The specialty grocer turned in an awesome report that sent its stock surging after hours. That’s the opposite, of course, of what Cisco did.
Here’s JPM’s Charles Grom:
Whole Foods needed to deliver a near flawless quarter – with expectations extremely high and significant momentum in the stock since last Fall. With this in mind, when we take a step back and look at the components of the print – the company showed up just like QB Aaron Rodgers did for the Green Bay Packers on Sunday with (1) a solid 1Q print that was $0.06 ahead of the Street; (2) very strong ID trends – both in 1Q (up 9.1%) and equally important 2Q QTD (up 8.6%); (3) raised its FY11 EPS guidance by 5.6%, which is conservatively predicated on just 25 bps of EBIT expansion to 5.2%; and (4) continued to deleverage its balance sheet – retiring $300 million of its term loan – leaving its debt-to-cap ratio at only 7.7% (from 38% in ’08).
Here are the other key takeaways:
Key Takes from the 1Q11 Call: Following the call, we highlight 5 noteworthy observations: (1) sales trends continue to be mostly driven by traffic (+7.0%) with some benefit from ticket (mostly UPT = say 2.0%). Of note, baskets over $50 are demonstrating strong improvement, which further suggests improved consumer confidence, in our view; (2) new store development remains on target with 56 total stores in the pipeline through 2014 – and likely to move higher. Recall the company recently identified a 1,000 store capacity in the U.S., U.K., and Canada – which implies 20+ years of growth ahead; (3) GPM drivers still exist, primarily in the areas of purchasing, distribution, a focus on the cost-to-serve model, and further reductions in shrink; (4) ID guidance reflects ~1% inflation, which is expected to be a greater factor in 2H; and (5) subsequent to quarter-end, WFMI retired an additional $200 million of its term loan leaving the company with a PF debt/capital ratio of only 7.7%)