EX-99.1 2 wf6602ex991.txt EXHIBIT 99.1 Exhibit 99.1 For Immediate Release Contact: Cindy McCann VP of Investor Relations 512.542.0204 WHOLE FOODS MARKET REPORTS THIRD QUARTER RESULTS DILUTED EPS INCREASE 27% TO $0.37 ON 18% SALES INCREASE; COMPARABLE STORES SALES INCREASE 9.9% ON TOP OF 15.2% INCREASE IN PRIOR YEAR; COMPANY EXPECTS FISCAL YEAR 2007 GROWTH IN OPERATING INCOME BEFORE PRE-OPENING IN LINE WITH SALES GROWTH AUSTIN, Texas, July 31 /PRNewswire-FirstCall/ -- Whole Foods Market, Inc. (NASDAQ: WFMI) today reported sales and earnings for the 12-week quarter ended July 2, 2006. For the quarter, sales increased 18% to $1.3 billion driven by 14% weighted average square footage growth and 9.9% comparable store sales growth. Sales in identical stores (excluding two relocated stores and one major expansion) increased 9.6%. Net income increased 33% to $53.9 million, diluted earnings per share increased 27% to $0.37, operating cash flow per share was $0.86, and Economic Value Added (EVA) improved $11.0 million to $20.6 million. These results include approximately $1.4 million in non-cash share-based compensation expense and approximately $3.7 million in pre-tax credits for insurance proceeds and other adjustments related to Hurricane Katrina. For the 40-week period ended July 2, 2006, sales increased 20% to $4.3 billion driven by 14% weighted average square footage growth and comparable store sales growth of 11.7%. Sales in identical stores (excluding four relocated stores and one major expansion) increased 10.9%. Net income increased 29% to $164.0 million, diluted earnings per share increased 21% to $1.13, operating cash flow per share was $2.35, and Economic Value Added (EVA) improved $28.5 million to $56.1 million. These results include approximately $4.5 million in non-cash share-based compensation expense and approximately $7.2 million in pre-tax credits for insurance proceeds and other adjustments related to Hurricane Katrina. The following table shows the Company's growth in sales, comparable store sales, and square footage year to date compared to its historical five-year ranges and average results, highlighting the Company's strong historical and year-to-date performance.
FIVE-YEAR FY RANGE FIVE-YEAR FY06 ------------------------ ---------- ---------- LOW HIGH FY AVERAGE YTD ---------- ---------- ---------- ---------- Sales growth 17.0% 22.8% 20.7% 20.4% Comparable store sales growth 8.6% 14.9% 11.1% 11.7% Two-year comps (sum of two years) 17.8% 27.8% 21.4% 24.3% Weighted average square footage growth 9% 17% 14% 14%
"We are very pleased to report 9.9% comparable store sales growth for the quarter given our tough 15.2% comparison in the prior year. This translates to a 25.1% two-year comp in the third quarter, the highest we have produced this year," said John Mackey, chairman, chief executive officer, and co-founder of Whole Foods Market. "We continue to expect comparable store sales growth for the full year of 10% to 12% which will mark our third year of double-digit comp sales growth." -------------------------------------------------------------------------------- Whole Foods Market, Inc. 550 Bowie Street Austin, Texas 78703 512.477.5566 fax 512.482.7204 http://www.wholefoodsmarket.com The following table breaks out additional information on the quarter for comparable stores and all stores, highlighting the Company's strong performance throughout its store base.
