Whole Foods Market Reports First Quarter Results; Comparable Store Sales Increase 7% on Top of 13% Increase in Prior Year; Cash Flow From Operations Increases 27% to $112 Million

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AUSTIN, Texas, Feb. 21 /-/ -- Whole Foods Market, Inc. (Nasdaq: WFMI) today reported sales and earnings for the 16-week quarter ended January 14, 2007. In a separate release, the Company announced that it signed a definitive merger agreement with Wild Oats Markets, Inc. (Nasdaq: OATS) under which Whole Foods Market will acquire the outstanding common stock of Wild Oats Markets in a cash tender offer of $18.50 per share.

    For the quarter, sales increased 12% to $1.9 billion. Comparable store sales increased 7.0% on top of a 13.0% increase in the prior year. Identical store sales (excluding three relocated stores and three major expansions) increased 6.2%. Operating income before pre-opening and relocation increased 2% to $101.8 million. Net income was $53.8 million, and diluted earnings per share were $0.38. Economic Value Added (EVA) was $10.2 million for the quarter.

    During the quarter, approximately $10.2 million, or $0.07 per share, relating to share-based compensation, pre-opening rent and accelerated depreciation was expensed for accounting purposes but was non-cash, compared to $4.4 million, or $0.03 per share, in the prior year. For the quarter, operating cash flow per share increased 30% to $0.79 from $0.61 in the prior year.

    During the quarter, the Company produced $112 million in cash flow from operations and received $29 million in proceeds from the exercise of stock options. Capital expenditures in the quarter were $153 million of which $101 million was for new stores, and the Company paid approximately $21 million to shareholders in cash dividends. At the end of the quarter, the Company had total cash and investments of approximately $222 million and total long-term debt of approximately $3 million.

    "We are pleased with our 7% comparable store sales growth in the first quarter, which was in line with our expectations and against a tough 13% comparison in the prior year," said John Mackey, chairman, chief executive officer, and co-founder of Whole Foods Market. "We are producing higher sales growth, comps and sales per square foot than our public competitors. Given our record store development pipeline, continued anticipated acceleration in store openings, and now the announcement of our pending merger with Wild Oats Markets, we believe we are even better positioned to achieve our goal of $12 billion in sales in fiscal year 2010. Over the longer term, however, we believe our sales potential is much greater as the market continues to grow and as our company continues to improve."

    The following table shows the Company's growth in sales, comparable store sales, and ending square footage year to date compared to its historical five- year ranges and average results.

     Five-Year FY Range Five-Year Q1

     Low High FY Average FY07

    Sales growth 17.0% 22.8% 20.3% 12.2%

    Comparable store sales

     growth 8.6% 14.9% 11.5% 7.0%

    Two-year comps (sum of

     two years) 18.6% 27.8% 22.7% 20.0%

    Ending square footage

     growth 10% 14% 12% 9%

    The following table breaks out additional information on the quarter for

    comparable stores and all stores.

     NOPAT # of Average Total

    Comparable Stores Comps ROIC* Stores Size Square Feet

    Over 11 years old 3.8% 77% 50 27,300 1,366,400

    Between eight and

     11 years old 4.6% 65% 31 30,800 953,800

    Between five and eight

     years old 6.5% 40% 41 32,900 1,349,000

    Between two and five

     years old 9.3% 25% 37 38,300 1,417,500

    Less than two years old

     (includes three

     relocations) 15.2% 4% 20 51,100 1,022,200

    All comparable stores

     (7.4 years old, s.f.

     weighted) 7.0% 35% 179 34,100 6,108,900

    All stores (6.9 years

     old, s.f. weighted) 31% 189 34,800 6,581,300

     *Includes pre-opening expense

    Gross profit consists of sales less cost of goods sold and occupancy costs plus the contribution from non-retail distribution and food preparation operations. For the first quarter, gross profit decreased 24 basis points to 34.3% of sales. These results include a LIFO charge of $1.0 million in the quarter, unchanged from the prior year. Due to seasonality, the Company's gross margin is typically lower in the first quarter than in the remaining three quarters of the year, averaging 34.3% for the past five years. For stores in the comparable store base, gross profit improved two basis points to 34.5% of sales.

    Direct store expenses increased 35 basis points to 25.8% of sales. The increase was primarily due to higher share-based compensation expense and health care costs as a percentage of sales. For stores in the comparable store base, direct store expenses improved six basis points to 25.4% of sales.

