-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WoNjEwmbOHutFyy4j4GZSDmIRjzmoCht6HFKAqsu0tRxZVbgqHjw1W3ocLyaodWS ekx8vbDqjx00WHsQ5j8itg== 0001275287-05-000503.txt : 20050210 0001275287-05-000503.hdr.sgml : 20050210 20050209173119 ACCESSION NUMBER: 0001275287-05-000503 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20050209 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050210 DATE AS OF CHANGE: 20050209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WHOLE FOODS MARKET INC CENTRAL INDEX KEY: 0000865436 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 741989366 STATE OF INCORPORATION: TX FISCAL YEAR END: 0929 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19797 FILM NUMBER: 05589866 BUSINESS ADDRESS: STREET 1: 601 N LAMAR BLVD STREET 2: STE 300 CITY: AUSTIN STATE: TX ZIP: 78703 BUSINESS PHONE: 5124774455 MAIL ADDRESS: STREET 1: 601 N LAMAR BLVD STREET 2: STE 300 CITY: AUSTIN STATE: TX ZIP: 78703 8-K 1 wf2029.txt ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): February 9, 2005 WHOLE FOODS MARKET, INC. (Exact name of registrant as specified in its charter) Texas 0-19797 74-1989366 (State of (Commission File (IRS employment incorporation) Number) identification no.) 550 Bowie St. Austin, Texas 78703 (Address of principal executive offices) Registrant's telephone number, including area code: 512-477-4455 Check the appropriate box if the Form 8-K filing is intended to simultaneously satisfy the reporting obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act [ ] Soliciting material pursuant to Rule 14a-12 of the Exchange Act [ ] Pre-commencement communications pursuant to Rule 14d-2(b) Exchange Act [ ] Pre-commencement communications pursuant to Rule 13e-4(c) Exchange Act ================================================================================ ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION. On February 9, 2005, the Company issued a press release announcing its results of operations for its first fiscal quarter ended January 16, 2005. A copy of the press release is furnished herewith as Exhibit 99.1. 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 press release includes 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. The information contained in the attached Exhibit 99.1 is being furnished and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (c) Exhibits. Exhibit 99.1 Whole Foods Market, Inc. press release, dated February 9, 2005. SIGNATURES 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 hereunto duly authorized. WHOLE FOODS MARKET, INC. Date: February 9, 2005 By: /s/ Glenda Flanagan ---------------------------- Glenda Flanagan, Executive Vice President and Chief Financial Officer EX-99.1 2 wf2029ex991.txt Exhibit 99.1 WHOLE FOODS MARKET REPORTS FIRST QUARTER RESULTS SALES INCREASED 22%; NET INCOME INCREASED 27% AND DILUTED EPS INCREASED 21%; COMPANY ANNOUNCES STRATEGY FOR FUTURE STOCK OPTION GRANTS AUSTIN, Texas, Feb. 9 /PRNewswire-FirstCall/ -- Whole Foods Market, Inc. (Nasdaq: WFMI) today reported sales and earnings for the 16-week quarter ended January 16, 2005. For the quarter, sales increased 22% to $1.37 billion. This increase was driven by 15% weighted average year-over-year square footage growth and comparable store sales growth of 11.4%. Sales in identical stores (excluding one relocated store and two major store expansions) increased 10.7% for the quarter. Net income increased 27% to $49.1 million, diluted earnings per share increased 21% to $0.73, and Economic Value Added (EVA) improved $3.3 million to $6.9 million. # of Average Average NOPAT Comp Store Returns for the Quarter Size Comps ROIC Stores --------------------------------------- ------- ------- ----- ------ Stores over eight years old 29,000 10.9% 59% 71 Stores between five and eight years old 34,000 7.8% 43% 28 Stores between two and five years old 35,000 13.8% 23% 38 Stores less than two years old (including relocations) 39,000 17.1% 17% 8 Stores in comparable store base 32,000 11.4% 38% 145 Stores open at the end of the first quarter 32,000 --- 31% 166 "I would like to appreciate all of our Team Members for their hard work and all of our customers for their continued support. Sales grew by 22% on top of a 21% increase last year and we produced 21% EPS growth on top of a 43% increase last year," said John Mackey, Chairman, Chief Executive Officer, and Co-Founder of Whole Foods Market. "We are very pleased with our performance this quarter, particularly in light of our difficult year-over-year comparisons; however as we have previously