AVERAGE AVERAGE NOPAT # OF COMPARABLE STORES SIZE COMPS ROIC* STORES ------------------------------------------------------- ---------- ---------- ---------- ---------- Over 11 years old 28,700 7.4% 87% 45 Between eight and 11 years old 29,600 7.8% 80% 35 Between five and eight years old 32,400 8.9% 49% 39 Between two and five years old 36,900 12.8% 30% 37 Less than two years old (includes four relocations) 45,000 18.6% 9% 14 ---------- ---------- ---------- ---------- All comparable stores (7.7 years old, average age s.f. adjusted) 32,900 9.9% 46% 170 All stores (6.9 years old, average age s.f. adjusted) 34,000 39% 183
* Includes pre-opening expense Gross profit consists of sales less cost of goods sold and occupancy costs plus the contribution from non-retail distribution and food preparation operations. Gross profit improved four basis points to 35.3% of sales. These results include a $0.9 million credit for inventory adjustments related to Hurricane Katrina and a LIFO charge of $0.8 million versus no charge in the third quarter last year. For stores in the comparable store base, gross profit improved 26 basis points to 35.4% of sales. Direct store expenses improved 15 basis points to 25.1% of sales. Direct store expenses include a $1.2 million credit for asset adjustments related to Hurricane Katrina. For stores in the comparable store base, direct store expenses improved 54 basis points to 24.6% of sales. G&A expenses improved 21 basis points to 3.3% of sales. The following table shows the Company's year-to-date results for certain line items as a percentage of sales compared to its historical five-year ranges and average results, highlighting that these results have been very consistent on an annualized basis over time.
FIVE-YEAR FY RANGE FIVE-YEAR FY06 ------------------------ ---------- ---------- HISTORICAL AND CURRENT PERFORMANCE LOW HIGH FY AVERAGE YTD ------------------------------------------------------- ---------- ---------- ---------- ---------- Gross profit 34.2% 35.1% 34.7% 35.0% Direct store expenses 25.2% 26.0% 25.5% 25.3% G&A 3.1% 3.6% 3.3% 3.2%
Pre-opening and relocation costs were $7.9 million of which approximately $5.1 million was pre-opening rent and approximately $1.6 million was accelerated depreciation related to relocations. Net interest and other income increased $2.9 million to $5.6 million. Interest and other income includes $1.6 million of business-interruption insurance proceeds related to Hurricane Katrina. Including $1.4 million in pre-tax share-based compensation expense, net income increased 33% to $53.9 million or 4.0% of sales, and fully diluted earnings per share increased 27% to $0.37. -------------------------------------------------------------------------------- Whole Foods Market, Inc. 550 Bowie Street Austin, Texas 78703 512.477.5566 fax 512.482.7204 http://www.wholefoodsmarket.com -2- During the quarter, the Company produced $125 million in cash flow from operations, received $41 million in proceeds from the exercise of stock options and paid approximately $21 million to shareholders in cash dividends. Year to date, the Company has produced $342 million in cash flow from operations, received $209 million in proceeds from the exercise of stock options and paid approximately $337 million to shareholders in cash dividends. Capital expenditures in the quarter were $74 million of which $45 million was for new stores and $29 million was for remodels and other. Capital expenditures year to date have totaled $198 million of which $111 million was for new stores and $86 million was for remodels and other. During the quarter, the Company retired its senior notes making the final $5.7 million principal payment in May. The Company's total cash and investments were approximately $397 million at the end of the quarter, and total long-term debt consisting primarily of zero coupon convertible debentures was approximately $9 million. At July 2, 2006, the Company had investments in short-term variable rate demand obligations (VRDOs) totaling approximately $274 million included in "short-term investments - available-for-sale securities" on the accompanying balance sheet. These investments are generally tax-free municipal obligations with contractual maturities of less than 90 days. Historically, most companies have classified investments in VRDOs as cash equivalents due to their liquidity. Based on information about a recent clarification of the preferred balance sheet classification of VRDOs, the Company has elected to classify its VRDO investments in "short-term investments". NEW STORE DEVELOPMENT In the third quarter, the Company opened one new store in Greenville, SC and closed a 2,600 square foot Fresh & Wild store in the U.K. In the fourth quarter, the Company plans to open four stores averaging 58,000 square feet in size, one of which is a relocation. Three of these stores are expected to open at the end of the quarter. The Company continues to add to its store development pipeline with the recent signing of eight new store leases averaging 55,000 square feet in size which are as follows: Dublin, CA; Oxnard, CA; Los Angeles, CA; Denver, CO; Connecticut; Florida; Schaumburg, IL; and New Jersey. In addition, the Company has signed a lease to expand its store in Boulder, CO from 39,000 square feet to 74,000 square feet. The following table provides additional information about the Company's new store openings over the last four quarters, leases currently tendered, and store development pipeline for stores scheduled to open through fiscal year 2009.
