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Is Whole Foods Market, Inc. (WFM) A Buy Now?

Whole Foods Market, Inc. (NASDAQ:WFM)With the US economy already growing, it might be the time to start looking at retailers. After all, America’s GDP is 75% consumption and consumer confidence is already getting back to a healthy level. Among all US retailers, Whole Foods Market, Inc. (NASDAQ:WFM) is the one I love the most, not only because of its great product variety and quality but also because of its huge growth prospects.

Apparently, I am not the only one loving the company since, after its (surprisingly good) first quarter results were released, Whole Foods Market, Inc. (NASDAQ:WFM) shares went up by more than 10%. With full-year EPS expected to rise by 16%, let’s see what has has happened during the first three months of the current year.

Whole Foods’ high quality first quarter results

In my opinion, the most relevant figure for any retailer is same-store sales. In Whole Foods Market, Inc. (NASDAQ:WFM)’ case, this figure rose by an outstanding 7% during the first quarter of the year. Better yet, the company is expecting this same-store sales growth to continue throughout the year.

Besides, it was not only top line growth that came in better than expected. Even when Whole Foods Market, Inc. (NASDAQ:WFM) is trying to include in its product list more affordable items, its gross margin expanded 36%, which was unexpected when we take into account management’s previous warnings not to expect margin improvements during 2013.

This same-store sales growth figures and gross margins are not common within the industry. Just to give you an example, some of Whole Food’s main competitors, Safeway Inc. (NYSE:SWY) and The Kroger Co. (NYSE:KR), have gross margins of 27% and 21%, respectively. Meanwhile, their same-store sales are growing at a pace of 1.5% (excluding fuel) and 3%, respectively. Evidently Whole Foods is doing great, at least relatively to its US peers. Of course quality has its price, but is Whole Foods already too expensive?

Whole Foods is growing fast

With the “healthy supermarket” theme expanding fast in developed markets, the company is continuously growing its store count.  With 334 stores already open in the US (and 349 globally), it has set for itself the target of 1,000 stores only in the US.

The retailer is still small relative to the two competitors mentioned above, but it’s catching up at a very aggressive rate. The UK, where Whole Foods only has 7 stores open, is a key market and a lot of expansion is expected there in the years to come. That said, there is a huge amount of market to be addressed by the high margin “healthy retailer,” and I expect Whole Foods Market, Inc. (NASDAQ:WFM)’ store count to more than double in the next five years.

Valuation seems fair

Even if Whole Foods looks expensive trading at 2013 35x P/E, the company has a much better growth horizon than its competitors. Safeway Inc. (NYSE:SWY) and The Kroger Co. (NYSE:KR) trade at 2013 10.5x and 13.2x P/E, respectively, but they are already fully matured companies. As a matter of fact, The Kroger Co. (NYSE:KR) and Safeway Inc. (NYSE:SWY) already operate thousands of stores against Whole Foods Market, Inc. (NASDAQ:WFM)’ less than 400 stores. You will not find a great cash dividend if you go long Whole Foods (the company’s cash dividend yield is below 1%), but you shall find very profitable growth.

The article One Retailer You Should Own originally appeared on Fool.com and is written by Federico Zaldua.

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