FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the period
ended April 7, 1996; or
[ ] Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the transition
period from _________________ to _________________.
Commission File Number: 0-19797
WHOLE FOODS MARKET, INC.
(Exact name of registrant as specified in its charter)
Texas 74-1989366
(State of (IRS employer
incorporation) identification no.)
601 N. Lamar
Suite 300
Austin, Texas 78703
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code:
512-477-4455
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
Yes X No
The number of shares of the registrant's common stock, no par value,
outstanding as of April 7, 1996 was 14,138,921 shares.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
April 7, 1996 and September 24, 1995
(In thousands, except share data)
1996 1995
ASSETS
Current assets:
Cash $2,564 $5,154
Merchandise inventories 28,150 23,393
Accounts receivable and other 10,867 8,762
Total current assets 41,581 37,309
Net property and equipment 129,433 108,243
Excess of cost over net assets acquired, net 37,050 37,644
Other assets 12,777 13,054
$220,841 $196,250
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $1,305 $1,815
Trade accounts payable 14,337 11,218
Accrued expenses and other 22,365 22,808
Total current liabilities 38,007 35,841
Long-term debt, less current installments 62,617 46,906
Other long-term liabilities 7,703 7,264
Total liabilities 108,327 90,011
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized; none outstanding 0 0
Common stock, no par value, 30,000,000 shares
authorized; 14,138,921 and 13,825,047
shares issued and outstanding 80,458 79,093
Retained earnings 32,056 27,146
Total shareholders' equity 112,514 106,239
$220,841 $196,250
<FN>
See accompanying notes to condensed consolidated financial statements.
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)
(In thousands, except per share data)
Twelve weeks ended Twenty-eight weeks ended
April 7 April 9 April 7 April 9
1996 1995 1996 1995
Sales $144,102 $117,026 $316,597 $255,993
Cost of goods sold and occupancy costs 96,420 79,530 213,935 174,401
Direct expenses 35,606 28,600 78,033 62,878
Store contribution 12,076 8,896 24,629 18,714
Pre-opening costs 2,052 0 2,052 664
Amortization expense 343 324 797 672
General and administrative expenses 4,550 3,930 10,052 8,660
Relocation and restructuring expenses 2,376 0 2,376 0
Income from operations 2,755 4,642 9,352 8,718
Net interest expense 680 321 1,343 452
Income before income taxes 2,075 4,321 8,009 8,266
Income taxes 882 1,772 3,404 3,364
Net income $1,193 $2,549 $4,605 $4,902
Net income per common and common equivalent share:
Primary and fully diluted $0.08 $0.18 $0.32 $0.35
Weighted average shares outstanding:
Primary and fully diluted 14,651 14,153 14,560 14,167
<FN>
See accompanying notes to condensed consolidated financial statements.
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Twenty-eight weeks ended
April 7 April 9
1996 1995
Net cash flow from operating activities $9,494 $10,891
Cash flow from investing activities:
Acquisition of property and equipment (28,540) (22,708)
Payments for purchase of acquired entities,
net of cash acquired 0 (8,946)
Cash acquired in pooling of interests 172 0
Other (192) (5,291)
Net cash flow used by investing activities (28,560) (36,945)
Cash flow from financing activities:
Net proceeds from bank borrowings 16,000 25,100
Payments on long-term debt (880) (814)
Sale of common stock 1,356 167
Net cash flow from financing activities 16,476 24,453
Net decrease in cash and cash equivalents (2,590) (1,601)
Cash and cash equivalents at beginning of period 5,154 4,335
Cash and cash equivalents at end of period $2,564 $2,734
<FN>
See accompanying notes to condensed consolidated financial statements.
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 9, 1995
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed financial statements of Whole Foods
Market, Inc. and subsidiaries ("Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Rule 10-
01 of Regulation S-X. In the opinion of management, all adjustments,
consisting of normal recurring accruals, considered necessary for a fair
presentation have been included. Certain information and footnote
disclosure normally included in annual financial statements prepared in
conformity with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. For further information, refer to
the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10K for the fiscal year ended
September 24, 1995.
2. Business Combination
In December 1995, the Company completed the acquisition of National
Merchants Exchange, Inc. doing business as Oak Street Market, which
operated a natural foods market in Evanston, IL, in exchange for 195,205
shares of newly issued Company stock. The acquisition was accounted for
using the pooling-of-interests method. Due to the immateriality of Oak
Street financial statements to the Company's consolidated financial
statements, financial information for the periods prior to the
combination has not been restated. An adjustment to increase retained
earnings by approximately $304,000 has been recorded to include results
of Oak Street operations prior to the combination in these financial
statements. Sales and results of operations of Oak Street for the period
from September 25, 1995 through the date of acquisition are not material
to the combined results.
3. Relocation and Restructuring Expenses
During the second quarter of fiscal year 1996, the Company recognized
charges to pre-tax earnings totaling approximately $2.4 million related
to the relocation of its store in Durham and the restructuring of the
Southern California region. Total costs associated with the relocation
were approximately $400,000, consisting of losses on dispositions of
fixed assets, pre-opening costs, remaining lease payments on old
facilities and other relocation expenses. The Southern California
restructuring included a change in regional leadership and the
elimination of approximately half of the regional administrative
positions. Total costs associated with the restructuring were
approximately $2,000,000, consisting of severance and relocation
payments, costs associated with the name change of stores from Mrs.
