Whole Foods Market, Inc. News
Whole Foods Market Reports Second Quarter Results
During the quarter, the Company produced approximately
"Our business model is very successful. We are continuing to produce higher sales, comps and sales per square foot than our public competitors, and the results in our core stores are strong," said
For the 28-week period ended
Year to date, the Company has produced approximately
Results Excluding the Impact of Wild Oats
The following information excludes the estimated quantifiable impact of acquired operations.
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 averages. For fiscal year 2008, the Company has guided to sales growth, excluding Wild Oats, of 15% to 20% and comparable store sales growth of 7.5% to 9.5%.
The table also 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, and the percentage of sales from identical as well as new and relocated stores year to date compared to its historical five-year ranges and averages. The Company believes this is relevant information as new and relocated stores tend to have lower gross profit and higher direct store expenses as a percentage of sales, resulting in a lower store contribution than identical stores. Where applicable, historical percentages have been adjusted to exclude Hurricane Katrina charges and credits, as well as share-based payments expense incurred in fiscal year 2005 related to the Company's
FY03-FY07 Range FY03-FY07 YTD Low High Average FY08 Sales growth 13.2% 22.8% 18.8% 17.3% Comparable store sales growth 7.1% 14.9% 10.9% 8.2% Identical store sales growth 5.8% 14.5% 10.0% 6.2% Ending square footage growth 10% 18% 13% 15% Gross profit 34.2% 35.1% 34.8% 34.7% Direct store expenses 25.2% 26.0% 25.6% 26.3% Store contribution 8.9% 9.6% 9.3% 8.5% G&A expenses 3.1% 3.2% 3.2% 3.5% Percent of sales from identical stores 89% 91% 90% 88% Percent of sales from new & relocated stores 7% 9% 8% 10%
For the second quarter, sales increased 15.6% to
Direct store expenses increased 49 basis points to 26.4% of sales due primarily to an increase in the percentage of sales from new and relocated stores to 10% from 7% in the prior year. For stores in the identical store base, direct store expenses improved 10 basis points to 25.8% of sales due primarily to leverage in wages and depreciation, which was partially offset by an increase in health care costs as a percentage of sales.
Store contribution decreased 13 basis points to 9.1% of sales from 9.2% of sales last year. For stores in the identical store base, store contribution improved 75 basis points to 10.1% of sales.
G&A expenses increased 56 basis points to 3.7% of sales largely due to the costs of integrating and supporting the Wild Oats stores, as well as front-loaded G&A expenditures to support our 2008 and 2009 growth.
Excluding the estimated quantifiable impact of the Wild Oats acquisition as discussed in the following section, adjusted net income was
Additional information on the quarter for comparable stores, identical stores and all stores is provided in the following table.
NOPAT # of Average Total Comparable Stores Comps ROIC Stores Size Square Feet Over 11 years old (14.9 years old, s.f. weighted) 4.5% 86% 67 28,400 1,904,500 Between eight and 11 years old 1.2% 60% 28 33,200 930,800 Between five and eight years old 5.8% 48% 41 34,400 1,408,800 Between two and five years old 8.7% 26% 40 45,400 1,817,000 Less than two years old (includes four relocations) 24.4% 1% 18 58,400 1,051,600 All comparable stores (7.5 years old, s.f. weighted) 6.7% 38% 194 36,700 7,112,700 All identical stores (7.7 years old, s.f. weighted) 5.1% 42% 189 35,900 6,792,200 All stores excluding Wild Oats (6.7 years old, s.f. weighted) 31% 210 37,900 7,960,300
Estimated Impact of Wild Oats on the Quarter and Fiscal Year
Sales at the 62 Wild Oats stores in operation during the second quarter were
Dilutive Impact of Wild Oats (In millions, except per share amount) Store contribution/(loss) from 58 continuing locations $3.8 (1) Store contribution/(loss) from four locations closed subsequent to the end of the quarter (0.9)(2) Write-off of Wild Oats private label products (2.5)(3) Accretion of store closure reserve, and other store closure costs (0.8)(4) G&A expenses - Wild Oats home office (4.3)(5) G&A expenses - amortization of acquired intangibles (1.4)(6) Interest expense related to term loan (8.4)(7) Total pre-tax impact $(14.5) Total after-tax impact (8.6) Impact per diluted share $(0.06) (1) This reflects a store contribution of 2.3% of sales, a decline of 119 basis points from the first quarter due to an increase in salaries and benefits as a percentage of sales which was partially offset by an improvement in gross margin. The Company expects store contribution to improve in the second half of the fiscal year. (2) In addition to the four stores that closed in early Q3, the Company expects to close up to four additional Wild Oats stores in the second half of fiscal year 2008, three of which will be in connection with the opening of nearby Whole Foods Market stores. Two additional closures are expected in each of fiscal years 2009 and 2010. (3) This was a one-time expense incurred in the second quarter. (4) This will be an ongoing expense through fiscal year 2008 and beyond. (5) At the end of the second quarter, 27 Wild Oats team members were still employed at the Boulder home office. Currently, there are five. The Company expects Boulder home office G&A expenses to be substantially eliminated by the end of the third quarter, with the exception of approximately $2 to $3 million of rent and other expenses transferring to become part of the Company's global and regional office G&A expenses in each of the third and fourth quarters. (6) This will be an ongoing expense through the end of fiscal year 2008. (7) Interest expense will be ongoing through fiscal year 2008 and beyond.
