Exhibit 99.1
WHOLE FOODS MARKET REPORTS SECOND QUARTER RESULTS
Sales Increase 20%; Net Income Increases 22% and Diluted EPS Increase 17%;
Company Updates Future Stock Option Strategy and Announces a Return to Previous
Accounting Practice of Capitalizing Rent During Construction Period; Company
Will Restate Financials
AUSTIN, Texas, May 4 /PRNewswire-FirstCall/ -- Whole Foods Market, Inc.
(Nasdaq: WFMI) today reported sales and earnings for the 12-week quarter ended
April 10, 2005. For the second quarter, sales increased 20% to $1.1 billion.
This increase was driven by 13% weighted average year-over-year square footage
growth and comparable store sales growth of 11.6%. Sales in identical stores
(excluding three relocated stores and two major store expansions) increased
10.2% for the quarter. Net income increased 22% to $42.0 million, and diluted
earnings per share increased 17% to $0.61.
For the 28-week period ended April 10, 2005, sales increased 21% to
$2.5 billion, with sales in comparable stores increasing 11.5% and sales in
identical stores increasing 10.5%. Net income has increased 25% to $89.9
million, and diluted earnings per share increased 20% to $1.33.
The Company also announced in a separate release that based on new
determinations by the SEC, the Company will return to and continue its previous
practice of capitalizing rent during the construction period. The Company is
thereby reducing the lease accounting charge for the first quarter of the
current fiscal year from $0.04 to $0.02 per diluted share and the charge for
fiscal year 2004 from $0.11 to $0.06 per diluted share. The remaining charge
primarily reflects the additional pre-opening costs and depreciation of the
asset resulting from rent allocated to the construction period. The Company's
reported results for the second quarter and prior year reflect the return to
this previous accounting practice.
# of
Average Average Comp
Store Returns for the Quarter Size Comps Stores
- -------------------------------------------------- ---------- ---------- ----------
Stores over eight years old 28,000 9.7% 69
Stores between five and eight years old 32,000 8.1% 30
Stores between two and five years old 32,000 12.8% 42
Stores less than two years old
(including relocations) 40,000 24.8% 15
Stores in comparable store base 31,000 11.6% 156
All stores open at the end of the
second quarter 32,000 --- 168
"This quarter we produced an 11.6% comparable store sales increase, which
was on top of our record-breaking 17.1% comparable store sales increase in the
second quarter last year," said John Mackey, Chairman, Chief Executive Officer,
and Co-Founder of Whole Foods Market. "We are very pleased with our performance
year to date, particularly in light of our difficult year-over-year comparisons.
Due to our strong sales growth, we are raising our comparable store sales
guidance for the year to a range of 9% to 11% from 8% to 10%. We continue to
expect diluted earnings per share growth to be lower than sales growth primarily
due to the anticipated acceleration in new store openings."
In the quarter, gross profit increased 29 basis points to 35.7% of sales,
and direct store expenses decreased three basis points to 25.5% of sales,
resulting in store contribution of 10.2% of sales. For the 156 stores in the
comparable store base, gross profit improved 56 basis points to 36.0% of sales,
and direct store expenses improved 28 basis points to 25.3% of sales, resulting
in an 84 basis point increase in store contribution to 10.7% of sales. General
and administrative (G&A) expenses were relatively flat, increasing one basis
point to 3.2% of sales.
The table below shows the Company's quarterly results compared to its
historical four-year average results. While there may be more variability during
a particular quarter, the Company points out the consistency of these line items
as a percentage of sales over time.
Historical 4-Year
Performance FY01 FY02 FY03 FY04 Average 1Q05 2Q05
- ---------------------- ------ ------ ------ ------ ------- ------ ------
Gross profit 34.7% 34.6% 34.2% 34.7% 34.6% 34.6% 35.7%
Direct store
expenses 25.4% 25.2% 25.3% 25.6% 25.4% 25.5% 25.5%
Store contribution 9.3% 9.4% 9.0% 9.1% 9.2% 9.1% 10.2%
G&A 3.6% 3.6% 3.2% 3.1% 3.3% 3.0% 3.2%
Capital expenditures in the quarter were $74 million of which $51 million
was for new store development. During the quarter, the Company produced cash
flow from operations of $128 million and paid approximately $12 million to
shareholders in quarterly dividends of $0.19 per share. Cash and cash
equivalents, including restricted cash, were approximately $331 million at the
end of the quarter, and total long-term debt was approximately $91 million.