STORES OPENED LEASES LEASES NEW STORE INFORMATION LAST FOUR QTRS TENDERED SIGNED* ------------------------------------------------------- -------------- -------------- -------------- Number of stores (including relocations) 14 14 86 Number of relocations 1 2 16 New markets 6 2 17 Average store size (gross square feet) 50,400 53,900 55,400 As a percentage of existing store average size 148% 159% 163% Total square footage 705,000 755,000 4,847,000 As a percentage of existing square footage 11% 12% 78% Average pre-opening expense per store $2.1 million - - Average tender period* 9.6 months - -
*Includes leases tendered GROWTH GOALS FOR FISCAL YEAR 2006 For fiscal year 2006, the Company expects sales growth in the range of 18% to 21%, comparable store sales growth of 10% to 12%, and weighted average square footage growth in line with its 14% historical average. -------------------------------------------------------------------------------- Whole Foods Market, Inc. 550 Bowie Street Austin, Texas 78703 512.477.5566 fax 512.482.7204 http://www.wholefoodsmarket.com -3- The Company expects non-cash share-based compensation expense of approximately $2 million to $3 million and pre-opening and relocation costs of approximately $13 to $15 million in the fourth quarter. Capital expenditures for the year are now expected to be in the range of $310 million to $330 million. Based on the Company's better-than-expected year-to-date diluted earnings per share of $1.13, the Company now expects diluted earnings per share growth in fiscal year 2006 to be in line with or slightly higher than sales growth. As previously stated, this guidance excludes the $16.5 million in costs relating to Hurricane Katrina in fiscal year 2005, share-based compensation expense in fiscal years 2005 and 2006, and uses a 40% tax rate in both years. GROWTH GOALS FOR FISCAL YEAR 2007 AND BEYOND The Company notes that fiscal year 2007 will be a 53-week year, with the fifty-third week occurring in the fourth quarter. For fiscal year 2007, on a 52-week to 52-week basis, the Company expects total sales growth of 15% to 20%. The Company expects growth in operating income before pre-opening and relocation costs to be in line with sales growth. Ten of the Company's 14 tendered stores, representing approximately 520,000 square feet, are expected to open in fiscal year 2007. This 520,000 square feet is equal to roughly 78% of the square footage expected to open in all of fiscal year 2006, and the Company expects to announce additional stores tendered for openings in 2007 over the next two quarters. The anticipated acceleration in leases tendered and square footage opening in 2007 is expected to result in materially higher pre-opening and relocation expense year over year which, in turn, is expected to impact the Company's diluted earnings per share growth. Longer term, the Company's goal is to reach $12 billion in sales in 2010. 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 $4.7 billion in fiscal year 2005 and currently has 183 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 reports on Form 10-K and 10-K/A Amendment No. 1 for the fiscal year ended September 25, 2005. 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 simultaneous audio webcast will be available at http://www.wholefoodsmarket.com. -------------------------------------------------------------------------------- Whole Foods Market, Inc. 550 Bowie Street Austin, Texas 78703 512.477.5566 fax 512.482.7204 http://www.wholefoodsmarket.com -4- Whole Foods Market, Inc. Consolidated Statements of Operations (In thousands, except per share amounts)
