Whole Foods Market Reports Second Quarter 2009 Results
Company Reports Diluted EPS of
“We are very pleased with our second quarter results, including free cash flow of
For the second quarter, the Company’s effective tax rate was 42.5%, income available to common shareholders was
Excluding the non-cash asset impairment charges, income from operations increased 10% to
During the quarter, the Company produced
For the 28-week period ended
Year to date, the Company has produced
The Company’s average results for the last five fiscal years and quarterly results for the last five fiscal quarters are shown in the following table. Where applicable, percentages have been adjusted to exclude asset impairment charges, FTC-related legal costs, Hurricane Katrina charges and credits, and share-based payments expense related to the Company’s
FY04-FY08
Average 2Q08 3Q08 4Q08 1Q09 2Q09
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Sales growth 20.5% 27.6% 21.6% 15.5% 0.4% -0.5%
Comparable store sales growth 10.2% 6.7% 2.6% 0.4% -4.0% -4.8%
Identical store sales growth 9.1% 5.1% 1.9% -0.5% -4.9% -5.8%
Gross profit 34.7% 34.9% 34.4% 33.3% 33.4% 34.7%
Direct store expenses 25.9% 26.6% 26.6% 26.6% 26.4% 26.2%
Store contribution 8.8% 8.3% 7.7% 6.8% 6.9% 8.5%
G&A expenses 3.3% 3.6% 3.3% 2.9% 2.9% 2.9%
For the quarter, gross profit decreased 16 basis points to 34.7% of sales. The LIFO charge was zero versus
For stores in the identical store base, gross profit improved 16 basis points to 35.0% of sales, and direct store expenses improved 69 basis points to 25.9% of sales. As a result, store contribution improved 85 basis points to 9.1% of sales.
G&A expenses improved 57 basis points to 3.1% of sales due to the elimination of G&A expenses at the former Wild Oats home office in Boulder, along with the cost-containment measures implemented at the Company’s global and regional offices. Results in the current quarter included
Additional information on the quarter for comparable stores and all stores is provided in the following table.
NOPAT # of Average Total
Comparable Stores Comps ROIC(1) Stores Size Square Feet
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Over 11 years old
(15.6 years old,
s.f. weighted) -5.6% 79% 90 27,200 2,448,100
Between eight and
11 years old -3.4% 48% 58 30,800 1,784,800
Between five and
eight years old(2) -8.5% 43% 39 35,200 1,374,600
Between two and five
years old -5.3% 17% 54 47,000 2,536,300
Less than two years
old (including
seven relocations) 3.3% -1%(3) 26 55,500 1,442,800
All comparable stores
(7.8 years old, s.f.
weighted) -4.8% 30% 267 35,900 9,586,600
All stores (7.3 years
old, s.f. weighted) 25% 280 36,700 10,264,200
(1) Reflects only store-level capital and NOPAT, including pre-opening
expense.
(2) This age category was impacted by a higher percentage of cannibalized
stores.
(3) Excluding the Kensington store in London, NOPAT ROIC was 1%.
Growth and Development
The Company opened three stores in the second quarter, including one relocation. So far in the third quarter, the Company has relocated stores in
Since the Company’s first quarter earnings release, the Company has terminated three leases totaling approximately 155,000 square feet for stores previously scheduled to open in fiscal years 2011 through 2013. The Company also has downsized three leases in development by an average of 10,500 square feet each.
The following table provides additional information about the Company’s store openings in fiscal year 2008 and year-to-date in fiscal year 2009, leases currently tendered but not opened, and total development pipeline for stores scheduled to open through fiscal year 2013. For accounting purposes, a store is considered tendered on the date the Company takes possession of the space for construction and other purposes, which is typically when the shell of the store is complete or nearing completion. The average tender period, or length of time between tender date and opening date, will vary depending on several factors, one of which is the number of acquired leases, ground leases and owned properties in development, all of which generally have longer tender periods than standard operating leases.
