Whole Foods Market (WFM) Tops Q4 EPS by 4c; Shifts to co-CEO Structure

November 2, 2016 4:16 PM EDT
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Whole Foods Market (NASDAQ: WFM) reported Q4 EPS of $0.28, $0.04 better than the analyst estimate of $0.24. Revenue for the quarter came in at $3.5 billion versus the consensus estimate of $3.5 billion.

Comps fell 2.6 percent , versus a drop of 2.1 percent expected.

Leadership Structure:

The Board of Directors of Whole Foods announced changes to the leadership structure, including transitioning from co-Chief Executive Officers to a sole Chief Executive Officer, with co-Founder John Mackey to serve in that capacity.

Walter Robb will remain on the Company’s Board of Directors and continue to serve as Chairman for both Whole Kids Foundation and Whole Cities Foundation. He will officially transition his co-CEO responsibilities on December 31, 2016, and will continue to be a senior advisor to the Company. Robb has served the company for 25 years, most recently as co-Chief Executive Officer for the previous six years.

“Under Walter’s leadership, Whole Foods Market has grown from 12 to 464 stores in three countries. He has been instrumental in accelerating investment in our digital strategy and technology transformation to meet the ever-changing retail landscape,” said Dr. John Elstrott, Chairman of Whole Foods Market’s Board of Directors. “In the past year Walter and John have hired five new senior executives, and have adopted and made significant progress on their nine point strategic plan, putting the company in a strong foundational position for winning.”

“It is impossible to convey what Walter has done for Whole Foods Market since he joined us in 1991,” said co-Founder and co-Chief Executive Officer John Mackey. “His incredible passion for retail and sense of the customer makes him the most extraordinary retailer I’ve had the privilege to work with. During his 25 years of leadership, Walter has been an advocate for the Whole Foods Market culture and a champion for our Team Members. His genuine love for our mission and our Team Members truly reflects what it means to be a conscious leader.”

Executive Vice President and Chief Financial Officer Glenda Flanagan, the longest ever serving female Chief Financial Officer in the Fortune 500, will retire from the role after 29 years at the end of the 2017 fiscal year. She will continue to serve the Company in a senior advisor capacity.

“Glenda joined Whole Foods Market in 1988 and has helped guide us through significant growth from six stores, to 464 stores and more than $15 billion in sales today,” said co-Chief Executive Officers John Mackey and Walter Robb. “She has been an outstanding CFO. Her intelligence, wisdom, business acumen, kindness, and integrity have been at the heart of everything Whole Foods Market has done and accomplished over the past 28 years. Glenda is deeply loved and respected by us and everyone at Whole Foods Market who has had the opportunity to know her.”

The company also announced today that Mary Ellen Coe, Vice President of Sales and Product Operations for Google, has joined the Whole Foods Market Board of Directors.

“Mary Ellen’s deep experience in marketing, digital strategy, and brand strategy is incredibly valuable, and we’re excited to have such a talented leader join our Board of Directors,” said Dr. John Elstrott. “We’re confident that her expertise and understanding of the evolving marketplace will benefit the company as we remain focused on strategic investments in marketing and elevating digital experience.”

Guidance:

The Company remains focused on the metrics it believes are key to the long-term health of its business and is targeting:

  • Sales growth of 2.5% to 4.5%
  • Comps of -2% to 0%
  • Ending square footage growth of approximately 6%, reflecting approximately 30 new stores, including up to six relocations and four 365 stores
  • Diluted EPS of $1.42 or greater, excluding any potential share repurchases
  • EBITDA margin of approximately 8.2%
  • Capital expenditures of 4% of sales
  • ROIC of 11% or greater

The Company has seen stability in comps over the last two quarters and an improvement in trends quarter to date for both traffic and basket size. The Company is encouraged that its value and marketing efforts appear to be gaining traction with customers and believes it will see momentum as its sales-building initiatives are rolled out throughout the year. The competitive landscape is very dynamic, however, and it is uncertain how long the deflationary environment will continue. The high end of the comp range reflects a -2.5% two-year comp, slightly better than the -2.8% in Q4, while the low end reflects the possibility that two-year trends could get marginally worse before they get better, as the Company has seen quarter to date.

The Company plans to further reduce its cost structure this year but expects these savings to be more than offset by investments to drive traffic and sales, as well as higher occupancy, depreciation and other costs. Therefore, the Company expects a decline in operating margin of up to 60 basis points for the year, with greater declines in the first half primarily related to higher year-over-year pre-opening in the first quarter and marketing expense in the first and second quarters. The earnings per share outlook of $1.42 or greater excludes potential buybacks and reflects a 39% tax rate for the fiscal year.

For earnings history and earnings-related data on Whole Foods Market (WFM) click here.



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