March 21, 2010 in Business

Whole Foods doing well in down market

Universal Press Syndicate

Judging by its most recent quarterly results, it looks like Whole Foods Market (Nasdaq: WFMI) is doing just fine. Net income surged 71 percent to $49.7 million over year-ago levels, while sales increased 7 percent, to $2.6 billion.

Whole Foods, a Motley Fool Stock Advisor recommendation, still carries a substantial $734 million in debt, acquired as part of its purchase of Wild Oats, but it also has unrestricted cash and short-term investments of $482 million. The grocer generated a heartening $79 million in free cash flow in the quarter, so cash is moving in the right direction.

Investors shouldn’t bank on a widespread retail rebound yet, since many consumers are still struggling. However, Whole Foods is performing admirably in a difficult environment. In more good news for shareholders, management raised its fiscal 2010 expectations, projecting overall sales growth of 8.5 percent to 10.5 percent and growth at units open a year or more of 3.5 percent to 5.5 percent.

In its conference call, management spoke optimistically about new health awareness initiatives and positive customer response to its value offerings. It’s also opening smaller-format stores that cost less while still generating impressive results. Meanwhile, some competitors have pulled back from their organic offerings, a real positive for Whole Foods.

The quarterly results shore up the company’s position as a solid long-term stock idea.

Ask the Fool

Q: How can I find out exactly which stocks my mutual fund is investing in? – E.C., New York

A: You won’t know which securities have been bought or sold every day – instead, funds typically publish lists of their holdings each month or each quarter. You’ll find these reports on a fund company’s Web site and perhaps in your mailbox. You can also go to to look up all kinds of information on various funds.

Keep in mind, though, that while a fund may have many shares of a company as of the end of last quarter, it might have sold off most of them by the time you’re reading the quarterly report. Also, some fund managers engage in “window dressing,” loading their funds with certain stocks by the end of a quarter (such as those that have surged recently) so that they’ll look smart.

Q: How can I learn enough about an industry to become competent enough to invest in it? – U.R., Davenport, Iowa

A: Industries vary in their complexities, so some will be easier to understand than others. You’ll learn the most by reading broadly. Read many full annual reports of companies in the industry, including the comprehensive 10-K reports that detail each company’s successes, challenges and plans. Don’t worry if you don’t immediately understand it all.

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