and continuing operating margin improvement in fiscal year 2013."

In the latest quarter, sales at established locations rose 8.5%, marking its 14th consecutive quarter of growth. In the first five weeks of the current quarter, that sales trend was up 7.3%, despite the impact of superstorm Sandy on the East Coast.

"We're on a roll in terms of going in to new communities--just look at the number of new markets we're going into and the outperformance of those stores. It's full steam ahead," Co-Chief Executive Walter Robb said in an interview. The company currently has 342 stores and sees potential for a total of about 1,000 in the U.S.

For the quarter ended Sept. 30, Whole Foods reported a profit of $112.7 million, or 60 cents a share, up from $75.5 million, or 42 cents a share, a year earlier; and sales grew 24% to $2.91 billion. The results just met the consensus of analysts polled by Thomson Reuters, and the company's earnings outlook for the current fiscal year went unchanged.

But investors, who pay a higher-than-average premium for shares of Whole Foods, are used to seeing the chain outperform Wall Street's expectations. Whole Foods's stock fell 2% to $94.05 after hours.

"We're very optimistic about the holiday season," Mr. Robb said. "We've already gotten turkey orders in, so that's a nice sign. And I think that even though people still don't know what's going to happen with the economy, they feel better than they did a year or two ago."

Meanwhile, traditional grocers like Supervalu Inc. (>> SUPERVALU INC.) and Safeway Inc. (>> Safeway Inc.) have been losing their higher-income customers to fancier, niche stores like Whole Foods, and their price-sensitive shoppers to dollar stores and discount retailers that have started selling more groceries.

Whole Foods' ability to generate more customer traffic has insulated the company from higher commodity costs, which have hurt its competitors' margins. In the third-quarter, its gross margin widened to 35.3% from 34.5%.

Also Wednesday, the company's board approved a 43% quarterly dividend increase, pushing the payout to 20 cents from 14 cents a share. The increase should cost the company an additional $11.2 million a quarter.

Write to Annie Gasparro at annie.gasparro@dowjones.com and Ben Fox Rubin at ben.rubin@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

Stocks mentioned in the article : Whole Foods Market, Inc., Safeway Inc., SUPERVALU INC.
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