"We have re-branded 27 of the Wild Oats stores to date, and we are excited about the notable improvements we have seen in the year-over-year sales increases at these stores, from 6% on average before re-branding to 12% after," said Mr. Mackey. "As with all of our acquisitions, integration is generally a two-year process. We have made substantial progress with Wild Oats so far, and we are confident that our upfront investments will drive improved sales this year and higher comparable store sales growth in fiscal year 2009 and beyond."
Growth and Development
In the second quarter, the Company opened two new stores in
The Company recently signed three new store leases averaging 45,000 square feet in size in
The following table provides additional information about the Company's store openings last fiscal year and thus far in fiscal year 2008, leases currently tendered but not opened, and total development pipeline for stores scheduled to open through fiscal year 2012. For accounting purposes, a store is considered tendered on the date the Company takes possession of the space for construction and other purposes, which is typically when the shell of the store is complete or nearing completion. The average tender period, or length of time between tender date and opening date, will vary depending on several factors, one of which is the number of acquired leases, ground leases and owned properties in development, all of which generally have longer tender periods than standard operating leases.
Stores Stores Current Current Opened Opened Leases Leases New Store Information FY07 FY08 YTD Tendered Signed(1) Number of stores (including relocations) 21 9 24 89 Number of relocations 5 0 5 21 Number of lease acquisitions, ground leases and owned properties 4 4 8 10 New markets 3 0 4 15 Average store size (gross square feet) 56,500 53,700 46,700 51,100 As a percentage of existing store average size 167% 153% 133% 146% Total square footage 1,185,800 483,000 1,120,200 4,593,000 As a percentage of existing square footage 13% 5% 12% 49% Average tender period in months 8.8 10.1 Average pre-opening expense per store (incl. rent) $2.6 mil(2) $2.2 mil(3) Average pre-opening rent per store $0.9 mil(2) $0.8 mil(3) Average development cost (excl. pre-opening) $15.1 mil(2) Average development cost per square foot $278(2) (1) Includes leases tendered (2) Excludes Kensington in London, England (3) Excludes results for the one store opened thus far in the third quarter
Growth Goals for Fiscal Year 2008 and Beyond
The Company notes that fiscal year 2008 is a 52-week year comparing against 53 weeks last year, with the extra week last year falling in the fourth quarter, making it a thirteen-week quarter. In addition, results in the fourth quarter last year included five weeks of both the continuing Wild Oats stores and all subsequently closed and divested locations.
The Company is maintaining its previously announced sales guidance for fiscal year 2008. On a 52-week to 52-week basis, the Company expects total sales growth of 25% to 30% and comparable store sales growth of 7.5% to 9.5%. The Company expects the spread between comparable store sales growth and identical store sales growth to decline over the remainder of the year, as the number of relocations and major expansions drops to two by the end of fiscal year 2008 from seven at the end of fiscal year 2007. Excluding Wild Oats, the Company expects sales growth of 15% to 20%. Acquired stores will enter the comparable store sales base in the fifty-third full week following the date of the merger.