stated, we do not expect to see this same level of year over year increases in sales and earnings to continue throughout the year. We continue to expect comparable store sales increases for the year of 8% to 10% and for 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 18 basis points to 34.7% of sales, which was offset by a 19 basis point increase in direct store expenses to 25.4% of sales, resulting in store contribution of 9.2% of sales. For the 145 stores in the comparable store base, gross profit improved 66 basis points to 35.1% of sales, and direct store expenses improved 16 basis points to 25.1% of sales, resulting in an 82 basis point increase in store contribution to 10.1% of sales. General and administrative (G&A) expenses improved 25 basis points to 3.0% of sales. As shown in the table below, the Company's quarterly results were in line with 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 1Q05 ---------------------------- ------ ------ ------ ------ ------- ------ Gross profit 34.8% 34.7% 34.3% 34.8% 34.7% 34.7% Direct store expenses 25.3% 25.1% 25.2% 25.5% 25.3% 25.4% Store contribution 9.5% 9.6% 9.2% 9.3% 9.4% 9.2% G&A 3.6% 3.6% 3.2% 3.1% 3.4% 3.0%
Capital expenditures in the quarter were $85 million of which $56 million was for new store development. During the quarter, the Company produced cash flow from operations of $122 million and paid approximately $9 million to shareholders in quarterly dividends. Cash and cash equivalents, including restricted cash, were approximately $261 million at the end of the quarter, and total long-term debt was approximately $101 million. During the quarter, approximately 137,000 of the Company's Zero Coupon Convertible Debentures were voluntarily converted by bondholders to approximately 1.5 million shares of common stock resulting in a decrease in the Zero Coupon Convertible Debt from $159 million at the end of last fiscal year to $89 million at the end of the first quarter. In November, the Company announced that its Board of Directors approved a 27% increase in the Company's quarterly dividend. On January 17, 2005, the Company paid approximately $12 million to shareholders in quarterly dividends of $0.19 per share. In the quarter, the Company opened three new stores in Hingham, MA; Redwood City, CA and Sarasota, FL, ending the quarter with 166 stores totaling approximately 5.3 million square feet. The Company is pleased to announce the recent signing of 7 new store leases in Lake Oswego, OR; Seattle, WA; Novato, CA; Scottsdale, AZ; Pasadena, CA; Annapolis, MD (relocation) and Rockville, MD (relocation). The following table provides additional information about the Company's store development pipeline.
Stores in Development 2/9/05 2/11/04 % Change -------------------------------------- --------- --------- --------- Number of stores in development 58 41 41% Average size (gross square feet) 50,000 45,000 10% As a percentage of existing store average size 159% 147% -- Total square footage under development 2,930,000 1,872,000 57% As a percentage of existing square footage 56% 40% --
Future Growth Goals The Company has a stated long-term growth goal of $10 billion in sales by the year 2010. As shown in the table below, the Company produced above- average sales and comparable store sales increases in fiscal year 2004 and will, therefore, face difficult comparisons in 2005, particularly in the second quarter when it will be comparing against a 17.1% comparable store sales increase and a 32% increase in diluted EPS. FY00-FY03 FY00-FY04 Historical Performance Average FY04 Average --------------------------------- --------- --------- --------- Sales growth (CAGR) 20.5% 22.8% 21.0% Comparable store sales growth 9.1% 14.9% 10.3% Two-year comps (sum of two years) 18.0% 23.5% 19.1% For the fiscal year, the Company continues to expect sales growth of 15% to 20% driven by comparable store sales growth of 8% to 10% and weighted average square footage growth of approximately 15% based on the opening of 15 to 18 new stores, including four relocations. The Company does not expect the same level of year over year increases in sales and earnings produced in the first quarter to continue throughout the year. 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 $18 million to $20 million versus $10 million in the prior year. In addition, new stores could have some negative impact on store contribution, as new stores generally have lower gross margins and higher direct store expenses than more mature stores. The Company also expects G&A expenses for the remainder of the fiscal year to be higher as a percentage of sales as compared to the first quarter and 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 still expected to be in the range of $300 million to $320 million. 