EX-99.1 2 e17765ex99_1.txt PRESS RELEASE Exhibit 99.1 Whole Foods Market Announces Second Quarter Results Sales Increase 24% and Diluted EPS Increase 32% to $0.54; Record-High 17.1% Comparable Store Sales Growth; Company Raises 2004 Sales and EPS Guidance The Company will host a conference call today to discuss this earnings announcement at 4:00 p.m. CDT. The dial in number is 1-800-795-1259 and the conference ID is 'Whole Foods.' A replay will be available for approximately 48 hours at 1-402-220-2988. A simultaneous audio webcast will also be available at www.wholefoodsmarket.com. The audio webcast will be archived for thirty days. AUSTIN, Texas, May 4 /PRNewswire-FirstCall/ -- Whole Foods Market, Inc. (Nasdaq: WFMI) today reported sales and earnings for the second quarter ended April 11, 2004. Sales for the 12-week quarter increased 24% to $902 million from $725 million in the prior year. This increase was driven by 7% weighted average year-over-year square footage growth and comparable store sales growth of 17.1%. Sales in identical stores (excluding one relocated store and one major store expansion) increased 17.0% for the quarter. The Company's historical average comparable store sales growth is as follows: Last Ten Last Five Last Three Last Four Last Two Years Years Years Quarters Quarters FY94-FY03 FY99-FY03 FY01-FY03 3Q03-2Q04 FY04 YTD 8.5% 8.8% 9.3% 12.4% 15.8% The Company has historically produced comparable store sales growth well above the supermarket industry average and has shown accelerating trends over the last ten years as natural and organic products have entered the mainstream consciousness, as the Company's execution has improved and as its brand equity has increased. The Company attributes its record-breaking 17.1% comparable store sales growth in the second quarter to these factors as well as to: (1) a below-average 7.0% comparable store sales increase in the prior year which was due to several factors including severe weather and the negative Easter shift and (2) a positive 70 basis point impact from the strike in Southern California. Excluding the stores positively impacted by the strike, comparable store sales increased 16.4% for the quarter. Net income for the quarter increased 38% to $35.3 million, or 3.9% of sales, from $25.6 million, or 3.5% of sales, in the prior year. Diluted earnings per share increased 32% to $0.54 from $0.41 in the prior year. Net operating profit after taxes (NOPAT) increased 37% to $37.2 million for the quarter. The Company's capital charge for the quarter was $29.5 million, resulting in Economic Value Added (EVA) of $7.7 million, an improvement of $5.0 million over the prior year. "We produced another quarter of outstanding results with strong sales, earnings and EVA improvement," said John Mackey, Whole Foods Market CEO, President, Chairman and Co-founder. "We are seeing great performance from all of our regions; however, we would like to highlight what we are seeing in Southern California post-strike. We estimate that we have retained approximately 30% of the sales we gained and maintained during the strike. As customers were newly introduced or were reintroduced to our stores, a significant percentage of them appeared to find it a more appealing shopping experience. We are very pleased with this level of retention, as we believe it points to the significant growing attraction of our store concept and therefore the customer opportunity that exists in our other markets across the country." For the twenty-eight week period ended April 11, 2004, sales increased 23% over the prior year to $2.0 billion, with sales in comparable stores increasing 15.8% and sales in identical stores increasing 15.5%. Net income year to date has increased 45% to $74.0 million, or $1.14 per share, from $51.2 million, or $0.83 per share in the prior year. Year to date, EVA has improved to $11.4 million from negative $782,000 in the prior year. Store returns for the second quarter: # of Average Average NOPAT Comp Size Comps ROIC Stores Stores over eight years old 27,300 15.1% 60% 63 Stores between five and eight years old 30,900 14.3% 49% 25 Stores between two and five years old 36,500 18.6% 25% 39 Stores less than two years old (including relocations) 35,200 28.1% 16% 15 All stores in comparable store base 31,300 17.1% 37% 142 All stores open at the end of the second quarter 30,500 33% 156 In the second quarter, gross profit increased 99 basis points to 35.5% of sales, and direct store expenses increased 49 basis points to 25.4% of sales, resulting in a 50 basis point increase in store contribution to 10.0% of sales. For the 142 stores in the comparable store base, gross