Is Whole Foods Growing Fast Enough?

Whole Foods reported its fiscal second-quarter earnings Thursday after the markets closed. The organic grocer had $0.44 in earnings per share (EPS) on $3.6 billion in revenue, compared with Thomson Reuters consensus estimates of $0.43 in EPS on $3.7 billion in revenue. The same quarter from the previous year had $0.38 in EPS on $3.32 billion in revenue.

The company gave guidance in terms of targets for the 2015 fiscal year. Whole Foods expects sales growth over 9%, comparable store sales in the low to middle single digits, and return on invested capital (ROIC) over 14%. There are consensus estimates of $1.74 in EPS on $15.75 billion in revenue for the 2015 fiscal year.

Currently, Whole Foods has 417 stores, totaling roughly 16 million square feet, and expects to cross the 500-store mark in fiscal year 2017. Longer term, the company sees demand for 1,200 stores in the United States. Note that Whole Foods sees a huge potential for demand but incrementally it only expects to build out about 40 stores a year.

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Walter Robb, co-CEO of Whole Foods Market, commented on the new store setup:

Today, we are excited to announce the launch of a new, uniquely-branded store concept unlike anything that currently exists in the marketplace. Offering our industry-leading standards at value prices, this new format will feature a modern, streamlined design, innovative technology and a curated selection. It will deliver a convenient, transparent, and values-oriented experience geared toward millennial shoppers, while appealing to anyone looking for high-quality fresh food at great prices.

The company is building a team to focus exclusively on this new concept and is currently negotiating leases. The plan is to begin opening these new stores next year, and given the more standardized design and product assortment, Whole Foods expects a “fairly rapid” expansion from there.

Walter Robb continued:

We believe the growth potential for this new and complementary brand to be as great as it is for our highly successful Whole Foods Market brand. We look forward to sharing more details about this exciting new venture sometime before Labor Day.

Whole Foods ended its fiscal second quarter with $323 million in cash and cash equivalents, compared to $190 million at the end of the 2014 fiscal year.

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John Mackey, co-founder and co-CEO of Whole Foods, commented on earnings:

Our results reflect another quarter of record sales and healthy returns on invested capital. Our Whole Foods Market brand has helped lead the shift in consciousness toward fresh, healthy foods by offering the highest quality, broadest selection, and best customer service, and we believe we can triple the number of Whole Foods Market stores in the United States. At the same time, we also see an opportunity to leverage our long history of retail innovation and extend our reach in the marketplace.

Shares of Whole Foods closed Wednesday up 0.4% at $47.72. Following the release of the earnings report, shares were initially down 10.2% at $42.84 in after-hours trading. The stock has a consensus analyst price target of $55.80 and a 52-week trading range of $36.08 to $57.57.