Stores Stores Current Current
Opened Opened Leases Leases
New Store Information FY08 FY09 YTD Tendered Signed(1)
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Number of stores
(including relocations) 20 10 21 60
Number of relocations 6 5 2 9
Number of lease acquisitions,
ground leases and owned
properties 4 3 6 7
New markets 3 1 4 8
Average store size
(gross square feet) 53,000 52,700 43,400 46,500
As a percentage of
existing store
average size 146% 145% 119% 128%
Total square footage 1,060,700 527,100 911,200 2,826,200
As a percentage of
existing square footage 11% 5% 9% 27%
Average tender period in
months 9.7 13.1
Average pre-opening
expense per store
(incl. rent) $2.5 mil
Average pre-opening
rent per store $1.1 mil
Average development
cost (excl. pre-opening) $15.8 mil
Average development cost
per square foot $297
(1) Includes leases tendered
FTC Update
As previously announced, the Company is awaiting final approval of the settlement agreement reached with the FTC resolving its antitrust challenge to the Company’s acquisition of Wild Oats Markets, Inc. Under the terms of the agreement, a third-party divestiture trustee has been appointed to market for sale: leases and related assets for 19 non-operating former Wild Oats stores, 10 of which were closed by Wild Oats prior to the merger and nine of which were closed by Whole Foods Market; leases and related fixed assets (excluding inventory) for 12 operating acquired Wild Oats stores and one operating Whole Foods Market store; and Wild Oats(R) trademarks and other intellectual property associated with the Wild Oats stores. The 13 operating stores had combined sales of approximately
The divestiture trustee has six months to market the assets to be divested. For any good faith offers that are not finalized by
After receiving final approval by the FTC, the Company expects to record a non-cash charge of up to
The Company also will incur some cash expenses relating to legal and trustee fees which are not expected to be material. No material additional charges are expected related to the 19 non-operating properties, for which a lease liability reserve is already recorded, or related to the trademarks which have been fully amortized.
Assumptions for Fiscal Year 2009
For the first four weeks of the third quarter ended
Year to date, sales have averaged approximately
The Company is continuing to conduct periodic reviews for other asset impairments by evaluating changes in the results and/or economics of its stores. At this time, the Company does not see any further impairments on the horizon, unless the Company were to experience a further decline in sales and cash flow from current levels.
Based on the Company’s strong year-to-date earnings results and assuming just under
The following table provides additional information about the Company’s estimated store openings for the remainder of fiscal year 2009 through 2013 based on the Company’s current development pipeline. These openings reflect estimated tender dates, which are subject to change, and do not incorporate any potential new leases, terminations or square footage reductions.
The Company is committed to producing positive free cash flow on an annual basis and is confident it will produce operating cash flow in excess of the capital expenditures needed to open the 60 stores in its development pipeline.
Total Total Square Average Square
Openings Relocations New Markets Footage Feet per Store
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FY09 remaining
stores in
development 5 1 0 274,600 54,900
FY10 stores in
development 16 0 4 662,000 41,400
FY11 stores in
development 16 2 0 695,700 43,500
FY12 stores in
development 14 4 1 700,400 50,000
FY13 stores in
development 9 2 3 459,200 51,000
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Total(1) 60 9 8 2,791,900 46,500
(1) Total square footage excludes one expansion in development.
About Whole Foods Market
Founded in 1980 in
Forward-looking statements
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 successful integration of acquired businesses into our operations, changes in overall economic conditions that impact consumer spending, including fuel prices and housing market trends, the impact of competition, changes in the Company’s access to available capital, the successful resolution of ongoing FTC matters, and other risks detailed from time to time in the SEC reports of Whole Foods Market, including Whole Foods Market’s report on Form 10-K for the fiscal year ended
The Company will host a conference call today to discuss this earnings announcement at
Contact: Cindy McCann
VP of Investor Relations
512.542.0204
Whole Foods Market, Inc.