For the first four weeks of the third quarter ended
The Company opened eight stores through the second quarter and has opened one store thus far in the third quarter. Four additional stores are expected to open in the third quarter, including one Wild Oats store that closed for major renovations, and up to eight stores are expected to open in the fourth quarter.
The Company does not expect to produce operating leverage in fiscal year 2008 due primarily to a decrease in store contribution as a percentage of sales driven by a higher percentage of sales from new and acquired stores, which have a lower contribution than existing stores; investments in labor and benefits at the acquired Wild Oats stores; and continued, though more moderate, increases in health care costs as a percentage of sales. In addition, based on year-to-date results, the Company now expects G&A expenses as a percentage of sales for fiscal year 2008 to be slightly below the 3.6% average in the first half of the year. This year-over-year increase is due mainly to the costs of integrating and supporting the Wild Oats stores, including an increase in headcount in the global and regional offices related primarily to the cost of fully staffing the Company's three smallest regions which gained the greatest number of stores in the merger as a percentage of their existing store base; and an increase in legal and professional fees as a percentage of sales. The Company expects G&A expenses as a percentage of sales in fiscal year 2009 to return to historical levels.
Including the impact of Wild Oats, the Company expects a moderation in the year-over-year declines in income before pre-opening and interest as a percentage of sales during the second half of the fiscal year compared to the first half.
The Company now expects total pre-opening and relocation costs for fiscal year 2008 to be in the range of
The Company expects interest expense, net of investment and other income, in the range of
The Company expects share-based payments expense of approximately
The Company's support agreement providing certain products, services and licenses to the divested Henry's and
Capital expenditures for the fiscal year are expected to be in the range of
The Company currently operates 269 stores totaling 9.4 million square feet and has 89 stores in development totaling 4.6 million square feet. The Company expects to open 25 to 30 new stores in fiscal year 2009. Longer term, the Company's goal is to reach
About Whole Foods Market
Founded in 1980 in
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 successful integration of acquired businesses into our operations, 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
The Company will host a conference call today to discuss this earnings announcement at
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) Twelve weeks ended Twenty-eight weeks ended April 13, April 8, April 13, April 8, 2008 2007 2008 2007 Sales $1,866,493 $1,463,210 $4,323,751 $3,333,941 Cost of goods sold and occupancy costs 1,215,089 948,738 2,845,795 2,178,710 Gross profit 651,404 514,472 1,477,956 1,155,231 Direct store expenses 496,903 379,295 1,141,278 862,092 Store Contribution 154,501 135,177 336,678 293,139 General and administrative expenses 67,658 45,456 155,070 101,588 Operating income before pre-opening and relocation 86,843 89,721 181,608 191,551 Pre-opening expenses 10,052 13,744 25,247 26,999 Relocation costs 1,805 1,890 6,761 4,919 Operating income 74,986 74,087 149,600 159,633 Interest expense (8,438) - (20,019) (7) Investment and other income 1,181 2,562 3,935 6,614 Income before income taxes 67,729 76,649 133,516 166,240 Provision for income taxes 27,769 30,660 54,413 66,496 Net income $39,960 $45,989 $79,103 $99,744 Basic earnings per share $0.29 $0.33 $0.57 $0.71 Weighted average shares outstanding 139,818 140,953 139,566 140,561 Diluted earnings per share $0.29 $0.32 $0.56 $0.70 Weighted average shares outstanding, diluted basis 140,233 142,746 140,448 142,844 Dividends per share $0.20 $0.18 $0.40 $0.51 A reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations follows (in thousands, except per share amounts): Twelve weeks ended Twenty-eight weeks ended April 13, April 8, April 13, April 8, 2008 2007 2008 2007 Net income (numerator for basic earnings per share) $39,960 $45,989 $79,103 $99,744 Interest on 5% zero coupon convertible subordinated debentures, net of income taxes 18 19 42 59 Adjusted net income (numerator for diluted earnings per share) $39,978 $46,008 $79,145 $99,803 Weighted average common shares outstanding (denominator for basic earnings per share) 139,818 140,953 139,566 140,561 Potential common shares outstanding: Assumed conversion of 5% zero coupon convertible subordinated debentures 92 97 92 133 Assumed exercise of stock options 323 1,696 790 2,150 Weighted average common shares outstanding and potential additional common shares outstanding (denominator for diluted earnings per share) 140,233 142,746 140,448 142,844 Basic earnings per share $0.29 $0.33 $0.57 $0.71 Diluted earnings per share $0.29 $0.32 $0.56 $0.70 Whole Foods Market, Inc. Consolidated Balance Sheets (unaudited) April 13, 2008 and September 30, 2007 (In thousands) Assets 2008 2007 Current assets: Cash and cash equivalents $58,393 $- Restricted cash 