updated 2/9/2011 4:16:59 PM ET 2011-02-09T21:16:59

AUSTIN, Texas, Feb. 9, 2011 (GLOBE NEWSWIRE) -- Whole Foods Market, Inc. (Nasdaq:WFMI) today reported results for the 16-week first quarter ended January 16, 2011. Sales for the quarter increased 14% to $3.0 billion. Comparable and identical store sales increased 9.1%, or 12.6% and 11.6% on a two-year stacked basis, respectively. Earnings before interest, taxes, depreciation and amortization ("EBITDA") increased 26% from the prior year to $234.3 million, income available to common shareholders increased 79% to $88.7 million, and diluted earnings per share increased 59% to $0.51. Results included a LIFO charge of $2.0 million versus $0.2 million in the prior year; relocation, store closure and lease termination costs of $3.1 million versus $12.4 million in the prior year; and net interest income of $0.3 million versus net interest expense of $8.8 million in the prior year.

"Our identical store sales growth continued to gain momentum for the fifth consecutive quarter on both a one- and two-year basis and at 9.1% is the highest we have produced in over four years," said Walter Robb, co-chief executive officer of Whole Foods Market. "Based on our consistently strong top- and bottom-line results, along with ongoing signs of increasing consumer confidence, we are raising our sales and earnings outlook for the year.  Our new range for identical store sales growth of 7% to 9% appropriately reflects that we have yet to cycle over our toughest comparisons, while also allowing for the possibility that our 9% year-to-date results could be sustainable especially given the likelihood of some positive impact from inflation."

The Company's comparable and identical store sales results for the last five quarters and first three weeks of the second quarter through February 6, 2011 are shown in the following table.

  1Q10 2Q10 3Q10 4Q10 1Q11 QTD

2Q11
             
Sales growth 7.0% 13.4% 15.2% 14.7% 13.8% 12.6%
 

Comparable store sales growth
3.5% 8.7% 8.8% 8.7% 9.1% 8.7%
Two-year comps -0.5% 3.9% 6.3% 7.7% 12.6% 16.0%
 

Identical store sales growth
2.5% 7.7% 8.4% 8.7% 9.1% 8.6%
Two-year idents -2.4% 1.9% 4.6% 6.4% 11.6% 15.0%
Sequential basis point change  34 432 272 178 518 341

For the quarter, the LIFO charge was $2.0 million versus $0.2 million in the prior year, a negative impact of six basis points. Excluding LIFO, gross profit increased 29 basis points to 34.6% of sales driven by an improvement in occupancy costs as a percentage of sales. Direct store expenses improved 32 basis points to 26.3% of sales due to leverage in depreciation, healthcare costs and wages as a percentage of sales.  As a result, store contribution, excluding LIFO, improved 60 basis points to 8.3% of sales.

For stores in the identical store base, gross profit improved 46 basis points to 34.8% of sales, direct store expenses improved 54 basis points to 26.1% of sales, and store contribution improved 100 basis points to 8.7% of sales.

G&A expenses increased seven basis points to 2.9% of sales due primarily to higher wages as a percentage of sales.

Pre-opening expenses were $8.6 million versus $12.8 million in the prior year, including pre-opening rent of $4.9 million versus $7.6 million in the prior year. Relocation, store closure and lease termination costs were $3.1 million versus $12.4 million in the prior year. This included store closure reserve adjustments of $1.0 million versus $10.1 million in the prior year.

Net interest income was $0.3 million versus net interest expense of $8.8 million in the prior year driven by a $326 million decrease in total debt and a $186 million increase in cash and investments year over year.

During the quarter, the Company produced $253.0 million in cash flow from operations and invested $91.0 million in capital expenditures, of which $45.6 million related to new stores. This resulted in free cash flow of $162.0 million. In addition, the Company repaid $100 million of its term loan maturing in August 2012. At the end of the quarter, total cash and cash equivalents, restricted cash, and investments were $762.0 million, and total debt was $408.3 million. Subsequent to the close of the first quarter, the Company repaid another $200 million of its term loan, leaving $190 million currently outstanding. The Company also reinstated its quarterly cash dividend at $0.10 per share, paying $17.3 million to shareholders on January 20, 2011.