Gooch's to Whole Foods Market, systems and process conversion costs and
other restructuring expenses. These relocation and restructuring charges
impacted earnings per share by approximately $.09.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS - Twelve and twenty-eight weeks ended April 7, 1996
compared to the same periods of the prior year.
The Company reports its results of operations on a fifty-two or fifty-
three week fiscal year ending on the last Sunday in September. The first
fiscal quarter is sixteen weeks, the second and third quarters each are
twelve weeks and the fourth quarter is twelve or thirteen weeks. Fiscal
year 1996 is a fifty-three week year and fiscal year 1995 is a fifty-two
week year.
Sales
Sales increased 23% for the second fiscal quarter and 24% for the twenty-
eight weeks compared to the same periods of the prior fiscal year due to
new stores opened since last year and same store sales increases of
approximately 8.8% for the quarter and approximately 9.2% year-to-date.
Increased same store sales reflect both higher customer traffic and
higher average transaction amounts.
Store Contribution (Gross Profit less Direct Expenses)
Gross profit consists of retail sales less retail cost of goods sold and
occupancy costs, plus the net contribution from non-retail operations.
The Company's gross profit as a percentage of sales for the twelve and
twenty-eight weeks ended April 7, 1996 increased to 33.1% and 32.4%,
respectively, from 32.0% and 31.9% for the same periods of the prior
year. These increases are due to lower cost of goods sold at existing
stores. Direct store expenses as a percentage of sales were 24.7% for
the twelve and twenty-eight weeks of the current fiscal year compared to
24.4% and 24.6%, respectively, in the prior fiscal year. The increases
in direct store expenses as a percentage of sales for the current fiscal
quarter and year-to-date are attributable to the timing and numbers of
new store openings during those periods as compared to the prior year.
In the current fiscal year, there were no store openings during the first
quarter and four store openings plus one relocation during the second
quarter. In the prior fiscal year, there were two store openings during
the first quarter and none during the second quarter. Direct store
expenses as a percentage of sales at new stores are higher on average
than at mature stores.
Pre-Opening Costs
Pre-opening costs for the twelve and twenty-eight weeks ended April 7,
1996 relate to the openings of Company stores in Sherman Oaks, CA,
Washington, D.C., Chicago, IL and Arlington, VA in the second fiscal
quarter. There were no store openings during the first fiscal quarter of
1996. Pre-opening costs for the twenty-eight weeks ended April 9, 1995
relate to the openings of Company stores in Dallas and Boston in the
first quarter. There were no store openings during the second fiscal
quarter of 1995. The Company expects to open three new stores and to
relocate two existing stores during the remainder of the current fiscal
year.
General and Administrative Expenses
General and administrative expenses, excluding amortization, decreased as
a percentage of sales for the twelve weeks and twenty-eight weeks to 3.2%
in the current year from 3.4% for the same periods of the prior year due
to increases in sales at rates higher than increases in such expenses.
Interest Expense and Other Income
Interest expense for the second quarter was approximately $680,000
compared to approximately $321,000 for the second quarter of the prior
year the prior year, net of capitalized interest of approximately
$304,000 and $170,000, respectively. Current year-to-date interest
expense was approximately $1,343,000 compared to approximately $452,000
for the same period of the prior year, net of capitalized interest of
approximately $779,000 and $334,000, respectively. Interest expense
consists of costs related to bank debt and to the remaining capital
leases assumed in connection with the 1992 acquisition of Bread & Circus,
net of capitalized interest associated with new store development.
LIQUIDITY AND CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION
During the second quarter of fiscal 1996, the Company entered into a
commitment for the placement of $40,000,000 of senior unsecured notes.
These notes will bear interest at 7.29% and will be payable in seven
equal annual installments beginning at the end of year four. Proceeds
from the notes will be used to reduce the outstanding balance on the
Company's $75 million expansion line of credit.
The Company expects to open two to three new stores and to relocate two
existing stores during the remainder of the current fiscal year. The
Company also has ten other stores currently under development that are
expected to open during the next twenty-four months. The Company expects
to finance this expansion and other capital expenditures with funds
generated from operations and available under its bank expansion line of
credit.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On March 11, 1996, the Company held its annual meeting of shareholders
(i) to elect eight directors of the Company and (ii) to consider and act
upon a proposed amendment to the Company's 1992 Stock Option Plan for
Team Members to increase the number of shares of common stock issuable
upon exercise of stock options under the Option Plan from 1,500,000 to
2,000,000 and to allow the Compensation Committee of the Board of
Directors to issue stock options to consultants of the Company. Each of
the eight directors nominated by the Company was elected and the
amendment to the Option Plan was approved, with voting results as
follows:
For Against Abstaining
Board of Directors elections:
Cristina G. Banks 10,823,874 10,391 418,290
John B. Elstrott 10,824,560 9,905 418,090
Avram J. Goldberg 10,822,517 11,948 418,090
Fred Lager 10,730,695 103,570 418,290
John P. Mackey 10,824,065 10,400 418,090
Linda A. Mason 10,825,120 9,345 418,090
Ralph Z. Sorenson 10,815,591 18,874 418,090
James P. Sud 10,820,685 13,580 418,290
Amendment to the Option Plan 10,046,063 925,751 253,741
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Whole Foods Market, Inc.
Registrant
Date: May 17, 1996 By: Glenda Flanagan
Glenda Flanagan
Vice President and
Chief Financial Officer
(Duly authorized officer and
principal financial officer)