Consolidated Statements of Operations (unaudited)
(In thousands, except per share amounts)
Twelve weeks ended Twenty-eight weeks ended
April 12, April 13, April 12, April 13,
2009 2008 2009 2008
---- ---- ---- ----
Sales $1,857,550 $1,866,493 $4,324,053 $4,323,751
Cost of goods sold
and occupancy
costs 1,212,233 1,215,089 2,856,018 2,845,795
------------------ --------- --------- --------- ---------
Gross profit 645,317 651,404 1,468,035 1,477,956
Direct store
expenses 487,383 496,903 1,139,684 1,141,278
Asset impairments
from continuing
locations 13,009 - 14,682 -
----------------- ------ --- ------ ---
Store
contribution 144,925 154,501 313,669 336,678
General and
administrative
expenses 56,832 67,658 139,432 155,070
--------------- ------ ------ ------- -------
Operating income
before pre-
opening and
store closure 88,093 86,843 174,237 181,608
Pre-opening
expenses 13,789 10,039 27,853 25,178
Relocation, store
closure and lease
termination costs 4,651 1,818 9,728 6,830
------------------ ----- ----- ----- -----
Operating income 69,653 74,986 136,656 149,600
Interest expense (7,696) (8,438) (21,276) (20,019)
Investment and
other income
(loss) (639) 1,181 1,202 3,935
-------------- ---- ----- ----- -----
Income before
income taxes 61,318 67,729 116,582 133,516
Provision for
income taxes 26,060 27,769 48,995 54,413
------------- ------ ------ ------ ------
Net income 35,258 39,960 67,587 79,103
------------ ------ ------ ------ ------
Preferred stock
dividends 7,934 - 12,467 -
--------------- ----- --- ------ ---
Income available
to common
shareholders $27,324 $39,960 $55,120 $79,103
------------------ ------- ------- ------- -------
Basic earnings per
share $0.19 $0.29 $0.39 $0.57
------------------ ----- ----- ----- -----
Weighted average
shares outstanding 140,404 139,818 140,362 139,566
------------------- ------- ------- ------- -------
Diluted earnings
per share $0.19 $0.29 $0.39 $0.56
---------------- ----- ----- ----- -----
Weighted average
shares outstanding,
diluted basis 140,404 140,233 140,362 140,448
------------------- ------- ------- ------- -------
Common dividends
declared per share $- $0.20 $- $0.40
------------------- --- ----- --- -----
Whole Foods Market, Inc.
Condensed Consolidated Balance Sheets (unaudited)
April 12, 2009 and September 28, 2008
(In thousands)
Assets
2009 2008
--------------- ---- ----
Current assets:
Cash and cash equivalents $362,164 $30,534
Restricted cash 620 617
Accounts receivable 120,452 115,424
Merchandise inventories 322,006 327,452
Prepaid expenses
and other current assets 37,563 68,150
Deferred income taxes 85,657 80,429
------------------------- ------ ------
Total current assets 928,462 622,606
Property and equipment,
net of accumulated
depreciation and amortization 1,895,800 1,900,117
Goodwill 657,281 659,559
Intangible assets, net of
accumulated amortization 74,772 78,499
Deferred income taxes 106,985 109,002
Other assets 7,697 10,953
------------------------------ ----- ------
Total assets $3,670,997 $3,380,736
------------ ---------- ----------
Liabilities And Shareholders' Equity
2009 2008
------------------------------------ ---- ----
Current liabilities:
Current installments of
long-term debt and capital
lease obligations $380 $380
Accounts payable 186,462 183,134
Accrued payroll, bonus and other
benefits due team members 199,556 196,233
Dividends payable 1,133 -
Other current liabilities 272,908 286,430
------------------------- ------- -------
Total current liabilities 660,439 666,177
Long-term debt and capital
lease obligations, less
current installments 743,152 928,790
Deferred lease liabilities 229,421 199,635
Other long-term liabilities 78,230 80,110
--------------------------- ------ ------
Total liabilities 1,711,242 1,874,712
----------------- --------- ---------
Series A redeemable preferred stock,
$0.01 par value, 425 and no shares
authorized, issued and outstanding
in 2009 and 2008, respectively 413,052 -
Shareholders' equity 1,546,703 1,506,024
-------------------- --------- ---------
Commitments and contingencies
-----------------------------
Total liabilities and
shareholders' equity $3,670,997 $3,380,736
---------------- ---------- ----------
Whole Foods Market, Inc.
