Whole Foods may bite off more than it can chew

Whole Foods Market (NASDAQ:WFMI) announced on Wednesday February 21, 2007, that it intends to purchase rival organic and natural food supermarket Wild Oats -- based in Boulder, Colorado. The entire transcript of the announcement is available at the company's website (www.wholefoodsmarket.com).

Agreed, the natural and organic foods market is growing as more and more people become concerned about the harmful chemicals and lack of inspection mechanisms in our food chain. Also agreed, that Whole Foods is currently enjoying an increase in both sales and revenue. According to information released by the company as part of its 1Q 2007 earnings report, sales increased 12% to $1.9 billion. Whole Foods currently has 174 stores, the vast majority in the U.S. Average weekly store sales were up 6% to $620,000. Average number of weekly transactions increased 5% to 3.2 million. The average ticket size was up 2% to $34.43. For a full rundown on the facts and figures see the 1Q 2007 press release.

Given all the good financial news plus Whole Foods' intention to purchase Wild Oats for $565 million, investors pushed the stock up on Thursday February 22, 2007, 13.2%. Shares closed up $6.04 at $51.74. Enjoy that brief ride. S&P put Whole Foods on credit watch and may adjust the company's BBB-debt rating even lower to below investment quality unless Whole Foods can finance the purchase of Wild Oats without taking on $106 million in additional debt.