    G&A expenses improved five basis points to 3.0% of sales.

    Share-based compensation expense, a non-cash expense, was $4.8 million for the quarter versus $1.1 million in the prior year. Of this amount, $2.6 million was included in direct store expenses, $2.0 million was included in G&A, and $0.2 million was included in non-retail contribution.

    The following table shows the Company's year-to-date results for certain line items as a percentage of sales compared to its historical five-year ranges and averages, highlighting the consistency of these results on an annualized basis over time.

     Five-Year FY Range Five-Year FY Q1

     Low High Average FY07

    Gross profit 34.2% 35.1% 34.8% 34.3%

    Direct store expenses 25.2% 25.5% 25.4% 25.8%

    Store contribution 9.0% 9.6% 9.4% 8.4%

    G&A 3.1% 3.6% 3.2% 3.0%

    Pre-opening and relocation costs were $16.3 million of which approximately $5.4 million was pre-opening rent and accelerated depreciation that was expensed for accounting purposes but was non-cash. In the prior year, pre- opening and relocation costs were $8.5 million of which approximately $3.3 million was non-cash.

    New Store Development

    In the first quarter, the Company opened three stores in West Orange, NJ, Tigard, OR and Seattle, WA and relocated one store in Dallas, TX, ending the quarter with 189 stores and approximately 6.6 million square feet in operation. In the second quarter, the Company has opened two stores in Fairfax, VA and Chicago, IL, relocated one store in Portland, ME, and expects to open two additional stores in Birmingham, AL and Cleveland, OH. As of today, the Company has opened 14 new stores over the last twelve months.

    The Company has recently signed seven new store leases averaging 50,000 square feet in size which are as follows: Mill Valley, CA; Santa Cruz, CA; Fairfield, CT; Alpharetta, GA (a relocation); St. Louis, MO; Manhattan, NY; and Charlottesville, VA (a relocation).

    Since the Company's fourth quarter earnings release, the Company has opened five new stores and tendered eight leases. The following table provides additional information about the Company's store openings in fiscal year 2006 and thus far in fiscal year 2007, leases currently tendered but not opened, and total development pipeline for stores scheduled to open through fiscal year 2010. For accounting purposes, a store is considered tendered on the date the Company takes possession of the leased space for construction and other purposes, which is typically when the shell of the store is complete or nearing completion.

     Stores Stores Current Current

     Opened Opened Leases Leases

    New Store Information FY06 FY07 YTD Tendered Signed*

    Number of stores

     (including relocations) 13 7 16 88

    Number of relocations 2 2 2 16

    New markets 4 0 2 21

    Average store size

     (gross square feet) 50,000 54,000 54,000 56,000

    As a percentage of

     existing store average

     size 147% 153% 154% 159%

    Total square footage 653,000 378,000 870,000 4,972,000

    As a percentage of

     existing square

     footage 10% 6% 13% 74%

    Average pre-opening

     expense per store

     (incl. rent) $1.9 million

    Average pre-opening

     rent per store $0.7 million

    Average tender

     period 7.8 months

     *Includes leases tendered

    Growth Goals for Fiscal Year 2007 and Beyond

    The Company's guidance for fiscal year 2007 excludes any impact from the pending merger with Wild Oats Markets, as the transaction has not closed.

    The Company notes that fiscal year 2007 is a 53-week year, with the extra week falling in the fourth quarter making it a thirteen-week quarter. For fiscal year 2007, on a 52-week to 52-week basis, the Company expects total sales growth of 13% to 17%. In fiscal year 2006, the Company produced 11.0% comparable stores sales growth, ranging from 13.0% in the first quarter to 8.6% in the fourth quarter. The Company expects comparable store sales growth of 6% to 8% for fiscal year 2007.

    Thus far in fiscal year 2007, the Company has opened seven stores and expanded one store representing approximately 399,000 square feet. In addition, 13 of the Company's 16 currently tendered stores, representing approximately 716,000 square feet, are expected to open this fiscal year, translating to an estimated year-over-year increase in ending square footage of approximately 16%.

    On a 52-week basis compared to adjusted fiscal year 2006 results, the Company expects growth in operating income before pre-opening and relocation costs to be in line with or slightly lower than sales growth.