On April 5, 2005, the Company announced a 32% increase in its quarterly
dividend to $0.25 per share from $0.19 per share. On November 10, 2004, the
Company announced a 27% increase in the quarterly dividend to $0.19 per share
from $0.15 per share. The first $0.25 per share dividend was paid on April 25,
2005.
In the second quarter, the Company opened two new stores in Swampscott, MA
and New York City, NY and relocated two stores in Austin, TX and Thousand Oaks,
CA, ending the quarter with 168 stores totaling approximately 5.4 million square
feet. The Company today opened its third store in Canada and expects to open two
additional stores during the third quarter, including one relocation.
The Company is pleased to announce the recent signing of seven new store
leases in San Francisco, CA; Naples, FL; Portland, ME; West Orange, NJ;
Nashville, TN; Milwaukee, WI; and Vancouver, Canada. The following table
provides additional information about the Company's store development pipeline.
Stores in Development 5/4/05 5/4/04 % Change
- ----------------------------------- ------------ ------------ ----------
Number of stores in development 59 46 28%
Average size (gross square feet) 51,300 46,400 11%
As a percentage of existing
store average size 160% 152% ---
Total square footage under
development 3,059,000 2,174,000 41%
As a percentage of existing
square footage 57% 46% ---
Future Growth Goals and Updated Guidance
The Company has a stated long-term growth goal of $10 billion in sales by
the year 2010. For fiscal year 2005, the Company expects sales growth at the
higher end of its previously stated 15% to 20% range. The Company expects
comparable store sales growth to be in the range of 9% to 11% versus its
previously stated range of 8% to 10%, with weighted average square footage
growth of approximately 15% based on the opening of 15 to 18 new stores,
including three relocations. The Company continues to expect diluted earnings
per share growth for the year to be lower than sales growth primarily due to the
anticipated acceleration in new store openings, which is expected to result in
pre-opening expenses in the range of $9 million to $11 million for the remainder
of the year. In addition, the Company continues to expect new stores may have
some negative impact on store contribution, as new stores generally have lower
gross margins and higher direct store expenses than more mature stores. Due to
the remaining charges for changes in lease accounting regarding the recognition
of rent expense and depreciation for certain leases, the Company expects store
contribution to be approximately $2 million to $4 million lower for the
remainder of the year than it would have been under the original method of
accounting. The Company expects G&A expenses for the remainder of the fiscal
year to be higher as a percentage of sales as compared to the prior year,
primarily due to the relocation of the Company's headquarters in January which
is expected to add approximately $4 million in G&A expenses annually. Capital
expenditures are expected to be in the range of $300 million to $320 million.
Stock Option Strategy Update
In December the Financial Accounting Standards Board (FASB) finalized
Statement 123R, Share-based Payment, which requires all companies to expense
share-based payments, including stock options, at fair value.
Though not retroactive, the charge to earnings resulting from this new rule
includes the impact of stock options granted in prior years, since the expense
is recognized over the vesting period of the options, which for the Company has
been four years. Even if the Company never granted another option after today,
it would still have stock option expense until all past option grants were fully
vested. In order to prevent this "overhang" from past option grants impacting
future income statements, the Company previously announced its intention, absent
FASB 123R being overruled by Congress, to accelerate the vesting of all
outstanding stock options sometime prior to July 4, 2005, the date the new rules
were to be effective for the Company.
In view of the recent action by the SEC to delay the effective date of
option expensing, the Company now expects to begin expensing options in the
first quarter of fiscal year 2006. Consequently, it plans to delay the
acceleration of vesting of all outstanding options until September unless there
are further delays and/or the rule is overturned.
This accelerated vesting of options will create a one-time, mostly non-cash
charge in the fourth fiscal quarter of this year of approximately $10 million,
consisting of the estimated increase in value to the option holders caused by
the acceleration plus accrual of certain payroll taxes that will be due upon
exercise of the options. The actual amount of the expense will vary based on the
closing stock price at the date of the acceleration.
The Company's current intention is to keep its broad-based stock option
program in place, but going forward it will limit the number of shares granted
in any one year so that net income dilution from equity-based compensation
expense (EBCE) will not exceed 10% in future years. The EBCE will ramp up
beginning in the first quarter of fiscal year 2006 until it reaches 10% of net
income in fiscal year 2010.
