Despite tough year-over-year comparisons because of the positive impact of the Southern California strike on last year's numbers, Whole Foods (NASDAQ:WFMI) turned in very strong first quarter financial results yesterday. Sales increased 22% to $1.4 billion, comparable store sales were up 11%, and net income was up 27% to $49 million for the quarter.

As I have written in the past, Whole Foods is a great company. Like other great companies, its business model is simple to explain, but extremely difficult to copy. The business model is anchored in a clear value proposition to its high-income, discerning customer base: High-quality, natural products in attractive stores with friendly and helpful staff.

Successfully executed, this strategy translates into an equally simple profit model: Gross margins of about 35%, direct store expense of approximately 25%, which results in store contributions of 9-10% of sales. After overhead costs of 3%, the operating profit margin is a healthy 6-7%. This profit is re-invested -- enough cash is generated to support yearly revenue growth of 15-20% per year (through a combination of new stores, expansions and same-store sales growth) and to even pay a small dividend on the side.

Simple enough. But Whole Foods' closest competitor, Wild Oats (NASDAQ:OATS), is struggling to break even in this business, despite a rapidly growing market and a price umbrella from Whole Foods. Wild Oats' failure to execute has recently fueled speculation on Wall Street that the company may be for sale.

On the earnings call yesterday, company executives highlighted a component of Whole Foods' business model that is relatively minor today, but that is rapidly growing in importance -- private labeling. Private label products have grown to 15% of sales and the company will be aggressively launching a number of new private label products in the near future, including over 30 new products in February alone.

As with innovative low-end retailers such as Costco (NASDAQ:COST), Target (NYSE:TGT), and Wal-Mart (NYSE:WMT), higher-margin private label products at Whole Foods are taking shelf space away from traditional brands. The recent merger of Gillette (NYSE:G) and Procter & Gamble (NYSE:PG) indicates that consumer goods companies realize that customer loyalty is slowly but steadily shifting from branded products to the in-house brands of the better retailers in a number of key categories.

With a solid core business model, enhanced by growth opportunities such as private labeling and international expansion, the next few years look very good for Whole Foods. Unfortunately for investors, at the current stock price, my opinion is that the stock is fully valued or close to it. I would wait patiently for a bump in the road -- should it occur -- and if the stock falls on temporary bad news, I would snap up the shares.

Fool contributor Salim Haji lives in Denver, where he shops at the Whole Foods near his house. He also owns shares of Whole Foods and of Costco. He does not own shares in any other of the companies mentioned.