2,356 2,310 Accounts receivable 118,143 105,209 Proceeds receivable for divestiture - 165,054 Merchandise inventories 304,149 288,112 Prepaid expenses and other current assets 38,820 40,402 Deferred income taxes 74,256 66,899 Total current assets 596,117 667,986 Property and equipment, net of accumulated depreciation and amortization 1,763,639 1,666,559 Goodwill 680,123 668,850 Intangible assets, net of accumulated amortization 85,346 97,683 Deferred income taxes 111,930 104,877 Other assets 7,026 7,173 Total assets $3,244,181 $3,213,128 Liabilities And Shareholders' Equity 2008 2007 Current liabilities: Current installments of long-term debt and capital lease obligations $360 $24,781 Accounts payable 170,557 225,728 Accrued payroll, bonus and other benefits due team members 199,181 181,290 Dividends payable 28,041 25,060 Other current liabilities 287,406 315,491 Total current liabilities 685,545 772,350 Long-term debt and capital lease obligations, less current installments 827,329 736,087 Deferred lease liabilities 178,191 152,552 Other long-term liabilities 65,633 93,335 Total liabilities 1,756,698 1,754,324 Shareholders' equity: Common stock, no par value, 300,000 shares authorized; 140,209 and 143,787 shares issued; 140,208 and 139,240 shares outstanding in 2008 and 2007, respectively 1,058,448 1,232,845 Common stock in treasury, at cost - (199,961) Accumulated other comprehensive income (3,023) 15,722 Retained earnings 432,058 410,198 Total shareholders' equity 1,487,483 1,458,804 Commitments and contingencies Total liabilities and shareholders' equity $3,244,181 $3,213,128 Whole Foods Market, Inc. Consolidated Statements of Cash Flows (unaudited) April 13, 2008 and April 8, 2007 (In thousands) Twenty-eight weeks ended April 13, April 8, 2008 2007 Cash flows from operating activities: Net Income $79,103 $99,744 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 131,597 95,134 Loss on disposition of assets 1,762 2,710 Share-based payments expense 5,352 6,519 Deferred income tax benefit (12,028) (9,384) Excess tax benefit related to exercise of team member stock options (4,999) (10,773) Deferred lease liabilities 24,049 2,744 Other (8,145) 504 Net change in current assets and liabilities: Accounts receivable (13,269) (8,218) Merchandise inventories (21,369) (35,809) Prepaid expense and other current assets (2,394) (1,856) Accounts payable (58,013) 18,792 Accrued payroll, bonus and other benefits due team members 18,701 5,847 Other current liabilities 9,421 12,875 Net change in other long-term liabilities 6,740 150 Net cash provided by operating activities 156,508 178,979 Cash flows from investing activities: Development costs of new store locations (163,366) (177,821) Other property and equipment expenditures (103,954) (76,989) Proceeds from hurricane insurance 1,500 - Acquisition of intangible assets (952) (17,722) Purchase of available-for-sale securities (194,316) (163,027) Sale of available-for-sale securities 194,316 287,884 Increase in restricted cash (46) (15,248) Payment for purchase of acquired entities, net of cash (5,480) - Proceeds from divestiture, net 163,913 - Net cash used in investing activities (108,385) (162,923) Cash flows from financing activities: Dividends paid (52,974) (46,262) Issuance of common stock 16,197 43,254 Excess tax benefit related to exercise of team member stock options 4,999 10,773 Proceeds from long-term borrowings 111,000 - Payments on long-term debt and capital lease obligations (68,952) (52) Net cash provided by financing activities 10,270 7,713 Net change in cash and cash equivalents 58,393 23,769 Cash and cash equivalents at beginning of period - 2,252 Cash and cash equivalents at end of period $58,393 $26,021 Supplemental disclosure of cash flow information: Interest paid $22,556 $190 Federal and state income taxes paid $61,459 $76,385 Non-cash transactions: Conversion of convertible debentures into common stock $154 $5,686 Whole Foods Market, Inc. Non-GAAP Financial Measures (unaudited) (In thousands, except per share amounts)
In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, the Company provides information regarding Economic Value Added ("EVA"), Earnings before interest, taxes and non-cash expenses ("EBITANCE"), and consolidated results excluding the impact of the Wild Oats acquisition on adjusted diluted earnings 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. Management believes EBITANCE is a useful non-GAAP measure of financial performance, helping investors more meaningfully evaluate the Company's cash flow results by adjusting for certain non-cash expenses. These expenses include depreciation, amortization, non-cash share-based payments expense, deferred rent, and LIFO. Similar to non-GAAP EBITDA, or earnings before interest, taxes, depreciation and amortization, this measure goes further by including other non-cash expenses, primarily those which have arisen since the use of EBITDA became common practice and because of accounting changes due to recent accounting pronouncements. Management uses EBITANCE as a supplement to cash flows from operations to assess the cash generated from our business available for capital expenditures and the servicing of other requirements including working capital. 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.