The Company believes this strategy is best aligned with its stakeholder
philosophy because it limits future earnings dilution from options while at the
same time retains the broad-based stock option plan which it believes is
important to team member morale and to its unique corporate culture and its
success.
Supplemental Information: The following pie chart depicts net income and
certain expense categories, including salaries and benefits, as a percentage of
sales for the twelve weeks ended April 10, 2005.
http://www.wholefoodsmarket.com/investor/Q205chart.html
The Company will host a conference call today to discuss this earnings
announcement at 4:00 p.m. CT. The dial in number is 1-877-707-9628 and the
conference ID is "Whole Foods." A replay will be available for approximately 48
hours at 1-402-220-1178, and a simultaneous audio webcast will be available at
http://www.wholefoodsmarket.com .
About Whole Foods Market: Founded in 1980 in Austin, Texas, Whole Foods
Market(R) is a Fortune 500 company and the largest natural and organic foods
retailer. The Company had sales of $3.9 billion in fiscal year 2004 and
currently has 169 stores in the United States, Canada and the United Kingdom.
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 timely development and opening of new stores, the
integration of acquired stores, the impact of competition, and other risks
detailed from time to time in the Company's SEC reports, including the report on
Form 10K for the fiscal year ended September 26, 2004. The Company does not
undertake any obligation to update forward-looking statements.
Contact: Cindy McCann
VP of Investor Relations
512.477.4455
Whole Foods Market, Inc.
Consolidated Statements of Operations (unaudited)
(In thousands, except per share amounts)
Twelve weeks ended Twenty-eight weeks ended
----------------------------- -----------------------------
April 10, April 11, April 10, April 11,
2005 2004 2005 2004
------------- ------------- ------------- -------------
Sales $ 1,085,158 $ 902,141 $ 2,453,486 $ 2,020,289
Cost of goods sold and
occupancy costs 697,686 582,597 1,593,172 1,316,318
Gross profit 387,472 319,544 860,314 703,971
Direct store expenses 276,834 230,441 625,878 513,606
Store contribution 110,638 89,103 234,436 190,365
General and administrative
expenses 34,773 28,783 75,174 64,652
Pre-opening and relocation
costs 7,581 2,605 10,714 4,522
Operating income 68,284 57,715 148,548 121,191
Other income (expense):
Interest expense (342) (1,859) (2,050) (4,337)
Investment and other
income 2,113 1,503 3,307 2,967
Income before income taxes 70,055 57,359 149,805 119,821
Provision for income taxes 28,023 22,944 59,922 47,929
Net income $ 42,032 $ 34,415 $ 89,883 $ 71,892
Basic earnings
per share $ 0.65 $ 0.56 $ 1.41 $ 1.19
Weighted average shares
outstanding 64,751 61,035 63,633 60,620
Diluted earnings per
share $ 0.61 $ 0.53 $ 1.33 $ 1.11
Weighted average shares
outstanding,
diluted basis 69,544 67,579 69,241 67,039
Dividends per share $ 0.25 $ 0.15 $ 0.44 $ 0.30
A reconciliation of the numerators and denominators of the basic and
diluted earnings per share calculations follows (in thousands):
Twelve weeks ended Twenty-eight weeks ended
----------------------------- -----------------------------
April 10, April 11, April 10, April 11,
2005 2004 2005 2004
------------- ------------- ------------- -------------
Net income (numerator
for basic earnings
per share) $ 42,032 $ 34,415 $ 89,883 $ 71,892
Interest on 5% zero
coupon convertible
subordinated debentures,
net of income taxes 565 1,084 1,958 2,506
Adjusted net income
(numerator for diluted
earnings per share) $ 42,597 $ 35,499 $ 91,841 $ 74,398
Weighted average common
shares outstanding
(denominator for basic
earnings per share) 64,751 61,035 63,633 60,620
Potential common shares
outstanding:
Assumed conversion
of 5% zero coupon
convertible subordinated
debentures 1,663 3,281 2,471 3,282
Assumed exercise
of stock options 3,130 3,263 3,137 3,137
Weighted average common shares
outstanding and potential
additional common shares
outstanding (denominator
for diluted earnings per share) 69,544 67,579 69,241 67,039
Basic earnings
per share $ 0.65 $ 0.56 $ 1.41 $ 1.19
Diluted earnings
per share $ 0.61 $ 0.53 $ 1.33 $ 1.11
Whole Foods Market, Inc.