Additional information on the quarter for comparable stores and all stores is provided in the following table. 

Comparable  Stores Comps   NOPAT

ROIC1
  # of

Stores
  Average

Size
  Total Square

Feet
                   
Over 14 years old (18.9 years old, s.f. weighted) 3.3%   92%    56   26,200   1,467,000
Between 11 and 14 years old 8.9%   74%    62   30,500   1,891,000
Between eight and 11 years old 7.8%   59%   49   33,200   1,625,700
Between five and eight years old 8.3%   46%   50   42,100   2,106,700
Between two and five years old 14.9%   10%   54   53,900   2,908,400
Between one and  two years old (no relocations) 14.6%   8%   14   47,000   657,600
                   
All comparable stores (8.6 years old, s.f. weighted) 9.1%   36%   285   37,400   10,656,400
All stores (8.1 years old, s.f. weighted)     31%   302   37,700   11,391,600

 1Reflects store-level capital and net operating profit after taxes ("NOPAT"), including pre-opening expense

The following table shows the Company's first quarter results for certain line items compared to its historical five-year ranges and averages, which reflect the Wild Oats acquisition in August 2007.

     FY06-FY10 Range   FY06-FY10    
     Low High   Average   1Q11
               
Sales growth   1.0% 23.6%   14.2%   13.8%
Comparable store sales growth   -3.1% 11.0%   5.4%   9.1%
Identical store sales growth   -4.3% 10.3%   4.4%   9.1%
Ending square footage growth   6% 46%   15.0%   6.0%
Percent of sales from new & relocated stores   7% 9%   7%   4%
               
Gross profit   34.0% 34.9%   34.6%   34.6%
Direct store expenses   25.4% 26.7%   26.3%   26.3%
Store contribution   7.5% 9.6%   8.3%   8.3%
G&A expenses   3.0% 3.4%   3.2%   2.9%

Growth and Development

The Company opened three stores and expanded one store by 29,000 square feet in the first quarter. The Company expects to open three new stores, including one relocation, in the second quarter. The Company currently has 302 stores totaling approximately 11.4 million square feet. 

Since the fourth quarter earnings release, the Company reduced the size of one store in development by 11,100 square feet and terminated the lease for one store in development totaling 45,000 square feet. The Company also recently signed six new leases in Ottawa, Canada; Danbury, CT; Jamaica Plain, MA; Lynnfield, MA; Marlboro, NJ; and San Antonio, TX. These stores currently are scheduled to open in fiscal year 2012 and beyond. 

The following table provides additional information about the Company's store openings in fiscal years 2010 and 2011 year to date, leases currently tendered but unopened, and total development pipeline (including leases currently tendered) for stores scheduled to open through fiscal year 2014. 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. 

New Store Information   Stores Opened

FY10
Stores Opened

FY11 YTD
Current Leases

Tendered
Current Leases

Signed
           
Number of stores (including relocations)   16 3 17 56
Number of relocations   0 0 6 8
Number of lease acquisitions,          
 ground leases and owned properties   0 0 4 4
New markets   4 0 1 8
Average store size (gross square feet)   42,600 43,800 40,100 37,800
Total square footage   682,200 131,300 681,100 2,129,000
Average tender period in months   10.9      
Average pre-opening expense per store (incl. rent)   $2.6 mil      
Average pre-opening rent per store   $1.2 mil      
Average development cost (excl. pre-opening)   $11.1 mil      
Average development cost per square foot   $261      

Updated Outlook for Fiscal Year 2011

The following table provides additional information on the Company's updated 2011 outlook.