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. Absent any overruling by Congress, the new rules are effective for interim or annual periods beginning after June 15, 2005; therefore, the Company would expect to begin expensing stock options in the fourth quarter of fiscal year 2005. Though not retroactive, it should be noted that 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 is today announcing its intention, absent FASB 123R being overruled by Congress, to accelerate the vesting of all outstanding stock options (excluding options held by the Board of Directors and the members of the executive team) sometime prior to July 4, 2005, the date the new rules are effective for the Company. This accelerated vesting of options will create a one-time, mostly non-cash charge in the third 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 fourth quarter of fiscal year 2005 until it reaches 10% of net income in fiscal year 2010. EBCE in the fourth quarter of fiscal year 2005 is expected to be approximately $500,000 consisting primarily of grants to the executive team and the Board of Directors, since the Company will not accelerate those options. This estimated expense does not impact the Company's annual guidance. 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 sixteen weeks ended January 16, 2005. http://www.wholefoodsmarket.com/investor/Q105chart.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 1-800-540-0559 and the conference ID is "Whole Foods." A replay will be available for approximately 48 hours at 1-402-220-2558, 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 the largest natural and organic foods retailer. The Company had sales of $3.9 billion in fiscal year 2004 and currently has 166 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. Condensed Consolidated Statements of Operations (unaudited) (In thousands, except per share amounts) Sixteen weeks ended ------------------------------ January 16, January 18, 2005 2004 ------------- ------------- Sales $ 1,368,328 $ 1,118,148 Cost of goods sold and occupancy costs 894,186 732,704 Gross profit 474,142 385,444 Direct store expenses 347,846 282,195 Store contribution 126,296 103,249 General and administrative expenses 40,401 35,869 Pre-opening and relocation costs 3,573 1,796 Operating income 82,322 65,584 Other income (expense): Interest expense (1,708) (2,478) Investment and other income 1,194 1,464 Income before income taxes 81,808 64,570 Provision for income taxes 32,723 25,828 Net income $ 49,085 $ 38,742 Basic earnings per share $ 0.78 $ 0.64 Weighted average shares outstanding 62,794 60,309 Diluted earnings per share $ 0.73 $ 0.60 Weighted average shares outstanding, diluted basis 69,013 66,634 Dividends per share $ 0.19 $ 0.15 A reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations follows (in thousands): Sixteen weeks ended ----------------------------- January 16, January 18, 2005 2004 ------------- ------------- Net income (numerator for basic earnings per share) $ 49,085 $ 38,742 Interest on 5% zero coupon convertible subordinated debentures, net of income taxes 1,393 1,422 Adjusted net income (numerator for diluted earnings per share) $ 50,478 $ 40,164 Weighted average common shares outstanding (denominator for basic earnings per share) 62,794 60,309 Potential common shares outstanding: Assumed conversion of 5% zero coupon convertible subordinated debentures 3,076 3,283 Assumed exercise of stock options 3,143 3,042 Weighted average common shares outstanding and potential additional common shares outstanding (denominator for diluted earnings per share) 69,013 66,634 Basic earnings per share $ 0.78 $ 0.64 Diluted earnings per share $ 0.73 $ 0.60 Whole Foods Market, Inc. Condensed Consolidated Balance Sheets January 16, 2005 (unaudited) and September 26, 2004 (In thousands) Assets 2005 2004 ------------------------------------------ ------------- ------------- Current assets: Cash and cash equivalents $ 228,112 $ 198,377 Restricted cash 33,212 23,160 Trade accounts receivable 61,880 64,972 Merchandise inventories 165,209 152,912 Prepaid expenses and other current assets 30,479 16,702 Deferred income taxes 28,894 28,894 Total current assets 547,786 485,017 Property and equipment, net of accumulated depreciation and amortization 936,443 889,771 Goodwill 