Twelve weeks ended Forty weeks ended --------------------------- --------------------------- July 2, July 3, July 2, July 3, 2006 2005 2006 2005 ------------ ------------ ------------ ------------ Sales $ 1,337,886 $ 1,132,736 $ 4,316,359 $ 3,586,222 Cost of goods sold and occupancy costs 866,260 733,931 2,806,298 2,327,103 Gross profit 471,626 398,805 1,510,061 1,259,119 Direct store expenses 335,555 285,804 1,090,463 910,497 Store contribution 136,071 113,001 419,598 348,622 General and administrative expenses 43,955 39,618 138,265 114,792 Operating income before pre-opening and relocation costs 92,116 73,383 281,333 233,830 Pre-opening and relocation costs 7,860 8,777 23,675 25,641 Operating income 84,256 64,606 257,658 208,189 Other income (expense): Interest expense (8) (163) (11) (2,213) Investment and other income 5,581 2,868 15,731 6,175 Income before income taxes 89,829 67,311 273,378 212,151 Provision for income taxes 35,931 26,924 109,351 84,860 Net income $ 53,898 $ 40,387 $ 164,027 $ 127,291 Basic earnings per share $ 0.38 $ 0.31 $ 1.18 $ 0.99 Weighted average shares outstanding 140,712 131,797 139,062 128,625 Diluted earnings per share $ 0.37 $ 0.29 $ 1.13 $ 0.93 Weighted average shares outstanding, diluted basis 145,925 140,745 145,567 139,160 Dividends per share $ 0.15 $ 0.13 $ 2.45 $ 0.35
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 2, July 3, July 2, July 3, 2006 2005 2006 2005 ------------ ------------ ------------ ------------ Net income (numerator for basic earnings per share) $ 53,898 $ 40,387 $ 164,027 $ 127,291 Interest on 5% zero coupon convertible subordinated debentures, net of income taxes 61 483 225 2,441 Adjusted net income (numerator for diluted earnings per share) $ 53,959 $ 40,870 $ 164,252 $ 129,732 Weighted average common shares outstanding (denominator for basic earnings per share) 140,712 131,797 139,062 128,625 Potential common shares outstanding: Assumed conversion of 5% zero coupon convertible subordinated debentures 335 2,752 378 4,284 Assumed exercise of stock options 4,878 6,196 6,127 6,251 Weighted average common shares outstanding and potential additional common shares outstanding (denominator for diluted earnings per share) 145,925 140,745 145,567 139,160 Basic earnings per share $ 0.38 $ 0.31 $ 1.18 $ 0.99 Diluted earnings per share $ 0.37 $ 0.29 $ 1.13 $ 0.93
-------------------------------------------------------------------------------- Whole Foods Market, Inc. 550 Bowie Street Austin, Texas 78703 512.477.5566 fax 512.482.7204 http://www.wholefoodsmarket.com -5- Whole Foods Market, Inc. Consolidated Balance Sheets July 2, 2006 and September 25, 2005 (In thousands)
Assets 2006 2005 ------------------------------------------------------ ---------- ---------- Current assets: Cash and cash equivalents $ 47,745 $ 308,524 Short-term investments - available- for-sale securities 274,728 - Restricted cash 59,371 36,922 Trade accounts receivable 68,770 66,682 Merchandise inventories 209,151 174,848 Deferred income taxes 51,899 39,588 Prepaid expenses and other current assets 31,282 45,965 Total current assets 742,946 672,529 Property and equipment, net of accumulated depreciation and amortization 1,137,768 1,054,605 Long-term investments - available- for-sale securities 15,121 - Goodwill 113,494 112,476 Intangible assets, net of accumulated amortization 35,308 21,990 Deferred income taxes 29,214 22,452 Other assets 4,954 5,244 Total assets $2,078,805 $1,889,296
Liabilities And Shareholders' Equity 2006 2005 ------------------------------------------------------ ---------- ---------- Current liabilities: Current installments of long-term debt and capital lease obligations $ 97 $ 5,932 Trade accounts payable 120,710 103,348 Accrued payroll, bonus and other benefits due team members 150,618 126,981 Dividends payable 21,177 17,208 Other current liabilities 228,261 164,914 Total current liabilities 520,863 418,383 Long-term debt and capital lease obligations, less current installments 8,538 12,932 Deferred rent liability 107,480 91,775 Other long-term liabilities 84 530 Total liabilities 636,965 523,620 Shareholders' equity: Common stock, no par value, 300,000 shares authorized; 141,689 and 136,017 shares issued; 141,181 and 135,908 shares outstanding in 2006 and 2005, respectively 1,125,371 874,972 Accumulated other comprehensive income 7,002 4,405 Retained earnings 309,467 486,299 Total shareholders' equity 1,441,840 1,365,676 Commitments and contingencies Total liabilities and shareholders' equity $2,078,805 $1,889,296