  Prior

FY11 Outlook
Current

FY11 Outlook
Q1

Actual
Q2-Q4

Implied Outlook
         
Sales growth 10% - 12% 10.7% - 12.8%  13.8% 9.4% - 12.4%
Comparable store sales growth 5.5% - 7.5% 7.2% - 9.2%  9.1% 6.3% - 9.2%
Two-year comps 12.6% - 14.6% 14.3% - 16.3% 12.6% 15.0% - 17.9%
Identical store sales growth 5.0% - 7.0% 7.0% - 9.0% 9.1% 6.1% - 9.0%
Two-year idents 11.5% - 13.5% 13.5% - 15.5% 11.6% 14.4% - 17.3%
Weighted square footage growth 5% 5% 6% 5%
         
LIFO charge $0 $4.5 - $5.0 mil $2.0 mil $2.5 - $3.0 mil
G&A expenses 3.0% 3.0% 2.9% 3.0%
Pre-opening and relocation costs $52 - $55 mil $50 - $53 mil $11.8 mil $38 - $41 mil
Operating margin 5.0% 5.2% 4.9% 5.3%
EBITDA $780 - $795 mil $800 - $815 mil $234 mil $571 - $581 mil
Net interest expense / (income) $1 - $3 mil ($1) - ($2) mil ($0.3) mil ($0.7) - ($1.7) mil
         
Tax rate 41% 40% 40% 40%
Diluted shares outstanding 173 mil 175 - 176 mil 175 mil 175 - 177 mil
         
Diluted EPS $1.66 - $1.71 $1.76 - $1.80 $0.51 $1.25 - $1.29
YOY % change 16% - 20% 23% - 26% 59% 13% - 16%
Capital expenditures $350 - $400 mil $350 - $400 mil $91 mil $259 - $309 mil

For the first three weeks of the second quarter, identical store sales increased 8.6%, or 15.0% on a two-year basis.  The Company has reported five consecutive quarters of accelerating two-year identical store sales growth, a trend that has continued in the first three weeks of the second quarter.  The low end of the Company's identical store sales guidance for the fiscal year assumes a slight deceleration in identical store sales growth on a two-year basis from the 15.0% two-year idents the Company produced in the first three weeks of the second quarter, while the high end assumes an acceleration in two-year identical store sales growth, albeit at a more moderate rate than in the first quarter and second quarter to date.    

Based on its first quarter results and updated assumptions, the Company is raising its diluted EPS range to $1.76 to $1.80, an increase of 23% to 26% year over year.  The Company's updated outlook translates to diluted EPS of $1.25 to $1.29 for the remaining three quarters of the year, the low end of which is in line with the current analyst consensus estimate of $1.25.  For the remaining three quarters of the year, the Company does not expect to produce the same level of year-over-year earnings growth as in the first quarter due to a greater year-over-year increase in pre-opening and relocation expenses of approximately $14 to $17 million, a greater negative change in LIFO of approximately $10 to $11 million year over year, and lower total sales growth on tougher comparisons, which could make it difficult to leverage costs to the extent the Company did in the first quarter. In addition, while G&A expenses are still expected to average 3.0% of sales for the year, the Company expects higher costs in the second quarter due mainly to increases in wages and investments in other initiatives. 

The Company is committed to producing positive free cash flow on an annual basis, including sufficient cash flow to fund the 56 stores in its current development pipeline. The following table provides information about the Company's estimated store openings through 2014 based on this pipeline. These openings reflect estimated tender dates, which are subject to change, and do not incorporate any potential new leases, terminations or square footage reductions.

  Total

Openings
Relocations Average Square

Feet per Store
Ending Square

Footage1
Ending Square

Footage Growth1
           
FY11 remaining stores in development 14 5 40,000 11,847,500 5%
FY12 stores in development 20 1 35,100 12,527,700 6%
FY13 stores in development 18 2 37,100 13,131,200 5%
FY14 stores in development 4 0 46,300 13,316,300 1%
Total 56 8      

1 Reflects three openings and one expansion year to date and two additional expansions in fiscal year 2011

About Whole Foods Market

Founded in 1980 in Austin, Texas, Whole Foods Market ( www.wholefoodsmarket.com ) is the leading natural and organic foods supermarket, and America's first national certified organic grocer. In fiscal year 2010, the Company had sales of approximately $9.0 billion and currently has 302 stores in the United States, Canada, and the United Kingdom. Whole Foods Market employs approximately 59,000 Team Members and has been ranked for 14 consecutive years as one of the "100 Best Companies to Work For" in America by Fortune magazine.

The Whole Foods Market, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=6063

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 general business conditions, changes in overall economic conditions that impact consumer spending, including fuel prices and housing market trends, the impact of competition, changes in the Company's access to available capital, 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 26, 2010.  Whole Foods Market undertakes no obligation to update forward-looking statements. 