Consolidated Statements of Cash Flows (unaudited)
April 12, 2009 and April 13, 2008
(In thousands)
Twenty-eight weeks ended
April 12, April 13,
2009 2008
---- ----
Cash flows from operating activities:
Net income $67,587 $79,103
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 141,815 131,597
Loss on disposition of fixed assets 1,378 1,663
Impairment of fixed assets 15,383 99
Share-based payments expense 6,142 5,352
LIFO charge 3,600 5,332
Deferred income tax expense (benefit) 1,892 (12,038)
Excess tax benefit related to
exercise of team member stock
options - (4,999)
Deferred lease liabilities 29,406 24,135
Other 8,413 (651)
Net change in current assets and
liabilities:
Accounts receivable (5,570) (13,384)
Merchandise inventories 297 (21,655)
Prepaid expense and other current
assets 29,964 1,408
Accounts payable 3,827 (57,762)
Accrued payroll, bonus and other
benefits due team members 3,883 18,784
Other current liabilities 8,548 8,593
Net change in other long-term
liabilities (1,469) (4,300)
------------------------------------- ------ ------
Net cash provided by operating
activities 315,096 161,277
------------------------------ ------- -------
Cash flows from investing activities:
Development costs of new locations (142,462) (174,419)
Other property and equipment
expenditures (42,757) (95,937)
Proceeds from hurricane insurance - 1,500
Acquisition of intangible assets (247) (1,030)
Purchase of available-for-sale
securities - (194,316)
Sale of available-for-sale securities - 194,316
Payment for purchase of acquired
entities, net of cash - (5,480)
Proceeds from divestiture, net - 163,913
Other investing activities (425) (234)
--------------------------------------- ---- ----
Net cash used in investing activities (185,891) (111,687)
------------------------------------- -------- --------
Cash flows from financing activities:
Common dividends paid - (52,974)
Preferred dividends paid (11,333) -
Issuance of common stock 1,952 16,197
Excess tax benefit related to exercise
of team member stock options - 4,999
Proceeds from issuance of redeemable
preferred stock 413,052 -
Proceeds from long-term borrowings 123,000 111,000
Payments on long-term debt and capital
lease obligations (320,866) (68,952)
Other financing activities - -
---------------------------------------- --- ---
Net cash provided by financing
activities 205,805 10,270
------------------------------ ------- ------
Effect of exchange rate changes on cash
and cash equivalents (3,380) (1,467)
--------------------------------------- ------ ------
Net change in cash and cash equivalents 331,630 58,393
Cash and cash equivalents at beginning
of period 30,534 -
-------------------------------------- ------ ---
Cash and cash equivalents at end of
period $362,164 $58,393
----------------------------------- -------- -------
--------------------------------------
Supplemental disclosure of cash flow
information:
Interest paid $32,214 $22,556
Federal and state income taxes paid $16,413 $61,459
Non-cash transactions:
Conversion of convertible debentures
into common stock $- $154
------------------------------------ --- ----
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"), Earnings before interest, taxes
and non-cash expenses ("EBITANCE"), Earnings before interest, taxes,
depreciation and amortization ("EBITDA"), and Free Cash Flow in the press
release as additional information about its operating results. These
measures are not in accordance with, or an alternative to, GAAP. The
Company's management believes that these presentations provide useful
information to management, analysts and investors regarding certain
additional financial and business trends relating to its results of
operations and financial condition. Management believes EBITANCE is a
useful non-GAAP measure of financial performance, helping investors more
meaningfully evaluate the Company's cash flow results by adjusting for
certain non-cash expenses. These expenses include depreciation,
amortization, fixed asset impairment charges, non-cash share-based
payments expense, deferred rent, and LIFO charge. Similar to EBITDA, this
measure goes further by including other non-cash expenses, primarily those
which have arisen since the use of EBITDA became common practice and
because of accounting changes due to recent accounting pronouncements.
