With a new stock ticker and a strong level of free cash flow, natural food grocery chain Whole Foods Market (WFM) is poised to go on a multi-year expansion. (Note: Whole Foods Markets changed its stock ticker to WFM from WFMI.)
The current story from Whole Foods management combines the best financial results in the last five years with the company completely paying off the last of long-term debt. At the end of the second quarter the balance sheet listed $721 million in cash and investments compared to $208 million in debt. The earnings release stated the $190 million balance of the long-term debt was paid off early in the following quarter.
The result is that Whole Foods can fund its expansion from internal cash generation without the need to borrow. In the earnings release, co-CEO John Mackey said, “With our long-term debt now fully repaid, we are considering other uses for our growing cash balance, including accelerating our growth, raising our dividend, and repurchasing stock.”
During the earnings call, a goal of 1,000 stores was indicated. Whole Foods Markets currently has 304 stores, four new stores planned in the company's third quarter, and 50 in the pipeline.
Further proof of management confidence in the company's prospects was the payment of a 10 cent dividend for the quarter. The board of directors resumed the declaration of a quarterly dividend for the first fiscal quarter of 2011. Whole Foods had not paid a dividend since the third quarter of 2008.
Fuel a factor
Net income for the first six months of fiscal 2011 was $1.02 per share, up 44 percent from the first half of 2010. The consensus estimate for the full year is $1.93, compared to $1.45 earned in 2010.
In early May, analysts at Jefferies downgraded WFM due to higher gas prices. The opinion was that higher fuel costs would increase expenses for Whole Foods and the company's customers may not be willing to spend as much on Whole Food Market’s higher-priced offerings.
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