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Whole Foods Market Reports First Quarter Results

/ Source: GlobeNewswire

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.

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. 

 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.

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. 

Updated Outlook for Fiscal Year 2011

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

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.

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

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

CONTACT: Cindy McCann VP of Investor Relations 512.542.0204