Consolidated Balance Sheets
April 10, 2005 (unaudited) and September 26, 2004
(In thousands)
Assets
2005 2004
------------ ------------
Current assets:
Cash and cash equivalents $ 297,913 $ 198,377
Restricted cash 33,398 23,160
Trade accounts receivable 60,947 64,972
Merchandise inventories 157,706 152,912
Prepaid expenses and other current assets 36,482 16,702
Deferred income taxes 29,449 29,449
Total current assets 615,895 485,572
Property and equipment, net of accumulated
depreciation and amortization 999,525 904,825
Goodwill 112,500 112,186
Intangible assets, net of accumulated amortization 22,821 24,831
Other assets 5,939 20,302
Total assets $ 1,756,680 $ 1,547,716
Liabilities And Shareholders' Equity
2005 2004
------------ ------------
Current liabilities:
Current installments of long-term
debt and capital lease obligations $ 5,977 $ 5,973
Trade accounts payable 101,712 90,751
Accrued payroll, bonus and other
benefits due team members 116,727 100,536
Dividends payable 16,410 9,361
Other accrued expenses 158,052 128,329
Total current liabilities 398,878 334,950
Long-term debt and capital lease
obligations, less current installments 84,554 164,770
Deferred rent liability 82,201 70,067
Other long-term liabilities 1,404 1,581
Deferred income taxes 7,736 7,693
Total liabilities 574,773 579,061
Shareholders' equity:
Common stock, no par value, 150,000 shares
authorized; 65,573 and 62,771 shares issued;
65,333 and 62,407 shares outstanding in 2005
and 2004 respectively 685,568 535,107
Accumulated other comprehensive income 3,514 2,053
Retained earnings 492,825 431,495
Total shareholders' equity 1,181,907 968,655
Commitments and contingencies
Total liabilities and shareholders' equity $ 1,756,680 $ 1,547,716
Whole Foods Market, Inc.
Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Twenty-eight weeks ended
---------------------------
April 10, April 11,
2005 2004
------------ ------------
Cash flows from operating activities
Net income $ 89,883 $ 71,892
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 71,634 59,973
Loss on disposition of assets 1,307 1,482
Deferred income tax expense (benefit) 43 (1,402)
Tax benefit related to exercise
of employee stock options 27,685 18,563
Interest accretion on long-term debt 3,191 4,069
Deferred rent 8,788 5,289
Other 2,550 2,357
Net change in current assets and liabilities:
Trade accounts receivable 3,708 (14,270)
Merchandise inventories (6,544) (19,785)
Prepaid expense and other current assets (5,278) (4,119)
Trade accounts payable 10,961 13,521
Accrued payroll, bonus and other
benefits due team members 16,191 19,682
Other accrued expenses 29,267 44,127
Net cash provided by operating activities 253,386 201,379
Cash flows from investing activities
Development costs of new store locations (110,316) (84,750)
Other property, plant and equipment expenditures (52,391) (58,612)
Acquisition of intangible assets --- (49)
Increase in restricted cash (10,238) (17,904)
Increase in notes receivable (13,500)
Payment for purchase of acquired entities,
net of cash acquired --- (20,392)
Other investing activities --- 1,815
Net cash used in investing activities (172,945) (193,392)
Cash flows from financing activities
Dividends paid (21,504) (9,079)
Issuance of common stock 40,704 31,801
Payments on long-term debt
and capital lease obligations (105) (97)
Net cash provided by financing activities 19,095 22,625
Net increase in cash and cash equivalents 99,536 30,612
Cash and cash equivalents at beginning of period 198,377 165,779
Cash and cash equivalents at end of period $ 297,913 $ 196,391
Supplemental disclosure of cash flow information:
Interest paid $ 634 $ 1,000
Federal and state income taxes paid $ 13,946 $ 19,675
Non-cash transactions:
Common stock issued in connection
with acquisition $ --- $ 16,375
SOURCE Whole Foods Market, Inc.
-0- 05/04/2005
/CONTACT: Cindy McCann, VP of Investor Relations of Whole Foods Market,
Inc., +1-512-477-4455/
/Web site: http://www.wholefoodsmarket.com
http://www.wholefoodsmarket.com/investor/Q205chart.html /