Exhibit 99.1
WHOLE FOODS MARKET REPORTS THIRD QUARTER RESULTS
SALES INCREASE 23%; NET INCOME INCREASES 31% AND DILUTED EPS INCREASE 25%;
ANNOUNCES 10 NEW LEASES, INCREASING STORE DEVELOPMENT PIPELINE TO RECORD
3.5 MILLION SQUARE FEET
AUSTIN, Texas, July 28 /PRNewswire-FirstCall/ -- Whole Foods Market, Inc.
(Nasdaq: WFMI) today reported sales and earnings for the 12-week quarter ended
July 3, 2005. For the third quarter, sales increased 23% to $1.1 billion. This
increase was driven by 13% weighted average year-over-year square footage growth
and comparable store sales growth of 15.2%. Sales in identical stores (excluding
four relocated stores and two major store expansions) increased 13.2% for the
quarter. Net income increased 31% to $41.7 million, diluted earnings per share
increased 25% to $0.60, and Economic Value Added (EVA) improved $6.5 million to
$10.4 million.
For the 40-week period ended July 3, 2005, sales increased 22% to
$3.6 billion, with sales in comparable stores increasing 12.6% and sales in
identical stores increasing 11.3%. Net income increased 27% to $131.6 million,
diluted earnings per share increased 21% to $1.93, and EVA improved $12.8
million to $30.1 million.
"We are producing impressive sales and earnings results even as we compare
against one of the best years in our company's history. Our comparable stores
have produced a sales increase of 12.6% year to date on top of a 15.2% increase
last year, our new stores continue to perform above our expectations, producing
a record $618,000 in average weekly sales during the quarter, and our net income
has increased 27% year to date on top of a 34% increase last year," said John
Mackey, Whole Foods Market CEO, Chairman and Co-founder. "We are working hard to
capitalize on the tremendous growth opportunities that lie ahead of us by
steadily increasing our store development pipeline, which at 3.5 million square
feet currently represents 64% of our existing square footage. We believe our
goal of $10 billion in sales by the year 2010 is well within our reach."
# of
Store Returns for Average Average NOPAT Comp
the Quarter Size Comps ROIC Stores
- ---------------------------------- ---------- ---------- ---------- ----------
Stores over 11 years old 29,000 11.3% 72% 36
Stores between eight and
11 years old 29,000 13.6% 69% 35
Stores between five and
eight years old 32,000 12.7% 52% 34
Stores between two and
five years old 33,000 14.7% 27% 39
Stores less than two
years old (including
relocations) 42,000 39.1% 7% 15
Stores in comparable
store base 32,000 15.2% 40% 159
Stores open at the end
of the third quarter 33,000 --- 35% 170
In the quarter, gross profit increased 72 basis points to 35.2% of sales,
and direct store expenses decreased 13 basis points to 25.3% of sales, resulting
in store contribution of 9.9%. For the 159 stores in the comparable store base,
gross profit improved 96 basis points to 35.5% of sales, and direct store
expenses improved 31 basis points to 25.1% of sales, resulting in a 127 basis
point increase in store contribution to 10.4%. General and administrative (G&A)
expenses increased 49 basis points to 3.5% of sales.
The following table 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.
4-Year
Historical Performance FY01 FY02 FY03 FY04 Average 3Q05 YTD05
- ---------------------------------- -------- -------- -------- -------- -------- -------- --------
Gross profit 34.7% 34.6% 34.2% 34.7% 34.6% 35.2% 35.1%
Direct store
expenses 25.4% 25.2% 25.3% 25.6% 25.4% 25.3% 25.4%
Store contribution 9.3% 9.4% 9.0% 9.1% 9.2% 9.9% 9.7%
G&A 3.6% 3.6% 3.2% 3.1% 3.3% 3.5% 3.2%
Capital expenditures in the quarter were $81 million of which $51 million
was for new store development. During the quarter, the Company produced cash
flow from operations of $89 million and paid approximately $16 million to
shareholders in quarterly dividends of $0.25 per share. Cash and cash
equivalents, including restricted cash, were approximately $361 million at the
end of the quarter, and total long-term debt was approximately $19 million.