    The Company expects total pre-opening and relocation costs for fiscal year 2007 to be in the range of $68 million to $74 million, including approximately $30 million to $34 million of pre-opening rent and accelerated depreciation related to relocations, both of which are expensed for accounting purposes but primarily non-cash. This significant year-over-year increase is due primarily to the anticipated acceleration in leases tendered and square footage opening in fiscal years 2007 and 2008, including the opening of 18 to 20 new stores this fiscal year. Approximately $18 million to $24 million relates to stores expected to open in fiscal year 2008. These ranges are based on estimated tender dates which are subject to change. The Company expects significantly higher-than-average pre-opening expense in fiscal year 2007 of approximately $7 million related to its first Whole Foods Market store in London. Excluding this store, the Company expects total pre-opening and relocation expense for stores opening in fiscal year 2007 to average approximately $2.4 million per store, above the Company's average for stores that opened in fiscal year 2006 due primarily to higher accelerated depreciation related to relocations. The Company expects quarterly pre-opening and relocation expense to be fairly even throughout the remainder of the fiscal year.

    The Company expects share-based compensation, a non-cash expense, of approximately $2 million to $3 million in the second quarter and $3 million to $4 million per quarter in the second half of the year following the Company's annual grant date early in the third quarter, when the majority of options are granted.

    Capital expenditures are expected to be in the range of $525 million to $575 million. Of this amount, approximately 70% to 75% is related to new stores opening in fiscal year 2007 and beyond.

    The Company expects its materially higher pre-opening and relocation costs resulting primarily from the anticipated acceleration in leases tendered and square footage opening in fiscal years 2007 and 2008 to significantly impact fiscal year 2007 diluted earnings per share growth. As noted above, diluted earnings per share are expected to include approximately $43 million to $50 million of pre-opening rent, accelerated depreciation, and share-based compensation expensed for accounting purposes but primarily non-cash.

    Longer term, the Company's goal is to reach $12 billion in sales in fiscal year 2010.

    About Whole Foods Market: Founded in 1980 in Austin, Texas, Whole Foods Market(R) is a Fortune 500 company and the largest natural and organic foods retailer. The Company had sales of $5.6 billion in fiscal year 2006 and currently has 191 stores in the United States, Canada and the United Kingdom.

    Legal statements

    The tender offer described herein has not commenced. The description contained herein is neither an offer to purchase nor a solicitation of an offer to sell shares of Wild Oats Markets. At the time the tender offer is commenced, Whole Foods Market, Inc. and one of its subsidiaries intend to file a Tender Offer Statement on Schedule TO containing an offer to purchase, forms of letters of transmittal and other documents relating to the tender offer, and Wild Oats Markets intends to file a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the tender offer. These documents will contain important information about the tender offer that should be read carefully before any decision is made with respect to the tender offer. These materials will be made available to the shareholders of Wild Oats Markets at no expense to them. In addition, such materials (and all other documents filed with the SEC) will be available at no charge at http://www.wildoats.com , http://www.wholefoodsmarket.com and on the SEC's website at http://www.sec.gov .

    Forward-looking statements

    The following constitutes a "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. Except for the historical information contained herein, the matters discussed in this press release are forward-looking statements that involve risks and uncertainties, which could cause our actual results to differ materially from those described in the forward looking statements. These risks include but are not limited to general business conditions, the timely development and opening of new stores, the impact of competition, and other risks detailed from time to time in the SEC reports of Whole Foods Market, including Whole Foods Market's report on Form 10-K for the fiscal year ended September 24, 2006. Whole Foods Market undertakes no obligation to update forward-looking statements.

    The Company will host a conference call today to discuss this earnings announcement, as well as its cash tender offer for Wild Oats Markets, at 4:00 p.m. CT. The dial-in number is 1-800-896-8445, and the conference ID is "Whole Foods." A simultaneous audio webcast will be available at http://www.wholefoodsmarket.com .

     Contact: Cindy McCann

     VP of Investor Relations

     512.542.0204

    Whole Foods Market, Inc.

