Whole Foods Market (WFM, Financial) reported its second quarter results on May 6. The company’s shares declined 10% after the earnings release despite the quarter registering record sales and solid returns on invested capital (ROIC). The reason being, sales came in below expectation. Nevertheless, CEO John Mackey continues to be optimistic about the company’s upside potential. Here’s a look at Whole Foods’ latest quarterly result and much more.
Quarter stats
Whole Foods posted quarterly sales of $3.6 billion, up 10%, but missed expectations of $3.7 billion, reports Bloomberg. Comparable store sales improved 3.6%. Earnings before interest, taxes, depreciation and amortization, or EBITDA, came in at $355 million, which is 9.7% of the top line.
The company generated $322 million in cash from operating activities. It recorded a free cash flow of $116 after spending $206 million as capital expenditures. It returned $47 million to its shareholders in the form of quarterly dividends. Besides, Whole Foods made a share buyback of $47 million, which translates to 0.9 million shares. At the end of the quarter the company had total cash of around $1.1 billion. The retailer’s ROIC went up 68 basis points to 15%.
During the second quarter, Whole Foods opened 11 stores, which includes three relocations. In the current quarter, the company has opened three stores, and proposes to open five more.
Fueling growth
Whole Foods started off with the aim of being a grocery store offering healthy, wholesome food. The brand has led the shift toward fresh and healthy foods by providing top quality offering with broad selection, and an amazing customer service. Mackey believes the company can triple the number of Whole Foods stores in the domestic market. The company is looking to leverage its strength and expand its reach in the marketplace.
The leading natural and organic foods retailer, founded in 1978 in Texas, enjoys a unique position in the American market. When the company started, natural food supermarkets in the U.S. were in single digits. Whole Foods’ has seen phenomenal growth since the opening of the first store. Starting 1984, Whole Foods began spreading its wings beyond Austin, first to Houston and then into Dallas and New Orleans. Majority of the company’s growth can be tied to the mergers and acquisitions that it performed. It acquired several notable companies including Wellspring Grocery, Bread & Circus, Amrion, Allegro Coffee, and Wild Oats Markets.
Now it’s become the world’s leading provider of organic foods. In 2014, Whole Foods recorded sales of $14 billion. It presently has 417 stores, nearly 16 million square feet, in the U.S., Canada, and the U.K. And it’s not over yet. The company plans to surpass the 500-store mark in three years, and in the long run, it expects demand for 1,200 stores in the U.S.
Besides, during the second quarter earnings call Whole Foods also announced its plan to launch a new store concept, something that is unique in the existing marketplace, says Walter Robb, co-CEO. The new store concept would offer quality products at value prices, primarily targeted to woo values-oriented customers including millennial shoppers.
Looking ahead
Whole Foods expects sales to grow more than 9% and comparable store sales to rise in single digits for fiscal year 2015. It expects the EBITDA margin to hover around 9% and ROIC to be north of 14% for the year. The company is on track to carry on its value strategy and increase capital investments on new and existing stores, upgrading technology, and marketing. Whole Foods considers this to be the key to drive the top line. However, the company’s ongoing value efforts could stress its gross margin, leading to a higher-than-expected decline in the current fiscal year. The organic food chain expects to develop an efficient cost structure through leveraging its internal distribution and coordinating purchases.
Overall, Whole Foods had a decent quarter. The company’s new store model could increase its customer base vastly. Whole Foods’ revenue might have come below expectations, but its growth plans present a strong proposition.
