Whole Foods 4Q Net Falls 96% Amid Charges, Gets $425M Invest

The Wall Street Journal

NOVEMBER 5, 2008, 5:07 P.M. ET

DOW JONES NEWSWIRES

Whole Foods Markets Inc.'s (WFMI) fiscal fourth-quarter net income fell 96% as the company recorded significant charges, but the company received a $425 million investment that gives the company more breathing room amid tough economic conditions.

The investment gives the Leonard Green & Partners LP affiliate a 17% stake in Whole Foods, assuming conversion of the preferred stock. The deal is set to close within 30 days.

"This investment, combined with our strong cash flow from operations, gives us the financial flexibility to manage through these difficult economic times while continuing to prudently invest in our long-term growth," Chief Executive John Mackey said.

The company also struck a cautious tone on its fiscal 2009 forecast, saying current economic conditions make it "highly difficult" to forecast results.

For the quarter ended Sept. 28, the retailer of organic foods reported net income of $1.5 million, or 1 cent a share, down from $33.9 million, or 24 cents a share, a year earlier. The company estimates the purchase of Wild Oats Markets Inc. cut into earnings by 9 cents a share.

The latest quarter also included charges of 2 cents a share for lease terminations and 4 cents for the repatriation of $60 million in cash from the company's Canadian unit.

In August, the grocer said it expected fiscal fourth-quarter earnings of 13 cents to 15 cents a share, below analysts' views at the time.

Sales rose 2.6% to $1.79 billion, helped by a 0.4% increase in comparable-store sales. Adjusted for an extra week in last year's quarter, sales rose 13%.

A Thomson Reuters survey projected revenue of $1.81 billion.

For fiscal 2009, Whole Foods expects earnings of 95 cents to $1 a share, excluding charges, and total sales of $8.3 billion. In August, the company projected earnings of $1.08 to $1.14, including charges of 13 cents to 15 cents, and total sales growth of 6% to 10%. Analysts were looking for earnings of $1.02 on 6% sales growth to $8.48 billion.

The company added that sales comparisons will be difficult in the first half of the year, but will lighten up in the second half.

After finding that massive grocery stores can't be justified in many markets, Whole Foods said in September it planned to target stores that are about 20% smaller. The company also pared back store openings and suspended its dividend after reporting disappointing results for the fiscal third quarter.

In February, the Federal Trade Commission will begin full hearings on the legality of Whole Foods' $565 million acquisition of Wild Oats in August 2007. Earlier this year, a federal appeals court said a trial judge improperly dismissed the Federal Trade Commission's challenge to the Wild Oats merger.

The company's shares, which last week dipped below $10 to hit a multiyear low, closed the regular session down 6.2% at $10.31. Trading is currently halted in the after-hours session.

-By Jay Miller, Dow Jones Newswires

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