    Consolidated Statements of Operations (unaudited)

    (In thousands, except per share amounts)

     Sixteen weeks ended

     January 14, January 15,

     2007 2006

    Sales $1,870,731 $1,666,953

    Cost of goods sold and occupancy costs 1,229,972 1,092,018

     Gross profit 640,759 574,935

    Direct store expenses 482,797 424,438

     Store contribution 157,962 150,497

    General and administrative expenses 56,132 50,889

     Operating income before pre-opening

     and relocation 101,830 99,608

    Pre-opening expenses 13,255 7,823

    Relocation costs 3,029 668

     Operating income 85,546 91,117

    Investment and other income, net 4,045 6,079

     Income before income taxes 89,591 97,196

    Provision for income taxes 35,836 38,878

     Net income $53,755 $58,318

     Basic earnings per share $0.38 $0.42

     Weighted average shares outstanding 140,267 137,532

     Diluted earnings per share $0.38 $0.40

     Weighted average shares outstanding,

     diluted basis 142,918 145,317

     Dividends per share $0.33 $2.15

     A reconciliation of the numerators and denominators of the basic and

     diluted earnings per share calculations follows (in thousands):

     Sixteen weeks ended

     January 14, January 15,

     2007 2006

    Net income (numerator for basic

     earnings per share) $53,755 $58,318

    Interest on 5% zero coupon convertible

     subordinated debentures,

     net of income taxes 40 102

    Adjusted net income (numerator for

     diluted earnings per share) $53,795 $58,420

    Weighted average common shares

     outstanding (denominator

     for basic earnings per share) 140,267 137,532

    Potential common shares outstanding:

     Assumed conversion of 5% zero coupon

     convertible subordinated debentures 160 428

     Assumed exercise of stock options 2,491 7,357

    Weighted average common shares

     outstanding and potential additional

     common shares outstanding (denominator

     for diluted earnings per share) 142,918 145,317

     Basic earnings per share $0.38 $0.42

     Diluted earnings per share $0.38 $0.40

    Whole Foods Market, Inc.

    Consolidated Balance Sheets (unaudited)

    January 14, 2007 and September 24, 2006

    (In thousands)

    Assets

     2007 2006

    Current assets:

    Cash and cash equivalents $43,585 $2,252

    Short-term investments -

     available-for-sale securities 104,393 193,847

    Restricted cash 74,485 60,065

    Trade accounts receivable 77,680 82,137

    Merchandise inventories 239,943 203,727

    Deferred income taxes 50,368 48,149

    Prepaid expenses and other current

     assets 41,183 33,804

     Total current assets 631,637 623,981

    Property and equipment, net of

     accumulated depreciation and

     amortization 1,323,876 1,236,133

    Goodwill 113,494 113,494

    Intangible assets, net of accumulated

     amortization 40,167 34,767

    Deferred income taxes 33,754 29,412

    Other assets 5,833 5,209

     Total assets $2,148,761 $2,042,996

    Liabilities And Shareholders' Equity

     2007 2006

    Current liabilities:

    Current installments of long-term

     debt and capital lease obligations $78 $49

    Trade accounts payable 140,347 121,857

    Accrued payroll, bonus and other

     benefits due team members 159,876 153,014

    Dividends payable 25,370 ---

    Other current liabilities 240,794 234,850

     Total current liabilities 566,465 509,770

    Long-term debt and capital lease

     obligations, less current installments 2,852 8,606

    Deferred rent liability 125,547 120,421

    Other long-term liabilities --- 56

     Total liabilities 694,864 638,853

    Shareholders' equity:

    Common stock, no par value, 300,000 shares

     authorized; 142,950 and 142,198 shares

     issued; 140,580 and 139,607 shares

     outstanding in 2007 and 2006,

     respectively 1,191,708 1,147,872

    Common stock in treasury, at cost (99,964) (99,964)

    Accumulated other comprehensive income 5,413 6,975

    Retained earnings 356,740 349,260

     Total shareholders' equity 1,453,897 1,404,143

    Commitments and contingencies

     Total liabilities and shareholders'

     equity $2,148,761 $2,042,996

    Whole Foods Market, Inc.

