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 June 30, 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 June 30, 1996 was 14,273,911 shares.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, 1996 and September 24, 1995
(In thousands, except share data)
1996 1995
ASSETS
Current assets:
Cash $ 0 $5,154
Merchandise inventories 29,286 23,393
Accounts receivable and other 11,220 8,762
Total current assets 40,506 37,309
Net property and equipment 140,177 108,243
Excess of cost over net assets acquired, net 36,785 37,644
Other assets 13,359 13,054
$230,827 $196,250
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $969 $1,815
Trade accounts payable 14,611 11,218
Accrued expenses and other 22,139 22,808
Total current liabilities 37,719 35,841
Long-term debt, less current installments 64,569 46,906
Other long-term liabilities 10,965 7,264
Total liabilities 113,253 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; 14,273,911 and 13,825,047
shares issued and outstanding 82,063 79,093
Retained earnings 35,511 27,146
Total shareholders' equity 117,574 106,239
$230,827 $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 Forty weeks ended
June 30 July 2 June 30 July 2
1996 1995 1996 1995
Sales $146,376 $119,888 $462,973 $375,881
Cost of goods sold and occupancy costs 98,394 81,134 312,329 255,535
Direct expenses 36,122 29,390 114,155 92,268
Store contribution 11,860 9,364 36,489 28,078
Pre-opening costs 425 544 2,477 1,208
Amortization expense 346 324 1,143 996
General and administrative expenses 4,662 3,959 14,714 12,619
Relocation and restructuring expenses 0 2,332 2,376 2,332
Income from operations 6,427 2,205 15,779 10,923
Net interest expense 678 430 2,021 882
Income before income taxes 5,749 1,775 13,758 10,041
Income taxes 2,293 728 5,697 4,092
Net income $3,456 $1,047 $8,061 $5,949
Net income per common and common equivalent share:
Primary and fully diluted $0.23 $0.07 $0.55 $0.42
Weighted average shares outstanding:
Primary and fully diluted 15,189 14,240 14,773 14,192
<FN>
See accompanying notes to condensed consolidated financial statements.
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Forty weeks ended
June 30 July 2
1996 1995
Net cash flow from operating activities $17,731 $17,579
Cash flow from investing activities:
Acquisition of property and equipment (43,313) (39,444)
Payments for purchase of acquired entities,
net of cash acquired 0 (8,946)
Other 848 (4,971)
Net cash flow used by investing activities (42,465) (53,361)
Cash flow from financing activities:
Net proceeds from bank borrowings 18,000 35,600
Net proceeds from issuance of senior notes payable 40,000 0
Payments on long-term debt (41,264) (1,843)
Sale of common stock 2,961 236
Other (117) 0
Net cash flow from financing activities 19,580 33,993
Net decrease in cash and cash equivalents (5,154) (1,789)
Cash and cash equivalents at beginning of period 5,154 4,335
Cash and cash equivalents at end of period $ 0 $2,546
<FN>
See accompanying notes to condensed consolidated financial statements.
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(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 Combinations
During the third quarter, the Company signed an agreement to merge with
Fresh Fields Markets, Inc. (Fresh Fields), which operates natural foods
supermarkets in Washington, D.C., Chicago, Philadelphia and New York.
The merger transaction is valued at approximately $134.5 million and is
intended to be accounted for using the pooling of interests method.
Total consideration for the transaction will be between approximately 4.8
to 5.6 million shares of newly issued Company stock. The actual number
of shares issued in the transaction will be determined by the average
closing market price of Company stock during the twenty trading days
ending one day prior to the closing, subject to a limitation of between
$24 and $28 per share. The merger is subject to the approval of the
Company's shareholders at a special meeting to be held on August 30,
1996. Additional information regarding this proposed transaction is
included in the Company's Form S-4, File # 333-7719.
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.
RESULTS OF OPERATIONS - Twelve and forty weeks ended June 30, 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 22% for the third fiscal quarter and 23% for the forty
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 6.2% for the quarter and approximately 8.4% 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
forty weeks ended June 30, 1996 increased to 32.8% and 32.5%,
respectively, from 32.3% and 32.0% for the same periods of the prior year.
These increases are due to lower cost of goods sold at existing stores.
Direct expenses as a percentage of sales were 24.7% for the twelve and
forty weeks of the current fiscal year compared to 24.5% 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 was one new store opening during the third quarter and five
new store openings year-to-date. In the prior fiscal year, there was one
new store during the third quarter and three new store openings year-to-
date. 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 forty weeks ended June 30, 1996
relate to the openings of one store (Madison, WI) during the third quarter
and four stores (Sherman Oaks, CA, Washington, D.C., Chicago, IL and
Arlington, VA) during the second quarter. There were no new store
openings during the first fiscal quarter of 1996. Pre-opening costs for
the twelve and forty weeks ended April 9, 1995 relate to the openings of
Company stores in St. Paul, MN during the third quarter and Dallas and
Boston during the first quarter. There were no store openings during the
second fiscal quarter of 1995. Subsequent to the end of the third fiscal
quarter, the Company has opened a new store in San Francisco. No
additional new store openings are scheduled for the remainder of the
current fiscal year.
Relocation and Restructuring Expenses
During the second quarter of fiscal year 1996, the Company recognized
charges to earnings 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. Subsequent to the end of the third
fiscal quarter, the Company has completed the relocation of its store in
West Los Angeles and expects to complete the relocation of its store in
Cupertino prior to the end of the current fiscal year. During the third
quarter of fiscal year 1995,
the Company recognized a charge to earnings related to the relocations of
its three stores in Austin to two new, larger stores and its corporate
offices to the same facility as its new downtown store. Total costs
associated with these relocations were approximately $2,332,000,
consisting of losses on dispositions of fixed assets, pre-opening costs
of $704,000, inventory write-offs, remaining lease payments on old
facilities and other miscellaneous relocation expenses. These costs
impacted earnings per share by approximately $.10.
General and Administrative Expenses
General and administrative expenses, excluding amortization, decreased as
a percentage of sales for the twelve weeks and forty weeks to 3.2% in the
current year from 3.3% and 3.4%, respectively, 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 third quarter was approximately $678,000
compared to approximately $430,000 for the third quarter of the prior
year, net of capitalized interest of approximately $218,000 and $282,000,
respectively. Current year-to-date interest expense was approximately
$2,021,000 compared to approximately $882,000 for the same period of the
prior year, net of capitalized interest of approximately $997,000 and
$616,000, respectively. Interest expense consists of costs related to
bank debt and senior notes payable 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 third quarter of fiscal 1996, the Company issued $40,000,000
of senior unsecured notes. These notes bear interest at 7.29% and are
payable in seven equal annual installments beginning at the end of year
four. Proceeds from the notes were used to reduce the outstanding
balance on the Company's $75 million expansion line of credit.
Subsequent to the end of the third fiscal quarter, the Company has opened
a store in San Francisco and completed the relocation of its store in
West Los Angeles. The Company expects to relocate one additional
existing store 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, and Fresh Fields has
two stores currently under development. 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.
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: August 13, 1996 /S/ Glenda Flanagan
Glenda Flanagan
Vice President and
Chief Financial Officer
(Duly authorized officer and
principal financial officer)