Whole Foods Isn't Half Baked

Whole Foods Market's (Nasdaq: WFMI  ) quarterly results today reignited the bull case for its shares in a big way, posting earnings full of natural goodness.

Fourth-quarter net income increased 58%, to $57.5 million, or $0.33 per share. No less impressively, Whole Foods' revenue surged 15%, to $2.1 billion. Comparable-store sales increased an equally impressive 8.7%.

In Whole Foods' press release, co-CEO John Mackey pointed out that Whole Foods is gaining market share at a faster rate than most publicly traded grocers. That's hardly insignificant these days, and clearly demonstrates Whole Foods' competitive advantages over malaise-ridden grocers such as Safeway (NYSE: SWY  ) and SUPERVALU (NYSE: SVU  ) .

Mackey attributed much of the quarterly success to Whole Foods' healthy eating, animal welfare, and sustainable seafood initiatives, all of which fit well with Whole Foods' differentiated brand.

These days, differentiation is key for retailers of all stripes, particularly given consumers' reluctance to open their wallets. Whole Foods' ability to coax grocery spending dollars is admirable in this climate.

Better yet, the company ratcheted up expectations for the upcoming fiscal year, upping growth in comps and suggesting that it would increase earnings per share between 16% and 20% year over year.

That performance looks particularly impressive compared to Wal-Mart's (NYSE: WMT  ) difficulty in luring customer traffic into its own doors. (The Bentonville Behemoth even plans to raise some of its rock-bottom prices). Safeway CEO Steve Burd recently said that shoppers now expect the same prices at Safeway that they see at discounters like Wal-Mart and Target (NYSE: TGT  ) , suggesting that grocers of every stripe face a much tougher market.

Last summer, I couldn't help but advise investors to steer clear of most traditional grocery stocks, with the exception of Whole Foods. (I also thought tiny Weis Markets (NYSE: WMK  ) might be a good one for a watch list, since it's debt-free, pays a nice dividend, and is not too expensive.) This is a tough environment for grocers, and only the strong and differentiated may survive and thrive.

It's no surprise that Whole Foods trades a pricey multiple of 33 times earnings. Still, sometimes you've got to pay up for a retailer that's firing on all cylinders, with plenty of room for growth remaining. Best of all, Whole Foods may soon restore its dividend.

Whole Foods' fourth-quarter results illustrate a smart, nimble company that's adjusting well to the "new normal." Right now, its investors have every reason to feel satisfied.

Interested in more info on Whole Foods? Add it to your watchlist by clicking here.

Whole Foods is a Motley Fool Stock Advisor recommendation. Wal-Mart is a Motley Fool Inside Value pick. The Fool owns shares of Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Alyce Lomax owns shares of Whole Foods Market. The Fool has a disclosure policy.


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