profit improved 118 basis points to 35.7% of sales, and direct store expenses increased 31 basis points to 25.2% of sales, resulting in an 87 basis point increase in store contribution to 10.4% of sales. General and administrative (G&A) expenses increased 24% to $28.8 million, or 3.2% of sales, an improvement of two basis points as a percentage of sales. In the second quarter, the Company opened three new stores in New York, NY; Louisville, KY; and Colorado Springs, CO, ending the quarter with 156 stores totaling approximately 4.8 million square feet. Capital expenditures, excluding acquisitions, in the quarter were $70 million of which $46 million was for new store development. The Company produced cash flow from operations of $113 million during the quarter. Cash and cash equivalents, including restricted cash, totaled approximately $214 million at the end of the second quarter, and long-term debt, which includes $155 million in Zero Coupon Convertible Debentures, was approximately $177 million. On April 19, 2004, subsequent to the end of the quarter, the Company paid approximately $9 million to shareholders in its second $0.15 quarterly dividend. Moody's Investors Service recently upgraded the Company's credit ratings, and the Company's corporate rating is now Baa3, an investment grade rating. The Company is pleased to announce the recent signing of seven new store leases in Los Altos, CA; Miami, FL; Atlanta, GA; Chicago, IL; Portland, OR; Columbus, OH; and Fairfax, VA. The following table provides additional information about the Company's store development pipeline. Stores in development: 5/4/04 5/7/03 % Change Number 46 27 70% Average size (gross square feet) 46,400 43,000 8% As a percentage of existing store average size 152% 139% --- Total square footage under development 2,174,000 1,197,000 82% As a percentage of existing square footage 46% 27% --- Following are certain historical results as a percentage of sales for all stores for the last four fiscal years, the four-year average through fiscal year 2003, and year to date for the current fiscal year. This information is included in order to emphasize the general consistency of the Company's results as a percentage of sales over this period of time. Total sales growth, percent of sales from comparable stores, one-year comparable store sales increases and the sum of two years of comparable store sales increases (two-year comps) are also included. 4-Year 2004 2000 2001 2002 2003 Average YTD Gross profit 34.5% 34.8% 34.7% 34.3% 34.5% 34.9% Direct store expenses 25.0% 25.3% 25.1% 25.2% 25.2% 25.3% Store contribution 9.4% 9.5% 9.6% 9.2% 9.4% 9.6% G&A (excl. goodwill amort.) 3.3% 3.6% 3.6% 3.2% 3.4% 3.2% Sales growth 23.2% 23.6% 18.4% 17.0% 20.5% 22.5% % of sales from comp stores 86.3% 89.0% 90.1% 91.8% 89.7% 93.8% Comps 8.6% 9.2% 10.0% 8.6% 9.1% 15.8% Two-year comps 16.3% 17.8% 19.2% 18.6% 18.0% 24.7% Goals for Fiscal Year 2004 Due to the Company's strong 23% sales growth in the first half of the year, the Company is raising its expectation for total sales growth for fiscal year 2004 to the range of 18% to 22%. The Company expects weighted average year-over-year square footage growth for the year of 10%, including 41,000 square feet related to the expansion of six existing stores. Square footage growth is expected to be higher in the second half of the fiscal year as the Company opened four new stores in the first half of the year and expects to open nine to ten new stores, including a relocation of an existing store, in the second half of the fiscal year. The Company does not expect the comparable store sales increases produced in the first half of the year to continue. The Company expects comparable store sales growth for the second half of the year to be in the range of 10% to 12% reflecting a return to more normalized levels as well as the difficult Easter comparison in the third quarter, an expectation that some Southern California customers may return to their historical shopping patterns over time, and increasingly tougher year-over-year comparisons. The Company expects operating margin improvement in fiscal year 2004 primarily due to an increase in gross profit and a slight improvement in G&A as a percentage of sales. Pre-opening and relocation expense is expected to be in the range of $10 million to $12 million. Capital expenditures are expected to be at the high end of the $210 million to $240 million range for the year. The Company does not anticipate any borrowings on its $100 million credit line for the year. The Company expects interest expense, net of investment and other income, to be in the range of $2 million to $3 million. After