The Company will host a conference call today to discuss this earnings announcement at 4:00 p.m. CT.  The dial-in number is 1-800-894-5910, and the conference ID is "Whole Foods."  A simultaneous audio webcast will be available at www.wholefoodsmarket.com

Whole Foods Market, Inc.
Consolidated Statements of Operations (unaudited)
(In thousands, except per share amounts)
     
  Sixteen weeks ended
  January 16, 2011 January 17, 2010
Sales  $ 3,003,655  $ 2,639,158
Cost of goods sold and occupancy costs  1,965,416  1,732,942
Gross profit 1,038,239  906,216
Direct store expenses  790,383  702,806
Store contribution  247,856  203,410
General and administrative expenses  88,511  75,936
Operating income before pre-opening and store closure  159,345  127,474
Pre-opening expenses  8,640  12,809
Relocation, store closure and lease termination costs  3,146  12,412
Operating income  147,559  102,253
Interest expense  (2,333)  (10,553)
Investment and other income  2,652  1,783
Income before income taxes  147,878  93,483
Provision for income taxes  59,148  38,328
Net income  88,730  55,155
Preferred stock dividends  --  5,478
Income available to common shareholders  $ 88,730  $ 49,677
     
Basic earnings per share  $ 0.51  $ 0.32
Weighted average shares outstanding  172,795  154,413
     
Diluted earnings per share  $ 0.51  $ 0.32
Weighted average shares outstanding, diluted basis  174,482  154,858
     
Dividends declared per common share  $ 0.10  $ -- 
     
A reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations follows:  
     
  Sixteen weeks ended
  January 16, 2011 January 17, 2010
Income available to common shareholders    
(numerator for basic and diluted earnings per share)  $ 88,730  $ 49,677
Weighted average common shares outstanding    
(denominator for basic earnings per share)  172,795  154,413
Potential common shares outstanding:    
Incremental shares from assumed exercise of stock options  1,687  445
Weighted average common shares outstanding and     
potential additional common shares outstanding    
(denominator for diluted earnings per share)  174,482  154,858
     
Basic earnings per share  $ 0.51  $ 0.32
Diluted earnings per share  $ 0.51  $ 0.32
 
Whole Foods Market, Inc.
Consolidated Balance Sheets (unaudited)
January 16, 2011 and September 26, 2010
(In thousands)
     
Assets 2011 2010
Current assets:    
Cash and cash equivalents  $ 162,280  $ 131,996
Short-term investments - available-for-sale securities  421,577  329,738
Restricted cash  86,792  86,802
Accounts receivable  142,337  133,346
Merchandise inventories  341,939  323,487
Prepaid expenses and other current assets  44,353  54,686
Deferred income taxes  101,302  101,464
Total current assets  1,300,580  1,161,519
Property and equipment, net of accumulated depreciation and amortization  1,902,517  1,886,130
Long-term investments - available-for-sale securities  91,380  96,146
Goodwill  664,628  665,224
Intangible assets, net of accumulated amortization  68,562  69,064
Deferred income taxes  84,306  99,156
Other assets  9,051  9,301
Total assets  $ 4,121,024  $ 3,986,540
     
Liabilities And Shareholders' Equity
Current liabilities:    
Current installments of long-term debt and capital lease obligations  $ 426  $ 410
Accounts payable  211,718  213,212
Accrued payroll, bonus and other benefits due team members  257,209  244,427
Dividends payable  17,348  --
Other current liabilities  335,452  289,823
Total current liabilities  822,153  747,872
Long-term debt and capital lease obligations, less current installments  407,877  508,288
Deferred lease liabilities  305,665  294,291
Other long-term liabilities  70,744  62,831
Total liabilities  1,606,439  1,613,282
     
Shareholders' equity:    
Common stock, no par value, 300,000 shares authorized,    
173,565 and 172,033 shares issued and outstanding    
 in 2011 and 2010, respectively  1,841,603  1,773,897
Accumulated other comprehensive income  3,030  791
Retained earnings  669,952  598,570
Total shareholders' equity  2,514,585  2,373,258
Commitments and contingencies
Total liabilities and shareholders' equity  $ 4,121,024  $ 3,986,540
 