    Consolidated Statements of Cash Flows (unaudited)

    (In thousands)

     Sixteen weeks ended

     January 14, January 15,

     2007 2006

    Cash flows from operating activities

    Net income $53,755 $58,318

    Adjustments to reconcile net income to

     net cash provided by operating activities:

     Depreciation and amortization 52,731 46,399

     Loss on disposition of assets 1,030 494

     Share-based compensation 4,773 1,131

     Deferred income tax benefit (6,561) (6,656)

     Excess tax benefit related to

     exercise of employee stock options (5,286) (31,411)

     Deferred rent 4,735 3,101

     Other 506 162

     Net change in current assets and

     liabilities:

     Trade accounts receivable 4,457 (8,232)

     Merchandise inventories (37,216) (22,921)

     Prepaid expense and other

     current assets (10,454) (3,352)

     Trade accounts payable 18,490 4,869

     Accrued payroll, bonus and other

     benefits due team members 6,862 13,471

     Other accrued expenses 24,607 32,871

     Net cash provided by operating activities 112,429 88,244

    Cash flows from investing activities

    Development costs of new store locations (100,942) (35,330)

    Other property, plant and equipment

     expenditures (52,083) (33,737)

    Acquisition of intangible assets (6,246) (884)

    Purchase of available-for-sale securities (145,268) ---

    Sale of available-for-sale securities 234,777 ---

    Increase in restricted cash (14,420) (12,111)

     Net cash used in investing activities (84,182) (82,062)

    Cash flows from financing activities

    Dividends paid (20,971) (17,063)

    Issuance of common stock 28,806 129,556

    Excess tax benefit related to exercise

     of employee stock options 5,286 31,411

    Payments on long-term debt and capital

     lease obligations (35) (56)

     Net cash provided by financing

     activities 13,086 143,848

    Net increase in cash and cash

     equivalents 41,333 150,030

    Cash and cash equivalents at beginning

     of period 2,252 308,524

    Cash and cash equivalents at end of

     period $43,585 $458,554

    Supplemental disclosure of cash flow

     information:

     Interest paid $124 $248

     Federal and state income taxes paid $22,294 $5,262

    Non-cash transactions:

     Conversion of convertible debentures

     into common stock $5,686 $3,656

    Whole Foods Market, Inc.

    Non-GAAP Financial Measures (unaudited)

    (In thousands)

    In addition to reporting financial results in accordance with generally

    accepted accounting principles, or GAAP, the Company provides information

    regarding Economic Value Added ("EVA") and Operating Cash Flow per Share

    in the press release as additional information about its operating

    results. These measures are not in accordance with, or an alternative to,

    GAAP. The Company's management believes that these presentations provide

    useful information to management, analysts and investors regarding certain

    additional financial and business trends relating to its results of

    operations and financial condition. In addition, management uses these

    measures for reviewing the financial results of the Company and EVA for

    incentive compensation and capital planning purposes.

    The following is a tabular reconciliation of the EVA non-GAAP financial

    measure to GAAP net income, which the Company believes to be the most

    directly comparable GAAP financial measure.

     Sixteen weeks ended

     January 14, January 15,

    EVA 2007 2006

    Net income $53,755 $58,318

    Provision for income taxes 35,836 38,878

    Interest expense and other 7,730 4,516

     NOPBT 97,321 101,712

    Income taxes (40%) 38,928 40,685

     NOPAT 58,393 61,027

    Capital Charge 48,242 44,767

     EVA $10,151 $16,260

    The following is a tabular reconciliation of the numerator of the

    Operating Cash Flow per Share non-GAAP financial measure to GAAP net

    income, which the Company believes to be the most directly comparable GAAP

    financial measure.

     Sixteen weeks ended

     January 14, January 15,

    Operating Cash Flow per Share 2007 2006

    Net income $53,755 $58,318

    Adjustments to reconcile net income

     to net cash provided

     by operating activities:

     Depreciation and amortization 52,731 46,399

     Loss on disposition of assets 1,030 494

     Share-based compensation 4,773 1,131

     Deferred income tax benefit (6,561) (6,656)

     Excess tax benefit related to

     exercise of employee stock options (5,286) (31,411)

     Deferred rent 4,735 3,101

     Other 506 162

     Net change in current assets and

     liabilities:

     Trade accounts receivable 4,457 (8,232)

     Merchandise inventories (37,216) (22,921)

     Prepaid expense and other current

     assets (10,454) (3,352)

     Trade accounts payable 18,490 4,869

     Accrued payroll, bonus and other

     benefits due team members 6,862 13,471

     Other accrued expenses 24,607 32,871

    Net cash provided by operating

     activities $112,429 $88,244

    Weighted average shares outstanding,

     diluted basis 142,918 145,317

     Operating Cash Flow per Share $0.79 $0.61
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