Management uses EBITANCE as a supplement to cash flows from operations to
assess the cash generated from our business available for capital
expenditures and the servicing of other requirements including working
capital. The Company defines Free Cash Flow as net cash provided by
operating activities less capital expenditures. In addition, management
uses these measures for reviewing the financial results of the Company and
EVA for incentive compensation and capital planning purposes.
The following is a tabular reconciliation of the EVA non-GAAP financial
measure to GAAP net income, which the Company believes to be the most
directly comparable GAAP financial measure.
Twelve weeks ended Twenty-eight weeks ended
April 12, April 13, April 12, April 13,
EVA 2009 2008 2009 2008
--- --------- --------- --------- ---------
Net income $35,258 $39,960 $67,587 $79,103
Provision for income
taxes 26,060 27,769 48,995 54,413
Interest expense and
other 11,346 12,813 30,475 29,838
-------------------- ------ ------ ------ ------
NOPBT 72,664 80,542 147,057 163,354
Income taxes (40%) 29,066 32,217 58,823 65,342
------------------ ------ ------ ------ ------
NOPAT 43,598 48,325 88,234 98,012
Capital charge 61,840 52,888 138,844 121,701
-------------- ------ ------ ------- -------
EVA $(18,242) $(4,563) $(50,610) $(23,689)
--- -------- ------- -------- --------
The following is a tabular presentation of the non-GAAP financial
measures, EBITDA and EBITANCE including a reconciliation to GAAP net
income, which the Company believes to be the most directly comparable GAAP
financial measure.
Twelve weeks ended Twenty-eight weeks ended
April 12, April 13, April 12, April 13,
EBITDA and EBITANCE 2009 2008 2009 2008
------------------- --------- --------- --------- ---------
Net income $35,258 $39,960 $67,587 $79,103
Provision for income
taxes 26,060 27,769 48,995 54,413
Interest expense, net 8,335 7,257 20,074 16,084
--------------------- ----- ----- ------ ------
Operating income 69,653 74,986 136,656 149,600
Depreciation and
amortization 61,023 57,115 141,815 131,597
---------------- ------ ------ ------- -------
Earnings before
interest, taxes,
depreciation &
amortization
(EBITDA) 130,676 132,101 278,471 281,197
Impairment of fixed
assets 13,091 99 15,383 99
------------------- ------ --- ------ ---
Adjusted EBITDA 143,767 132,200 293,854 281,296
Non-cash expenses:
Share-based payments
expense 2,352 2,322 6,142 5,352
LIFO charge - 2,700 3,600 5,332
Deferred rent 8,659 6,295 19,534 19,055
-------------- ----- ----- ------ ------
Total other non-cash
expenses 11,011 11,317 29,276 29,739
------------------------ ------ ------ ------ ------
Earnings before
interest,
taxes, and non-cash
expenses (EBITANCE) $154,778 $143,517 $323,130 $311,035
-------------------- -------- -------- -------- --------
The following is a tabular reconciliation of the Free Cash Flow non-GAAP
financial measure.
Twelve weeks ended Twenty-eight weeks ended
April 12, April 13, April 12, April 13,
Free Cash Flow 2009 2008 2009 2008
-------------- --------- --------- --------- ---------
Net cash provided by
operating activities $172,998 $85,137 $315,096 $161,277
Development costs of
new locations (60,376) (67,927) (142,462) (174,419)
Other property and
equipment expenditures (14,548) (36,887) (42,757) (95,937)
------------------ ------- ------- ------- -------
Free cash flow $98,074 $(19,677) $129,877 $(109,079)
-------------- ------- -------- -------- ---------
SOURCE Whole Foods Market