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Whole Foods store sales accelerate, shares rise

Organic vegetables are shown at a Whole Foods Market in LaJolla , California May 13, 2008 as the company is set to release second quarter ea
Organic vegetables are shown at a Whole Foods Market in LaJolla , California May 13, 2008 as the company is set to release second quarter ea

(Reuters) - Whole Foods Market Inc said on Tuesday store sales have rebounded as it expands efforts to lower prices and reach beyond its core of upscale shoppers by adding more locations, and its shares rose more than 8 percent after hours.

The news from the largest U.S. natural and organic grocery chain dispelled concerns that its store sales were slowing due to competition and sluggish U.S. economic growth.

Same-store sales, a key gauge of performance for retailers, rose 6.9 percent for Whole Foods' fiscal second quarter that ended April 14. So far this quarter, those sales are up 9.4 percent.

"The demand for fresh, healthy foods continues to grow," John Mackey, co-founder and co-chief executive officer of Whole Foods Market, said in a statement.

About three weeks into the second quarter, Whole Foods had said its same-store sales growth had cooled to 6.4 percent, dampened by winter storm Nemo and a shift in the day of the week of Valentine's Day. Analysts also attributed the slower growth to the U.S. payroll tax increase that lowered take home pay.

This quarter's sales results got a 200 basis point boost from Team Member Appreciation Double Discount Day, but still showed the kind of improvement investors were seeking.

"Even though the 9.4 (percent gain) is more like a 7.4 (percent gain), it's still a pick up," BB&T Capital Markets analyst Andy Wolf said.

The Austin, Texas-based retailer, which has been lowering prices to better compete with mainstream grocers such as Kroger Co and Safeway Inc and upstarts like Fresh Market , said second-quarter net income grew 20 percent to $142 million, or 76 cents per share.

Total sales rose more than 13 percent to $3.03 billion.

The company, which recently won kudos for its plan to require labels on genetically modified products by 2018, raised its forecast for full-year earnings per share to a range of $2.86 to $2.89 from $2.83 to $2.87.

Shares in Whole Foods, which hit an all-time high of $101.19 in October 2012, were up $7.69 at $100.49 in extended trading.

BRAND LOYALTY

Analysts often compare Whole Foods to coffee chain Starbucks Corp because both companies cater to relatively wealthier customers who are exceptionally loyal.

Whole Foods customers were tested in January when in a radio interview Mackey compared the U.S. healthcare reform law known as Obamacare to fascism.

Mackey is the inspirational leader of the chain, but his attitudes can sometimes run contrary to those of the customers who frequent the 350-store chain with nearly $12 billion in annual sales.

Thousands of customers threatened to boycott Whole Foods over Mackey's Obamacare comments, but the company's second-quarter results underscored how strong the Whole Foods Brand has become.

"If I had another store nearby and it was apples to apples, I would choose the other over Whole Foods. But they've created such an exceptional shopping experience that I'm willing to overlook (his comments)," said Bridgette King, 43, of Orlando, Florida.

Amanda Orr, 43, said Whole Foods' produce, wine and cheese departments put those at rival markets to shame, and her kids are hooked on the chocolate hemp milk she buys at Whole Foods.

There is also the convenience factor. There are three Whole Foods stores within a mile of Orr's Washington, DC home. Still, because of her annoyance with Mackey, she said she is determined to quit the brand. "It will take some work to break up with them, but I'm trying," Orr said.

Getting away from the chain is about to get harder. It plans to open 12 new stores in the fiscal fourth quarter.

Over the long term, the company considers 1,000 stores to be a reasonable indication of its market opportunity in the United States.

(Reporting by Lisa Baertlein in Los Angeles; Editing by Toni Reinhold)

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