producing higher-than-expected sales and earnings in the first quarter, the Company raised its fiscal year 2004 diluted earnings per share guidance to $1.93 to $2.02 from $1.88 to $1.96. Based on the higher-than- expected second quarter sales and earnings, the Company is again raising its fiscal year 2004 diluted earnings per share guidance to $2.03 to $2.10. The Company notes that in the third quarter of the prior year, it recognized a pre-tax gain included in investment and other income of approximately $3 million, or $0.03 in diluted earnings per share, related to the distribution of proceeds from the sale of Blooming Prairie Cooperative, a cooperative natural foods distributor in which the Company was a member. The Company is not prepared to issue fiscal year 2005 guidance at this time but emphasizes that comparisons will be especially difficult next year against the above-average results the Company has produced so far this year, including 23% sales growth, 15.8% comparable store sales growth and 38% earnings per share growth. As a result, the Company expects below-average increases in sales, comparable store sales and earnings in the first half of fiscal year 2005. 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 11, 2004. http://www.wholefoodsmarket.com/investor/Q204chart.html About Whole Foods Market: Founded in 1980 in Austin, Texas, Whole Foods Market(R) (www.wholefoodsmarket.com ) is the largest natural and organic foods retailer. The Company had sales of $3.1 billion in fiscal year 2003 and currently has 156 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 28, 2003. The Company does not undertake any obligation to update forward-looking statements. Whole Foods Market, Inc. Condensed Consolidated Income Statements (unaudited) (In thousands, except per share amounts) Twelve weeks ended Twenty-eight weeks ended April 11, April 13, April 11, April 13, 2004 2003 2004 2003 Sales $902,141 $725,139 $2,020,289 $1,648,899 Cost of goods sold and occupancy costs 582,239 475,190 1,315,242 1,084,380 Gross profit 319,902 249,949 705,047 564,519 Direct store expenses 229,469 180,896 511,365 414,440 Store contribution 90,433 69,053 193,682 150,079 General and administrative expenses 28,783 23,289 64,652 54,465 Pre-opening and relocation costs 2,536 1,951 4,332 5,787 Operating income 59,114 43,813 124,698 89,827 Other income (expense): Interest expense (1,859) (2,021) (4,337) (4,586) Investment and other income 1,503 817 2,967 97 Income before income taxes 58,758 42,609 123,328 85,338 Provision for income taxes 23,504 17,043 49,332 34,135 Net income $35,254 $25,566 $73,996 $51,203 Basic earnings per share $0.58 $0.44 $1.22 $0.88 Weighted average shares outstanding 61,035 58,696 60,620 58,319 Diluted earnings per share $0.54 $0.41 $1.14 $0.83 Weighted average shares outstanding, diluted basis 67,579 65,140 67,039 64,910 Dividends per share $0.15 $--- $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 11, April 13, April 11, April 13, 2004 2003 2004 2003 Net income (numerator for basic earnings per share) $35,254 $25,566 $73,996 $51,203 Interest on 5% zero coupon convertible subordinated debentures, net of income taxes 1,084 1,031 2,506 2,387 Adjusted net income (numerator for diluted earnings per share) $36,338 $26,597 $76,502 $53,590 Weighted average common shares outstanding (denominator for basic earnings per share) 61,035 58,696 60,620 58,319 Potential common shares outstanding: Assumed conversion of 5% zero coupon convertible subordinated debentures 3,281 3,285 3,282 3,285 Assumed exercise of stock options 3,263 3,159 3,137 3,306 Weighted average common shares outstanding and potential additional common shares outstanding (denominator for diluted earnings per share) 67,579 65,140 67,039 64,910 Basic earnings per share $0.58 $0.44 $1.22 $0.88 Diluted earnings per share $0.54 $0.41 $1.14 $0.83 Whole Foods Market, Inc. Condensed Consolidated Balance Sheets April 11, 2004 (unaudited) and September 28, 2003 (In thousands) Assets 2004 2003 Current assets: Cash and cash equivalents $196,391 $165,779 Restricted cash 17,904 --- Trade accounts receivable 61,748 45,947 Merchandise inventories 145,104 123,904 Prepaid expenses and other current assets 33,134 28,054 Total current assets 454,281 363,684 Property and equipment, net of accumulated depreciation and amortization 810,735 718,240 Long-term investments --- 2,206 Goodwill 112,039 80,548 Intangible assets, net of accumulated amortization 25,565 26,569 Other assets 18,731 5,573 Total assets $1,421,351 $1,196,820 Liabilities and Shareholders' Equity 2004 2003 Current liabilities: Current installments of long-term debt and capital lease obligations $10,262 $5,806 Trade accounts payable 91,757 72,715 Accrued payroll, bonus and other benefits due team members 90,572 70,875 Dividends payable 9,260 --- Other accrued expenses 134,020 90,188 Total current liabilities 335,871 239,584 Long-term debt and capital lease obligations, less current installments 167,149 162,909 Other long-term liabilities 19,086 18,151 Total liabilities 522,106 420,644 Shareholders' equity: Common stock, no par value, 150,000 shares authorized, 61,735 and 60,299 shares issued, 61,539 and 60,070 shares outstanding in 2004 and 2003, respectively 490,251 423,297 Accumulated other comprehensive income 2,082 1,624 Retained earnings 406,912 351,255 Total shareholders' equity 899,245 776,176 Commitments and contingencies Total liabilities and shareholders' equity $1,421,351 $1,196,820 Whole Foods Market, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) (In thousands) Twenty-eight weeks ended April 11, April 13, 2004 2003 Cash flows from operating activities: Net income $73,996 $51,203 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 57,732 51,315 Loss on disposal of fixed assets 1,482 266 Rent differential 122 (204) Change in LIFO reserve 1,750 1,420 Interest accretion on long-term debt 4,069 3,938 Tax benefit related to exercise of employee stock options 18,563 18,238 Impairment loss on long-term investments 479 1,412 Issuance of common stock to 401(k) plan 6 3,119 Cooperative patronage dividends received --- 3,210 Net change in current assets (38,174) (25,661) Net change in current liabilities 77,330 31,868 Net cash provided by operating activities 197,355 140,124 Cash flows from investing activities: Development costs of new store locations (80,726) (46,254) Other property, plant and equipment expenditures (58,612) (46,528) Acquisition of intangible assets (49) (6,372) Payments for purchase of acquired entities, net of cash acquired (20,392) --- Increase in restricted cash (17,904) Increase in notes receivable (13,500) --- Proceeds from sale of property, plant and equipment --- 2,664 Proceeds from conversion of long-term investments --- 1,000 Proceeds from the sale of long-term investments 1,815 --- Net cash used in investing activities (189,368) (95,490) Cash flows from financing activities: Payments on long-term debt and capital lease obligations (97) (535) Issuance of common stock 31,801 37,151 Dividends paid (9,079) --- Net cash provided by financing activities 22,625 36,616 Cash flows from discontinued operations: Net cash provided by discontinued operations --- 3,705 Net increase in cash and cash equivalents 30,612 84,955 Cash and cash equivalents at beginning of period 165,779 12,646 Cash and cash equivalents at end of period $196,391 $97,601 Supplemental disclosures of cash flow information: Interest paid $1,000 $1,393 Federal and state income taxes paid 19,675 1,198 Non-cash transactions: Common stock issued in connection with acquisition $16,375 $--- In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, the Company provides information regarding 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 the Company's 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 table reflects reconciliations of GAAP information to non-GAAP financial measures: Twelve weeks ended Twenty-eight weeks ended April 11, April 13, April 11, April 13, 2004 2003 2004 2003 GAAP Net income $35,254 $25,566 $73,996 $51,203 Provision for income taxes 23,504 17,043 49,332 34,135 Interest expense and other 3,252 2,713 6,989 5,708 NOPBT 62,010 45,322 130,317 91,046 Taxes (40%) (24,804) (18,128) (52,127) (36,418) NOPAT 37,206 27,194 78,190 54,628 Capital charge (29,462) (24,428) (66,813) (55,410) EVA $7,744 $2,766 $11,377 $(782) The following tables reflect the pro forma effects of recognizing compensation cost for stock options, as prescribed by Statement of Financial Accounting Standards ("SFAS") No. 123 and SFAS No. 148 utilizing the Black Scholes valuation method, on net income and diluted earnings per share for the twelve weeks ended: April 11, % April 13, % % 2004 Sales 2003 Sales Change Net income $35,254 3.91% $25,566 3.53% 38% After-tax pro forma expense (4,323) 0.48% (3,428) 0.47% 26% Pro forma net income $30,931 3.43% $22,138 3.05% 40% Dilution 12% 13% April 11, April 13, % 2004 2003 Change Diluted EPS $0.54 $0.41 32% After-tax pro forma expense (0.06) (0.05) 20% Pro forma diluted EPS $0.48 $0.36 33% Dilution 11% 12% Contact: Cindy McCann VP of Investor Relations 512.477.4455 SOURCE Whole Foods Market, Inc. -0- 05/04/2004 /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/Q204chart.html / (WFMI) CO: Whole Foods Market, Inc. ST: Texas IN: FOD REA SUP SU: ERN ERP CCA MAV