In what could have been its final quarterly earnings report as a public company as it awaits approval of the $13.7 billion merger with Amazon, Whole Foods Market on Wednesday reported earnings in line with Wall Street’s expectations, though it saw a drop in some significant sales categories.
The Austin-based grocer’s latest figures likely will be of little concern to shareholders because they won’t affect the $42 per share price that Amazon has agreed to pay in its buyout offer. But as it heads toward new ownership, Whole Foods’ financial figures show the company is still working to bounce back from recent subpar sales performances.
For its fiscal third quarter that ended on July 2, Whole Foods reported revenue of $3.7 billion, an increase of less than 1 percent over the same quarter a year ago. The revenue matched projections from analysts polled by Thomson Reuters.
The grocer, however, struggled again in comparable store sales, an important marker for the strength of a company and one where Whole Foods has lately faltered. Its figures there fell year-over-year by 1.9 percent.
Company executives have said they hope to reverse the trend of declining sales losses by the end of the fiscal year in September.
Whole Foods CEO John Mackey, who is expected to remain after the Amazon deal is completed, said the company's same-store sales showed improvement during July.
“For the quarter, we delivered record sales and free cash flow, and returned $44 million in dividends to our shareholders,” Mackey said in a written statement. “Our comparable store sales improved sequentially on a one- and two-year basis in the third quarter, and that momentum has accelerated 220 basis points in the fourth quarter, resulting in positive overall comps for the first three weeks.”
The company also reported a drop in profit, posting $106 million for the quarter after reporting $120 million in the same quarter last year.
Earnings per share matched analysts projections at 33 cents, compared with 37 cents per share in the same quarter last year. Adjusted earnings per share -- which factored in charges of $14 million, or 3 cents per share -- were 36 cents.
Whole Foods released its earnings mid-day instead of its usual time after the U.S. stock market closed at 3 p.m. central time. The company did not announce that plan beforehand, nor did it return calls seeking an explanation. The grocer’s shares closed Wednesday at $41.81.
Report not watched as closely
Whole Foods chose to not have its regular investor conference call after the release of the earnings report, and it did not update the financial outlook for its fiscal fourth quarter, citing its pending deal with Amazon.
While Whole Foods’ earnings have been of high interest in recent years as the company dealt with sluggish sales and increased competition, analysts said Wednesday’s report wasn’t watched as closely because of the company’s pending deal with Amazon.
Earnings reports usually impact stock prices significantly, but with Amazon’s set buying price of $42 per share, the report is not expected to shift prices, said Brian Yarbrough, a market analyst with the investment firm Edward Jones.
"Everyone knows (Whole Foods shares) are getting taken out by Amazon for $42, so whether earnings are a huge surprise or not would get little attention from shareholders," Yarbrough said. "I wouldn't expect the stock to move at all whether it was great news or bad news. You would only see movement if the deal with Amazon fell through."
Whole Foods’ third quarter report had less drama than its second quarter report, when the company announced at the same time the replacement of half of its board of directors, its hiring of Keith Manbeck as its new chief financial officer and the beginning of a new customer loyalty program at each of its more than 450 stores.
The company, which employs an estimated 87,000 people, also set several goals then for 2020, including $300 million in cost savings, comparable store sales growth of more than 2 percent, $18 billion in total annual sales and improved technology to guide customers’ purchases.
The shakeup of Whole Foods’ leadership and strategy came after pressure from some of the company’s largest shareholders, including investment firm Jana Partners, which bought more than 8 percent of Whole Foods from February to April but has since sold all of its stake, netting hundreds of millions of dollars in the process.
Founded in 1978, Whole Foods has experienced its shares of ups and downs in recent years.
The grocer has increasingly had to compete with big box stores, other supermarkets and online retailers as its organic-grocer market share has declined. Before agreeing to the Amazon deal, the company reported seven straight quarters of falling same-store sales and was questioned about its brand development and strategy.
At the same time, it recently opened a line of smaller, value-based stores named 365 by Whole Foods. There are four 365 stores currently open -- including one in the Austin suburb Cedar Park -- with more stores planned.
Three years after its stock plummeted after a negative earnings report, the company’s prices per share have steadily risen, and it was able to strike a deal with Amazon for $42 per share -- 27 percent above what the stock was worth before the agreement.
Deal likely to go through
The companies announced the deal on June 16, two months after Whole Foods representatives first contacted Amazon regarding a possible partnership, according to filings with the U.S. Securities and Exchange Commission.
Most of the grocer’s executives are expected to leave post-deal.
While watchdog groups have raised questions about the merger and its potential impact on consumers and shareholders, it's still likely to happen because the companies are reported to only control less than 2 percent of the grocer market combined, though experts predict that will grow after the buyout.
"A lot of times the mergers that get challenged are competitors that are in same market, but Amazon doesn't provide a lot of food right now," said Christopher Snyder, chair at the Department of Economics at Dartmouth College and an expert in U.S. microeconomics and law in the U.S. economy. "The concern is either in the long run if Amazon somehow figures out how to monopolize grocery distribution, but they're a long way from that. They're going to use Whole Foods as a base to link up the online food-supply business."
Whole Foods shareholders still have to vote on the deal, and the Federal Trade Commission also would need to approve it for it to go forward.
News on Open Source is free and unlimited. Access to the rest of 512tech.com comes with an American-Statesman digital subscription, which also includes myStatesman.com and the ePaper edition. Subscribe at statesman.com/subscribe.