112,503 112,186 Intangible assets, net of accumulated amortization 23,628 24,831 Other assets 6,050 20,302 Total assets $ 1,626,410 $ 1,532,107 Liabilities And Shareholders' Equity 2005 2004 ------------------------------------------ ------------- ------------- Current liabilities: Current installments of long-term debt and capital lease obligations $ 5,972 $ 5,973 Trade accounts payable 95,060 90,751 Accrued payroll, bonus and other benefits due team members 113,645 100,536 Dividends payable 12,200 9,361 Other accrued expenses 137,472 124,641 Total current liabilities 364,349 331,262 Long-term debt and capital lease obligations, less current installments 95,330 164,770 Deferred rent liability 25,361 25,880 Other long-term liabilities 1,581 1,581 Deferred income taxes 20,175 20,175 Total liabilities 506,796 543,668 Shareholders' equity: Common stock, no par value, 150,000 shares authorized; 64,791 and 62,771 shares issued; 64,283 and 62,407 shares outstanding in 2005 and 2004 respectively 627,573 535,107 Accumulated other comprehensive income 3,932 2,053 Retained earnings 488,109 451,279 Total shareholders' equity 1,119,614 988,439 Commitments and contingencies Total liabilities and shareholders' equity $ 1,626,410 $ 1,532,107 Whole Foods Market, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) (In thousands)
Sixteen weeks ended ------------------------------ January 16, January 18, 2005 2004 ------------- ------------- Cash flows from operating activities Net income $ 49,085 $ 38,742 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 38,486 32,182 Loss on disposition of assets 515 529 Tax benefit related to exercise of employee stock options 9,199 6,666 Interest accretion on long-term debt 2,269 2,314 Other 1,604 1,521 Net change in current assets and liabilities: Trade accounts receivable 2,775 (8,708) Merchandise inventories (13,297) (14,758) Prepaid expense and other current asset 1,082 (1,723) Trade accounts payable 4,309 3,451 Accrued payroll, bonus and other benefits due team members 13,109 13,862 Other accrued expenses 12,452 10,330 Net cash provided by operating activities 121,588 84,408 Cash flows from investing activities Development costs of new store locations (55,663) (35,211) Other property, plant and equipment expenditures (29,403) (33,929) Acquisition of intangible assets -- (49) Increase in restricted cash (10,052) (17,859) Payment for purchase of acquired entities, net of cash acquired -- (3,172) Other investing activities -- 1,815 Net cash used in investing activities (95,118) (88,405) Cash flows from financing activities Dividends paid (9,416) (9,079) Issuance of common stock 12,765 11,932 Payments on long-term debt and capital lease obligations (84) (5) Net cash provided by financing activities 3,265 2,848 Net increase in cash and cash equivalents 29,735 (1,149) Cash and cash equivalents at beginning of period 198,377 165,779 Cash and cash equivalents at end of period $ 228,112 $ 164,630 Supplemental disclosure of cash flow information: Interest paid $ 364 $ 503 Federal and state income taxes paid $ 13,070 $ 19,403
Whole Foods Market, Inc. Other Financial Information (In thousands, except per share amounts) 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 table reflects a reconciliation of this non-GAAP financial measure to GAAP net income, which the Company believes to be the most directly comparable GAAP financial measure. EVA
Sixteen weeks ended ------------------------------ January 16, January 18, 2005 2004 ------------- ------------- GAAP Net income $ 49,085 $ 38,742 Provision for income taxes 32,723 25,828 Interest expense and other 2,997 3,737 NOPBT 84,805 68,307 Taxes (40%) (33,922) (27,323) NOPAT 50,883 40,984 Capital Charge (9%) (43,945) (37,351) EVA $ 6,938 $ 3,633
The following tables reflect the pro forma effects of recognizing compensation cost for stock options in accordance with Statement of Financial Accounting Standards No. 123: Stock-Based Compensation
Sixteen weeks ended ------------------------------ January 16, January 18, Net income 2005 2004 ------------------------------------------- ------------- ------------- Net income $ 49,085 $ 38,742 After-tax pro forma expense (9,425) (6,235) Pro forma net income $ 39,660 $ 32,507 Dilution 19% 16% Earnings per share Net income $ 0.73 $ 0.60 After-tax pro forma expense (0.13) (0.09) Pro forma net income $ 0.60 $ 0.51 Dilution 18% 15%
SOURCE Whole Foods Market, Inc. -0- 02/09/2005 /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/Q105chart.html / -----END PRIVACY-ENHANCED MESSAGE-----