Whole Foods Market, Inc.
Consolidated Statements of Cash Flows (unaudited)
January 16, 2011 and January 17, 2010
(In thousands)
     
  Sixteen weeks ended
  January 16, 2011 January 17, 2010
Cash flows from operating activities    
Net income  $ 88,730  $ 55,155
Adjustments to reconcile net income to net cash provided    
by operating activities:    
Depreciation and amortization 86,691 83,701
Loss on disposition of fixed assets 548 529
Impairment of long-lived assets 559 1,730
Share-based payment expense 7,359 5,241
LIFO expense 2,000 195
Deferred income tax expense (benefit) 14,969 (1,584)
Excess tax benefit related to exercise of team member stock options (2,728) (81)
Deferred lease liabilities 9,470 10,717
Other (60) (3,100)
Net change in current assets and liabilities:    
Accounts receivable (5,956) (8,812)
Merchandise inventories (20,195) (12,547)
Prepaid expenses and other current assets 10,225 10,041
Accounts payable (1,902) (2,619)
Accrued payroll, bonus and other benefits due team members 12,637 20,351
Other current liabilities 42,401 (5,030)
Net change in other long-term liabilities 8,289 7,590
Net cash provided by operating activities 253,037 161,477
Cash flows from investing activities    
Development costs of new locations (45,613) (59,273)
Other property and equipment expenditures (45,436) (23,257)
Purchase of available-for-sale securities (497,560) (264,782)
Sale of available-for-sale securities 409,081 17,205
Decrease (increase) in restricted cash 10 (16,191)
Other investing activities (958) (475)
Net cash used in investing activities (180,476) (346,773)
Cash flows from financing activities    
Preferred stock dividends paid --  (8,500)
Issuance of common stock 53,764 3,962
Excess tax benefit related to exercise of team member stock options 2,728 81
Payments on long-term debt and capital lease obligations (100,000) -- 
Other financing activities 4 3
Net cash used in financing activities (43,504) (4,454)
Effect of exchange rate changes on cash and cash equivalents 1,227 1,032
Net change in cash and cash equivalents 30,284 (188,718)
Cash and cash equivalents at beginning of period 131,996 430,130
Cash and cash equivalents at end of period  $ 162,280  $ 241,412
 
Supplemental disclosure of cash flow information:    
Interest paid  $ 11,342  $ 19,375
Federal and state income taxes paid  $ 21,083  $ 41,483
Non-cash transaction:    
Conversion of redeemable preferred stock into common stock  $ --   $ 418,247
 
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 Earnings before interest, taxes, depreciation and amortization ("EBITDA"), Adjusted EBITDA and Free cash flow 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 as well as a component of incentive compensation. The Company defines Adjusted EBITDA as EBITDA plus non-cash asset impairment charges. The Company defines Free cash flow as net cash provided by operating activities less capital expenditures. 
     
The following is a tabular presentation of the non-GAAP financial measures, EBITDA and Adjusted EBITDA including a reconciliation to GAAP net income, which the Company believes to be the most directly comparable GAAP financial measure. 
     
  Sixteen weeks ended
EBITDA and Adjusted EBITDA January 16, 2011 January 17, 2010
Net income  $ 88,730  $ 55,155
Provision for income taxes  59,148  38,328
Interest expense, net  (319)  8,770
Operating income  147,559  102,253
Depreciation and amortization  86,691  83,701
Earnings before interest, taxes, depreciation & amortization (EBITDA)  234,250  185,954
Impairment of assets  559  1,730
Adjusted EBITDA  $ 234,809  $ 187,684
     
The following is a tabular reconciliation of the Free cash flow non-GAAP financial measure. 
     
  Sixteen weeks ended
Free cash flow January 16, 2011 January 17, 2010
Net cash provided by operating activities  $ 253,037  $ 161,477
Development costs of new locations  (45,613)  (59,273)
Other property and equipment expenditures  (45,436)  (23,257)
Free cash flow  $ 161,988  $ 78,947
CONTACT: Cindy McCann 
         VP of Investor Relations
         512.542.0204

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