During the quarter, approximately 124,000 of the Company's zero coupon
convertible debentures were voluntarily converted by bondholders to
approximately 1.3 million shares of common stock, resulting in a decrease in the
zero coupon convertible debt from $79 million at the end of the second quarter
to $13 million at the end of the third quarter.
In the third quarter, the Company opened three new stores in Toronto,
Canada; Middletown, NJ; and Metairie, LA (a relocation), ending the quarter with
170 stores totaling approximately 5.5 million square feet. The Company expects
to open five stores during the fourth quarter, ending the fiscal year with 175
stores and approximately 5.8 million square feet in operation.
The Company is pleased to announce the recent signing of ten new store
leases representing a total of approximately 616,000 square feet which are as
follows: Cupertino, CA (63,000 s.f.); Hollywood, CA (61,000 s.f.); San Jose, CA
(45,000 s.f.); Pembroke Pines, FL (55,000 s.f.); Schaumberg, IL (67,000 s.f.);
Minneapolis, MN (73,000 s.f.); Paramus, NJ (77,000 s.f.); South Hills, PA
(68,000 s.f.); Dallas, TX (51,000 s.f.); and Madison, WI (55,000 s.f.). The
following table provides additional information about the Company's current
store development pipeline.
Stores in Development 7/28/05 7/28/04 % Change
- --------------------------------- ------------ ------------ ------------
Number of stores in development 65 49 33%
Average size (gross square feet) 53,400 47,800 12%
As a percentage of existing
store average size 164% 153% ---
Total square footage under
development 3,518,000 2,351,000 50%
As a percentage of existing
square footage 64% 47% ---
Updated Guidance for Fiscal Year 2005
For fiscal year 2005, the Company expects sales growth slightly above its
previously stated range of 15% to 20% and comparable store sales growth slightly
above its previously stated range of 9% to 11%. Weighted average square footage
growth is expected to be approximately 13% based on the opening of 15 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 a previously announced one-time charge in the fourth quarter now
estimated at approximately $10 million to $15 million, caused by the anticipated
acceleration in vesting of the Company's outstanding stock options. The Company
expects pre-opening and relocation expense of $23 million to $24 million for the
year. The Company expects G&A expenses for the remainder of the fiscal year to
be higher as a percentage of sales 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 at the high end of the Company's previous guidance range of $300
million to $320 million.
The Financial Accounting Standards Board ("FASB") recently issued a proposed
FASB Staff Position on accounting for rental costs incurred during the
construction period that, if adopted, would require construction-period rentals
to be recognized as expense for reporting periods beginning after September 15,
2005. If earlier adoption is permitted, the Company may decide to retroactively
apply these requirements to its fiscal year 2005 and prior-year results to
conform to the new accounting rules. The Company's guidance excludes any impact
from these lease accounting rule changes, as FASB has not issued a final
statement. For the first two quarters of fiscal 2005, the impact on earnings
would be approximately $0.02 per diluted share each quarter, and the Company
estimates that the impact on earnings in the third and fourth quarters would be
approximately $0.03 to $0.04 per diluted share each quarter. The impact would be
higher in the second half of the year primarily due to more stores under
construction.
Growth Goals for Fiscal Year 2006
The Company has a stated long-term growth goal of $10 billion in sales by
the year 2010. For fiscal year 2006, the Company expects total sales and
earnings growth of 15% to 20% despite difficult comparisons due to the Company's
above-average results in 2004 and so far in 2005. The Company also expects a
weighted average year-over-year increase in square footage in line with its
stated 15% goal.
Stock Option Strategy
In December 2004, FASB finalized Statement 123R, Share-based Payment, which
requires all companies to expense share-based payments, including stock options,
at fair value. The Company expects to begin expensing options in the first
quarter of fiscal year 2006.
Though not retroactive, the charge to earnings resulting from this 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 results, the Company previously announced its intention to accelerate the
vesting of all outstanding stock options sometime in September unless there are
further delays and/or the rule is overturned. The 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 to $15 million. The actual amount of the
expense will vary depending on a number of factors, primarily 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 will not exceed 10% in future years. 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, its
unique corporate culture and its success.
