Whole Foods Q3 Earnings Leave Investors Hungry

Whole Foods (WFMI) investors were modestly optimistic about Tuesday's quarterly earnings report, at least at first. Shares rose 56 cents, or 1.44%, to close at $39.49 per share. Once investors had a chance to look more closely at the results of the fiscal third quarter, however, their sentiments appeared to change. In after-hours trading, Whole Foods's share price fell sharply, down $2.19, or 5.55%, to $39.49 per share by 6 p.m. Eastern time.

The reason for the flip flop? When the numbers first came in, investors likely focused on earnings, which Whole Foods reported were a penny ahead of analyst consensus at $0.38 per diluted share, or $62.7 million, on sales of $2.16 billion. But shareholders were disappointed by the 8.4% growth in comparable-store sales. Earlier in the quarter, which ended July 4, the company had indicated that same-store sales were growing at about 9.5%. Investors had been hoping for an increase of at least 9%. They also were clearly blindsided by the company's far more modest outlook of between 6.6% and 6.8% growth in same-store sales for the full year.

A Favorable Comparison

Whole Foods CEO John Mackey's statement was blithe: "We are pleased with our results, which compare very favorably to most other food retailers and show we are continuing to gain market share. Our identical store sales increased 8.4%, accelerating from the second quarter and our highest increase since 2006."

In the company's conference call, officials deflected many questions about the missed same-store-growth expectations and stuck to an overwhelmingly positive, apparently scripted, commentary. They didn't admit the softness in the overall market or their own customers' reluctance to spend, but did emphasize the difficulty of comparing the third quarter with the stellar year-ago quarter.

Beyond same-store sales, Whole Foods also is growing through new stores. In the third quarter, the company opened six new stores and acquired two, bringing it a total of 298 stores. It's also planning one opening in the fourth quarter. And while the company discussed no solid plans for 2011, officials mentioned optimistic plans for further growth.

In addition, Whole Foods finally put an end to its years-old antitrust conflict with the Federal Trade Commission over its acquisition of Wild Oats Markets. Under the terms of a June settlement, which had been significantly reduced from a previous settlement in 2009, the company sold two operating stores, one non-operating store and the intellectual property connected with Wild Oats in the third quarter.