EX-99.1 2 wf2640ex991.txt 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 /