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 171 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
impact of competition, and other risks detailed from time to time in the
Company's SEC reports, including the report on Form 10-K/A Amendment No. 2 for
the fiscal year ended September 26, 2004. The Company does not undertake any
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 1-800-540-0559 and the
conference ID is "Whole Foods." A replay will briefly be available at
1-402-220-1370, and a simultaneous audio webcast will be available at
www.wholefoodsmarket.com .
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 Forty weeks ended
--------------------------- ---------------------------
July 3, July 4, July 3, July 4,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Sales $ 1,132,736 $ 917,355 $ 3,586,222 $ 2,937,644
Cost of goods sold and
occupancy costs 733,931 600,961 2,327,103 1,917,279
Gross profit 398,805 316,394 1,259,119 1,020,365
Direct store expenses 286,343 233,111 912,221 746,717
Store contribution 112,462 83,283 346,898 273,648
General and administrative
expenses 39,618 27,551 114,792 92,203
Pre-opening and relocation
costs 6,022 3,258 16,736 7,780
Operating income 66,822 52,474 215,370 173,665
Other income (expense):
Interest expense (163) (1,319) (2,213) (5,656)
Investment and other income 2,868 1,782 6,175 4,749
Income before income taxes 69,527 52,937 219,332 172,758
Provision for income taxes 27,811 21,174 87,733 69,103
Net income $ 41,716 $ 31,763 $ 131,599 $ 103,655
Basic earnings per share $ 0.63 $ 0.51 $ 2.05 $ 1.70
Weighted average shares
outstanding 65,899 61,951 64,313 61,019
Diluted earnings per share $ 0.60 $ 0.48 $ 1.93 $ 1.59
Weighted average shares
outstanding, diluted basis 70,373 68,446 69,580 67,461
Dividends per share $ 0.25 $ 0.15 $ 0.69 $ 0.45
A reconciliation of the numerators and denominators of the basic and diluted
earnings per share calculations follows (in thousands):
Twelve weeks ended Forty weeks ended
--------------------------- ---------------------------
July 3, July 4, July 3, July 4,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net income (numerator for basic
earnings per share) $ 41,716 $ 31,763 $ 131,599 $ 103,655
Interest on 5% zero coupon
convertible subordinated
debentures, net of income taxes 483 1,092 2,441 3,598
Adjusted net income (numerator for
diluted earnings per share) $ 42,199 $ 32,855 $ 134,040 $ 107,253
Weighted average common shares
outstanding (denominator
for basic earnings per share) 65,899 61,951 64,313 61,019
Potential common shares outstanding:
Assumed conversion of 5% zero
coupon convertible
subordinated debentures 1,376 3,280 2,142 3,281
Assumed exercise of stock options 3,098 3,215 3,125 3,161
Weighted average common shares
outstanding and potential additional
common shares outstanding (denominator
for diluted earnings per share) 70,373 68,446 69,580 67,461
Basic earnings per share $ 0.63 $ 0.51 $ 2.05 $ 1.70
Diluted earnings per share $ 0.60 $ 0.48 $ 1.93 $ 1.59
Whole Foods Market, Inc.
Consolidated Balance Sheets
July 3, 2005 (unaudited) and September 26, 2004
(In thousands)
Assets 2005 2004
- ------------------------------------------------ ------------ ------------
Current assets:
Cash and cash equivalents $ 328,044 $ 198,377
Restricted cash 33,084 23,160
Trade accounts receivable 63,485 64,972
Merchandise inventories 171,816 152,912
Prepaid expenses and other current assets 21,333 16,702
Deferred income taxes 29,449 29,449
Total current assets 647,211 485,572
Property and equipment, net of accumulated
depreciation and amortization 1,046,958 904,825
Goodwill 112,482 112,186
Intangible assets, net of accumulated
amortization 21,127 24,831
Other assets 5,169 20,302
Total assets $ 1,832,947 $ 1,547,716
Liabilities And Shareholders' Equity 2005 2004
- ------------------------------------------------ ------------ ------------
Current liabilities:
Current installments of long-term
debt and capital lease obligations $ 5,919 $ 5,973
Trade accounts payable 102,774 90,751
Accrued payroll, bonus and other
benefits due team members 124,991 100,536
Dividends payable 16,858 9,361
Other accrued expenses 153,734 128,329
Total current liabilities 404,276 334,950
Long-term debt and capital lease
obligations, less current installments 13,369 164,770
Deferred rent liability 87,874 70,067
Other long-term liabilities 1,404 1,581
Deferred income taxes 7,736 7,693
Total liabilities 514,659 579,061
Shareholders' equity:
Common stock, no par value, 300,000
and 150,000 shares authorized;
67,431 and 62,771 shares issued;
67,277 and 62,407 shares outstanding
in 2005 and 2004 respectively 797,394 535,107
Accumulated other comprehensive income 3,147 2,053
Retained earnings 517,747 431,495
Total shareholders' equity 1,318,288 968,655
Commitments and contingencies
Total liabilities and shareholders'
equity $ 1,832,947 $ 1,547,716
Whole Foods Market, Inc.
Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Forty weeks ended
------------------------
July 3, July 4,
2005 2004
---------- ----------
Cash flows from operating activities
Net income $ 131,599 $ 103,655
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 102,733 87,086
Loss on disposition of assets 4,842 1,444
Deferred income tax expense (benefit) 43 (2,153)
Tax benefit related to exercise of
employee stock options 42,358 32,527
Interest accretion on long-term debt 3,977 5,775
Deferred rent 15,914 8,966
Other 4,996 3,392
Net change in current assets and
liabilities:
Trade accounts receivable 1,170 (7,871)
Merchandise inventories (20,654) (29,224)
Prepaid expense and other current assets (3,996) (4,234)
Trade accounts payable 12,023 17,717
Accrued payroll, bonus and other
benefits due team members 24,455 26,393
Other accrued expenses 23,325 17,797
Net cash provided by operating activities 342,785 261,270
Cash flows from investing activities
Development costs of new store locations (161,698) (124,531)
Other property, plant and equipment
expenditures (82,159) (83,385)
Increase in restricted cash (9,924) (17,939)
Increase in notes receivable 13,500 (13,500)
Payment for purchase of acquired
entities, net of cash acquired --- (20,542)
Other investing activities --- 1,231
Net cash used in investing activities (240,281) (258,666)
Cash flows from financing activities
Dividends paid (37,850) (18,313)
Issuance of common stock 70,885 55,340
Payments on long-term debt and capital
lease obligations (5,872) (10,086)
Net cash provided by financing activities 27,163 26,941
Net increase in cash and cash equivalents 129,667 29,545
Cash and cash equivalents at beginning
of period 198,377 165,779
Cash and cash equivalents at end of period $ 328,044 $ 195,324
Supplemental disclosure of cash flow
information:
Interest paid $ 910 $ 1,472
Federal and state income taxes paid $ 48,431 $ 48,569
Non-cash transactions:
Common stock issued in connection
with acquisition $ --- $ 16,375
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 Economic Value Added ("EVA") in the press release as additional
information about its operating results. This measure is not in accordance with,
or an alternative to, GAAP. The Company's management believes that this
presentation provides 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 this
measure for reviewing the financial results of the Company and for incentive
compensation and capital planning purposes. The following is a tabular
reconciliation of this non-GAAP financial measure to GAAP net income, which the
Company believes to be the most directly comparable GAAP financial measure.
Twelve weeks ended Forty weeks ended
--------------------------- ---------------------------
July 3, July 4, July 3, July 4,
2005 2004 2005 2004
------------ ------------ ------------ ------------
EVA
Net income $ 41,716 $ 31,763 $ 131,599 $ 103,655
Provision for income taxes 27,811 21,174 87,733 69,103
Interest expense and other 4,093 1,779 9,408 8,768
NOPBT 73,620 54,716 228,740 181,526
Income taxes (40%) 29,448 21,886 91,496 72,610
NOPAT 44,172 32,830 137,244 108,916
Capital Charge 33,802 28,937 107,154 91,619
EVA $ 10,370 $ 3,893 $ 30,090 $ 17,297
SOURCE Whole Foods Market, Inc.
-0- 07/28/2005
/CONTACT: Cindy McCann, VP of Investor Relations of Whole Foods Market,
Inc., +1-512-477-4455/
/Web site: http://www.wholefoodsmarket.com /
(WFMI)