EX-99.1 2 wf3225ex991.txt 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)