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The Associated Press November 3, 2010, 8:04PM ET

Whole Foods doubles net income, raises guidance

Whole Foods Market Inc. surprised investors and even itself Wednesday, reporting that its sales momentum remained strong in the fourth quarter and its net income for the period doubled.

The natural and organic grocer raised its full-year outlook and its shares soared in after-hours trading.

Whole Foods, based in Austin, Texas, reported that its net income available to common shareholders rose to $57.5 million, or 33 cents per share, for the quarter that ended Sept. 26. That's up from $28.7 million, or 20 cents per share, in the same period last year.

Revenue increased 15 percent to $2.1 billion.

The results beat analyst expectations for earnings of 28 cents per share on revenue of $2.07 billion, according to a survey by Thomson Reuters.

Whole Foods' sales have been on an upward swing for several quarters but the company had expected that trend to moderate this quarter due to a seasonal slow-down and tough comparison to the prior year when sales were starting to improve.

Instead, revenue at stores open at least a year rose 8.7 percent for the quarter -- well above the 6.5 to 7.5 percent growth the company had expected. This is considered a key measure of a retailer's financial performance as it strips away the impact of recently opened or closed stores.

Whole Foods attributed its sales growth to more competitive pricing and efforts during the quarter to appeal to its core customers' concerns about healthy eating, animal welfare and sustainable seafood.

The company's profitability also benefited from lower costs.

Whole Foods said customers continued to shop more often and buy more items, though the average price per item went down as Whole Foods adjusted its prices to be more competitive. The company said customers are still seeking value but there were signs customer confidence grew: Branded product sales increased and shoppers began to trade up to higher-priced items in areas such as seafood, cheese and housewares.

"We are continuing to gain market share at a much faster rate than most public food retailers, and attribute a lot of our success to the progress we have made in our relative pricing position to continue to raise the bar in areas that matter to our customers," said co-CEO John Mackey.

Mackey said it serves a broad base of customers and has done a good job balancing the array of needs for value and desire for high-quality among shoppers.

Whole Foods has also strengthened its balance sheet. It ended the quarter with free cash flow of $67 million and said it may consider reinstating its dividend soon.

As the recession took hold, Whole Foods was forced to retool -- halting its dividend, cutting costs, closing some stores and offering more lower-priced options. The company also slowed its new store openings during that time but said it plans to a number of new stores in the coming year, including an announcement Wednesday that it has plans to open several in the United Kingdom where it has tried to strengthen its foothold.

"In an economy that is still struggling to show clear signs of momentum, we are very enthusiastic about our future," Mackey said.

Whole Foods raised its guidance for the 2011 fiscal year, saying it expects to earn $1.66 to $1.71 per share, up from a prior forecast of $1.59 to $1.64 per share. Analysts forecast $1.62 per share.

Whole Foods shares surged $3.50 cents, nearly 9 percent, to $43.95 in after-hours trading.

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