Whole Foods Market, Inc. (Nasdaq: WFMI) yesterday reported sales and earnings for the third quarter ended July 1, 2001. Stock split-adjusted results from operations for the twelve and forty week periods are as follows (in millions except percentages and per share data):
% %
3Q01* 3Q00** Change FY01* FY00** Change
Sales $ 535.6 $442.6 21% $1,695.7 $1,399.6 21%
Utilities expense 7.9 5.9 34% 25.5 18.3 39%
Gross profit 187.7 153.9 22% 588.8 481.1 22%
Pro forma net
income 16.1 14.0 15% 46.2 40.8 13%
Pro forma diluted
EPS $0.29 $ 0.26 12% $0.83 $0.75 10%
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NOPAT 18.4 15.9 16% 54.2 45.5 19%
EVA (5.9) (6.3) 7% (25.4) (25.3) —
EBITDA 50.0 41.5 20% 149.1 123.8 20%
*Current year net income and diluted EPS exclude results of discontinued
operations and equity in losses of unconsolidated affiliate.
**Prior year net income and diluted EPS have been adjusted to reflect a
39.5% tax rate for the entire 2000 fiscal year, and excludes the
cumulative effect of change in accounting principle and the operating
results of WholeFoods.com in the first quarter of fiscal year 2000.
Sales for the quarter increased 21% over the prior year, slightly above the Company’s 15-20% guidance. This increase was driven by year-over-year square footage growth of 15% and stronger than expected comparable store sales growth of 10.1%. Sales in identical stores increased 8.8% for the quarter. Year-to-date sales increased 21%, with sales in comparable stores increasing 9.0% and sales in identical stores increasing 7.7%.
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By GlobalDataStore contribution for all stores was 9.9% of sales for the quarter, compared to 9.6% in the prior year. Excluding new and acquired stores, store contribution for the quarter was 10.5% of sales. The Company continues to see incremental gross margin improvement driven by lower cost of goods sold. Excluding a 15 basis point increase in utilities, gross margins increased 42 basis points over the prior year to 35.1% of sales. The 34% increase in utility expense impacted earnings per share by approximately $0.01 for the quarter.
Selling, general and administrative expenses increased 82 basis points over the prior year. Direct store expenses were relatively flat over the prior year, increasing 3 basis points. Existing stores saw a 45 basis point decrease in direct store expenses over the prior year which was offset by the impact of new and acquired stores, which have higher direct store expenses than the Company’s more mature stores. General and administrative expenses increased approximately 79 basis points over the prior year due to higher wage costs, depreciation from investments in information systems as well as accelerated depreciation related to recently replaced software.
“Our comparable store sales continue to be among the highest in retailing today, despite a soft economy,” said John Mackey, Chairman and Chief Executive Officer of Whole Foods Market. “However, we have not done a good job of leveraging our strong sales and are focused on and committed to producing incremental operating margin improvements.”
The Company’s stated goal is to build long term intrinsic value measured by improvement in EVA. The Company generated negative EVA of approximately $5.9 million during the quarter, an improvement of approximately $500,000 over the prior year. Although the Company’s stores produce very strong EVA on average, the Company currently has negative EVA due to the capital charge on approximately $300 million of unrecorded implied goodwill related to previous pooling acquisitions. Net operating profit after tax (NOPAT) increased 16% to $18 million, and total capital increased 9% to $971 million. Depreciation and amortization was $20 million in the quarter, and EBITDA increased 20% to $50 million or 9.3% of sales.
Store Returns
Average Average NOPAT % of
Size Comps ROIC Store Base
Stores over five years of age 23,200 5.8% 58% 48%
Stores between two and five years of age 31,000 11.9% 33% 26%
Stores between one and two years of age 34,600 21.9% 12% 26%
All stores in comp base
(5.7 years of age) 27,300 10.1% 33% 100%
During the third quarter, the Company opened two new stores in Boca Raton, FL, and Ridgewood, New Jersey. In the fourth quarter, the Company plans to open four new stores and relocate its 7,000 square foot store in Ft. Lauderdale, FL, to a new 33,000 square foot location. The Company is pleased to announce it has signed leases for four new stores in California, and now has 24 stores in development with an average store size of 35,000 square feet.
Capital expenditures were $24 million for the quarter, $116 million year- to-date, and are expected to be $150-160 million for the fiscal year. During the quarter the Company paid down $37 million on its credit facility and, as of the end of the quarter, had approximately $291 million in total long-term debt with $125 million outstanding on its $220 million line of credit. Subsequent to the end of the quarter, the Company paid down an additional $10 million on its credit line. The Company does not anticipate any significant borrowings on its credit facility for the remainder of the year, absent any potential future cash acquisitions.
For the fourth quarter, the Company expects to see top line growth of 15-20% (adjusted for the fact that the fourth quarter includes thirteen weeks this year) driven by a 14% increase in square footage year-over-year and comparable store sales of 6-8%. Comparable store sales in the fourth quarter are currently running above 8%; however, due to cannibalization from new store openings, as well as the uncertain economic outlook, the Company prefers to remain conservative in its guidance. The Company expects to see utility cost increases in the range of 30-50 basis points for the remainder of the year and is maintaining its split-adjusted EPS guidance range for the fiscal year of $1.08-$1.10.
For fiscal year 2002, the Company expects sales growth to remain in the 15-20% range based on 15-20 new and acquired stores and comps of 5-8%. The Company expects earnings per share to increase at a rate slightly higher than the sales increase due to incremental operating margin improvements. For the year, capital expenditures are expected to be in the range of $180-$200 million, and net borrowings are expected to be below $40 million, excluding any potential cash acquisitions.