-------------------------------------------------------------------------------- Whole Foods Market, Inc. 550 Bowie Street Austin, Texas 78703 512.477.5566 fax 512.482.7204 http://www.wholefoodsmarket.com -6- Whole Foods Market, Inc. Consolidated Statements of Cash Flows (In thousands)
Forty weeks ended ------------------------ July 2, July 3, 2006 2005 ---------- ---------- Cash flows from operating activities Net income $ 164,027 $ 127,291 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 118,648 101,009 Loss (gain) on disposition of assets (1,001) 4,844 Share-based compensation 4,383 1,742 Deferred income tax expense (benefit) (19,073) (1,943) Excess tax benefit related to exercise of employee stock options (55,494) 42,358 Interest accretion on long-term debt 367 3,977 Deferred rent 13,547 15,914 Other 595 5,197 Net change in current assets and liabilities: Trade accounts receivable (2,089) 1,170 Merchandise inventories (37,303) (20,654) Prepaid expense and other current assets (5,749) (3,996) Trade accounts payable 17,362 12,023 Accrued payroll, bonus and other benefits due team members 23,637 24,455 Other accrued expenses 120,161 20,494 Net cash provided by operating activities 342,018 333,881 Cash flows from investing activities Development costs of new store locations (111,482) (152,794) Other property, plant and equipment expenditures (86,335) (82,159) Acquisition of intangible assets (16,204) - Purchase of available-for-sale securities (497,071) - Sale of available-for-sale securities 209,110 - Increase in restricted cash (22,449) (9,924) Decrease in notes receivable - 13,500 Net cash used in investing activities (524,431) (231,377) Cash flows from financing activities Dividends paid (336,889) (37,850) Issuance of common stock 208,641 70,885 Excess tax benefit related to exercise of employee stock options 55,494 - Payments on long-term debt and capital lease obligations (5,612) (5,872) Net cash provided by (used in) financing activities (78,366) 27,163 Net change in cash and cash equivalents (260,779) 129,667 Cash and cash equivalents at beginning of period 308,524 194,747 Cash and cash equivalents at end of period $ 47,745 $ 324,414 Supplemental disclosure of cash flow information: Interest paid $ 531 $ 910 Federal and state income taxes paid $ 18,679 $ 48,431 Non-cash transactions: Conversion of convertible debentures into common stock $ 4,910 $ 147,302
-------------------------------------------------------------------------------- Whole Foods Market, Inc. 550 Bowie Street Austin, Texas 78703 512.477.5566 fax 512.482.7204 http://www.wholefoodsmarket.com -7- 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 2, July 3, July 2, July 3, EVA 2006 2005 2006 2005 -------------------------- ---------- ---------- ---------- ---------- Net income $ 53,898 $ 40,387 $ 164,027 $ 127,291 Provision for income taxes 35,931 26,924 109,351 84,860 EVA adjustments* 4,176 4,091 10,780 9,409 NOPBT 94,005 71,402 284,158 221,560 Income taxes (40%) 37,602 28,561 113,663 88,624 NOPAT 56,403 42,841 170,495 132,936 Capital Charge 35,815 33,225 114,413 105,310 EVA $ 20,588 $ 9,616 $ 56,082 $ 27,626 * GAAP amounts not included in EVA include interest expense, gains and losses on the disposition of assets, accelerated depreciation and share-based compensation. SOURCE Whole Foods Market, Inc. -0- 07/31/2006 /CONTACT: Cindy McCann, VP of Investor Relations of Whole Foods Market, Inc., +1-512-542-0204/ /Web site: http://www.wholefoodsmarket.com / (WFMI) -------------------------------------------------------------------------------- Whole Foods Market, Inc. 550 Bowie Street Austin, Texas 78703 512.477.5566 fax 512.482.7204 http://www.wholefoodsmarket.com -8-