Twelve Twenty-eight weeks ended weeks ended April 13, April 8, April 13, April 8, EVA 2008 2007 2008 2007 Net income $39,960 $45,989 $79,103 $99,744 Provision for income taxes 27,769 30,660 54,413 66,496 Interest expense and other 12,813 6,052 29,838 13,782 NOPBT 80,542 82,701 163,354 180,022 Income taxes (40%) 32,217 33,080 65,342 72,009 NOPAT 48,325 49,621 98,012 108,013 Capital charge 52,888 37,125 121,701 85,366 EVA $(4,563) $12,496 $(23,689) $22,647
The following is a tabular presentation of the non-GAAP financial measure, EBITANCE including a reconciliation to GAAP net income, which the Company believes to be the most directly comparable GAAP financial measure.
Twelve Twenty-eight weeks ended weeks ended April 13, April 8, April 13, April 8, EBITANCE 2008 2007 2008 2007 Net income $39,960 $45,989 $79,103 $99,744 Provision for income taxes 27,769 30,660 54,413 66,496 Interest expense, net 7,257 (2,562) 16,084 (6,607) Income from operations 74,986 74,087 149,600 159,633 Non-cash expenses: Share-based payments expense 2,322 1,746 5,352 6,519 Depreciation and amortization 57,115 42,403 131,597 95,134 LIFO expense 2,700 1,200 5,332 2,200 Deferred rent 6,295 (1,395) 19,055 2,472 Total non-cash expenses 68,432 43,954 161,336 106,325 Earnings before interest, taxes, and non-cash expenses 143,418 118,041 310,936 265,958 Weighted average shares outstanding, diluted basis 140,233 142,746 140,448 142,844 EBITANCE per share $1.02 $0.83 $2.21 $1.86 Whole Foods Market, Inc. Non-GAAP Financial Measures (unaudited) (In thousands, except per share amounts)
The following is a tabular presentation of the impact of Wild Oats operations, included in GAAP net income, and a reconciliation of the numerator of the adjusted diluted earnings per share non-GAAP financial measure to GAAP net income, which the Company believes to be the most directly comparable GAAP financial measure.
Twelve Twenty-eight weeks ended weeks ended April 13, April 13, Dilutive Impact of Wild Oats 2008 2008 Adjustments to exclude impact of Wild Oats Store contribution/(loss) from continuing locations $3,827 $11,694 Store contribution/(loss) from closed locations (896) (3,718) Accretion of store closing reserve (806) (3,220) General and administrative expenses, Wild Oats home office (4,306) (14,244) Interest expense related to the term loan agreement, net (8,407) (19,220) Amortization expense related to acquired intangibles (1,411) (3,293) Write-off of Wild Oats private label product (2,505) (2,505) Total adjustments (14,504) (34,506) Income taxes (5,947) (14,061) Total adjustments, net of tax (8,557) (20,445) Weighted average shares outstanding, diluted basis 140,233 140,448 Impact per share $(0.06) $(0.15) Net income $39,960 $79,103 Less: Adjustments to exclude impact of Wild Oats, net of tax (8,557) (20,445) Adjusted net income 48,517 99,548 Weighted average shares outstanding, diluted basis 140,233 140,448 Earnings per share, adjusted $0.35 $0.71
SOURCE Whole Foods Market, Inc.
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