About Whole Foods Market
Founded in 1980 in Austin, Texas, Whole Foods Market® (www.wholefoodsmarket.com ) is the world’s largest natural and organic supermarket. In fiscal year 2000, the company had sales of $1.8 billion and currently has 123 stores in the United States. The Whole Foods Market motto, “Whole Foods, Whole People, Whole Planet(TM),” captures the company’s mission to find success in customer satisfaction and wellness, employee excellence and happiness, enhanced shareholder value, community support, and environmental improvement. Whole Foods Market, Fresh Fields® Whole Foods Market, Bread & Circus® Whole Foods Market and Wellspring® Whole Foods Market are all owned by Whole Foods Market. The company employs more than 20,000 team members and has been ranked for four consecutive years as one of the “Top 100 Companies to Work for in America” by Fortune magazine.
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, including but 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 10K for the fiscal year ended September 24, 2000. The Company does not undertake any obligation to update forward-looking statements.
Whole Foods Market, Inc. and Subsidiaries
Condensed Consolidated Income Statements (unaudited, in thousands except
per share amounts)
Twelve weeks ended Forty weeks ended
July 1, July 2, July 1, July 2,
2001 2000 2001 2000
Sales $535,584 442,557 1,695,679 1,400,296
Cost of goods sold and
occupancy costs 347,867 288,643 1,106,923 919,248
Gross profit 187,717 153,914 588,756 481,048
Selling, general and
administrative expenses 154,233 123,809 487,781 393,062
Amortization expense 2,108 1,466 5,450 4,315
Pre-opening and relocation
costs 941 2,306 5,600 8,376
Operating income 30,435 26,333 89,925 75,295
Interest expense, net (3,569) (3,239) (12,910) (9,497)
Income from continuing
operations before income
taxes and cumulative
effect of change in
accounting principle 26,866 23,094 77,015 65,798
Provision for income taxes 10,746 9,700 30,806 27,615
Equity in losses in
unconsolidated affiliate — — 126 —
Income from continuing
operations before cumulative
effect of change in
accounting principle 16,120 13,394 46,083 38,183
Discontinued operations, net
of income taxes — — 12,304 (218)
Cumulative effect of change
in accounting principle,
net of income taxes — — — (375)
Net income $16,120 13,394 58,387 37,590
Basic earnings per share:
Income from continuing
operations before
cumulative effect of
change in accounting
principle $0.30 0.26 0.86 0.73
Discontinued operations,
net of income taxes — — 0.23 (0.00)
Cumulative effect of change
in accounting principle,
net of income taxes — — — (0.01)
Net income $0.30 0.26 1.09 0.72
Weighted average shares
outstanding 53,750 52,286 53,423 52,124
Diluted earnings per share:
Income from continuing
operations before
cumulative effect of
change in accounting
principle $0.29 0.25 0.83 0.70
Discontinued operations,
net of income taxes — — 0.22 (0.00)
Cumulative effect of change
in accounting principle,
net of income taxes — — — (0.01)
Net income $0.29 0.25 1.05 0.69
Weighted average shares
outstanding, diluted basis 59,396 54,650 55,773 54,195
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 1, July 2, July 1, July 2,
2001 2000 2001 2000
Net income (numerator for
basic earnings per share) $16,120 13,394 58,387 37,590
Interest on 5% zero coupon
convertible subordinated
debentures, net of tax 933 — — —
Adjusted net income
(numerator for diluted
earnings per share) $17,053 13,394 58,387 37,590
Weighted average common
shares outstanding
(denominator for basic
earnings per share) 53,750 52,286 53,423 52,124
Potential common shares
outstanding:
Assumed conversion of 5%
zero coupon convertible
subordinated debentures 3,286
Assumed exercise of stock
options 2,360 2,364 2,350 2,071
Weighted average common shares
outstanding and potential
additional common shares
outstanding (denominator for
diluted earnings per share) 59,396 54,650 55,773 54,195
Whole Foods Market, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited, in thousands)
July 1, 2001 and September 24, 2000
Assets
2001 2000
Current assets:
Cash and cash equivalents $3,072 395
Trade accounts receivable 24,423 21,836
Merchandise inventories 104,247 93,858
Prepaid expenses and other current assets 18,616 35,632
Total current assets 150,358 151,721
Property and equipment, net of accumulated
depreciation and amortization 532,500 468,678
Long-term investments 9,256 9,632
Acquired leasehold rights, net of accumulated
amortization 15,585 13,753
Excess of cost over net assets acquired,
net of accumulated amortization 67,872 69,867
Other assets, net of accumulated amortization 36,479 17,628
Net assets of discontinued operations 16,347 29,120
$828,397 760,399
Liabilities And Shareholders’ Equity
2001 2000
Current liabilities:
Current installments of long-term debt
and capital lease obligations $6,103 7,884
Trade accounts payable 50,456 49,985
Accrued payroll, bonus and employee benefits 45,614 37,534
Other accrued expenses 46,422 47,238
Total current liabilities 148,595 142,641
Long-term debt and capital lease
obligations, less current installments 284,780 298,070
Deferred rent liability 11,268 10,801
Other long-term liabilities 1,273 1,730
Total liabilities 445,916 453,242
Shareholders’ equity:
Common stock, no par value, 200,000 shares
authorized; 54,824 and 54,444 shares issued;
53,969 and 52,932 shares outstanding in 2001
and 2000, respectively 242,284 235,648
Common stock in treasury, at cost (13,387) (23,688)
Retained earnings 153,584 95,197
Total shareholders’ equity 382,481 307,157
Commitments and contingencies
$828,397 760,399
