Whole Foods Market posted impressive sales and earnings increases during its fiscal third quarter, demonstrating the success of management’s efforts to improve the retailer’s value image among shoppers.

However, the company’s cautious forecast of moderating sales growth in the fourth quarter alarmed investors, who drove the company’s stock price down sharply after the results were issued.
 

AUSTIN, Texas — On Wednesday Whole Foods Market Inc. reported an 88% increase in net income as sales grew 15% during the third quarter of fiscal 2010.

On Wednesday Whole Foods Market Inc. reported an 88% increase in net income as sales grew 15% during the third quarter of fiscal 2010.

Although the company increased its full-year profit projection, Wall Street took fright at management’s conservative stance and drove the share price down more than 6%.

Net income for the upscale grocer soared 88% to $65.7 million, or 38 cents per share, from $35.0 million, or 25 cents per share, a year ago. Sales rose 15.2% to $2.16 billion from $1.88 billion, as identical-store sales expanded 8.4%.

"We are very pleased with our results, which compare very favorably to most other food retailers and show we are continuing to gain market share," said John Mackey, cochief executive officer and cofounder of Whole Foods Market.

Mackey added that Whole Foods has just signed six new leases and has eight more in negotiation. As a result, the natural and organic foods supermarket operator expects to increase its number of store openings beginning in 2012.

During a conference call, cofounder and cochief executive officer Walter Robb explained the factors that drove the chain’s impressive numbers during the quarter. "We are improving our price positioning relative to our competition," he said. "Our efforts are helping to drive our sales momentum and we are gaining market share."

Robb went on to note that the 8.4% jump in identical-store sales was driven mainly by a higher transaction count supplemented by a 1% increase in basket size. "We believe our transaction count increases are being driven by a combination of our loyal customers shopping with us more frequently, prior customers returning to shop with us and an increasing number of new customers entering our doors. Our increase in basket size was driven entirely by customers putting more items in their baskets. We have worked hard to improve our value image and believe our success in this regard has played a large role in the sales momentum we are seeing."

The company expects identical-store sales to grow between 6.5% and 7.5% in the fourth quarter, with full-year identical-store growth to range between 6% and 6.2%. Executives also tightened and raised their earnings expectations to a range of $1.37 to $1.39 per diluted share from prior guidance of $1.33 to $1.37 per share. Analysts on average expect earnings of $1.37 per share for fiscal 2010, according to Thomson Reuters.

Robb said the guidance "appropriately reflects the tempering of our enthusiasm over current sales growth trends, with conservatism based on the competitive environment and uncertainty over the economy."

Investors and some analysts, however, reacted with alarm and drove the company’s stock down 6.3% to $36.41 in mid-day trading from its opening price of $38.85 on Wednesday.