10.2.2005: Meldung: Whole Foods Market Reports First Q 1 Results and Consolidated Statements of Operations

Whole Foods Market, Inc. today reported sales and earnings for the 16-week quarter ended January 16, 2005. For the quarter, sales increased 22% to $1.37 billion. This increase was driven by 15% weighted average year-over-year square footage growth and comparable store sales growth of 11.4%. Sales in identical stores (excluding one relocated store and two major store expansions) increased 10.7% for the quarter. Net income increased 27% to $49.1 million, diluted earnings per share increased 21% to $0.73, and Economic Value Added (EVA) improved $3.3 million to $6.9 million.

# of
Average Average NOPAT Comp
Store Returns for the Quarter Size Comps ROIC Stores
Stores over eight years old 29,000 10.9% 59% 71
Stores between five and eight years old 34,000 7.8% 43% 28
Stores between two and five years old 35,000 13.8% 23% 38
Stores less than two years old
(including relocations) 39,000 17.1% 17% 8

Stores in comparable store base 32,000 11.4% 38% 145
Stores open at the end of the first
quarter 32,000 --- 31% 166

"I would like to appreciate all of our Team Members for their hard work and all of our customers for their continued support. Sales grew by 22% on top of a 21% increase last year and we produced 21% EPS growth on top of a 43% increase last year," said John Mackey, Chairman, Chief Executive Officer, and Co-Founder of Whole Foods Market. "We are very pleased with our performance this quarter, particularly in light of our difficult year-over-year comparisons; however as we have previously stated, we do not expect to see this same level of year over year increases in sales and earnings to continue throughout the year. We continue to expect comparable store sales increases for the year of 8% to 10% and for 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 18 basis points to 34.7% of sales, which was offset by a 19 basis point increase in direct store expenses to 25.4% of sales, resulting in store contribution of 9.2% of sales. For the 145 stores in the comparable store base, gross profit improved 66 basis points to 35.1% of sales, and direct store expenses improved 16 basis points to 25.1% of sales, resulting in an 82 basis point increase in store contribution to 10.1% of sales. General and administrative (G&A) expenses improved 25 basis points to 3.0% of sales.

As shown in the table below, the Company"s quarterly results were in line with 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 Performance FY01 FY02 FY03 FY04 Average 1Q05
Gross profit 34.8% 34.7% 34.3% 34.8% 34.7% 34.7%
Direct store expenses 25.3% 25.1% 25.2% 25.5% 25.3% 25.4%
Store contribution 9.5% 9.6% 9.2% 9.3% 9.4% 9.2%
G&A 3.6% 3.6% 3.2% 3.1% 3.4% 3.0%

Capital expenditures in the quarter were $85 million of which $56 million was for new store development. During the quarter, the Company produced cash flow from operations of $122 million and paid approximately $9 million to shareholders in quarterly dividends. Cash and cash equivalents, including restricted cash, were approximately $261 million at the end of the quarter, and total long-term debt was approximately $101 million. During the quarter, approximately 137,000 of the Company"s Zero Coupon Convertible Debentures were voluntarily converted by bondholders to approximately 1.5 million shares of common stock resulting in a decrease in the Zero Coupon Convertible Debt from $159 million at the end of last fiscal year to $89 million at the end of the first quarter.

In November, the Company announced that its Board of Directors approved a 27% increase in the Company"s quarterly dividend. On January 17, 2005, the Company paid approximately $12 million to shareholders in quarterly dividends of $0.19 per share.

In the quarter, the Company opened three new stores in Hingham, MA; Redwood City, CA and Sarasota, FL, ending the quarter with 166 stores totaling approximately 5.3 million square feet. The Company is pleased to announce the recent signing of 7 new store leases in Lake Oswego, OR; Seattle, WA; Novato, CA; Scottsdale, AZ; Pasadena, CA; Annapolis, MD (relocation) and Rockville, MD (relocation). The following table provides additional information about the Company"s store development pipeline.

Stores in Development 2/9/05 2/11/04 % Change
Number of stores in development 58 41 41%
Average size (gross square feet) 50,000 45,000 10%
As a percentage of existing store
average size 159% 147% ---
Total square footage under development 2,930,000 1,872,000 57%
As a percentage of existing square
footage 56% 40% ---

Future Growth Goals

The Company has a stated long-term growth goal of $10 billion in sales by the year 2010. As shown in the table below, the Company produced above- average sales and comparable store sales increases in fiscal year 2004 and will, therefore, face difficult comparisons in 2005, particularly in the second quarter when it will be comparing against a 17.1% comparable store sales increase and a 32% increase in diluted EPS.

FY00-FY03 FY00-FY04
Historical Performance Average FY04 Average
Sales growth (CAGR) 20.5% 22.8% 21.0%
Comparable store sales growth 9.1% 14.9% 10.3%
Two-year comps (sum of two years) 18.0% 23.5% 19.1%

For the fiscal year, the Company continues to expect sales growth of 15% to 20% driven by comparable store sales growth of 8% to 10% and weighted average square footage growth of approximately 15% based on the opening of 15 to 18 new stores, including four relocations. The Company does not expect the same level of year over year increases in sales and earnings produced in the first quarter to continue throughout the year. 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 $18 million to $20 million versus $10 million in the prior year. In addition, new stores could have some negative impact on store contribution, as new stores generally have lower gross margins and higher direct store expenses than more mature stores. The Company also expects G&A expenses for the remainder of the fiscal year to be higher as a percentage of sales as compared to the first quarter and 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 still expected to be in the range of $300 million to $320 million.

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. Absent any overruling by Congress, the new rules are effective for interim or annual periods beginning after June 15, 2005; therefore, the Company would expect to begin expensing stock options in the fourth quarter of fiscal year 2005.

Though not retroactive, it should be noted that 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 is today announcing its intention, absent FASB 123R being overruled by Congress, to accelerate the vesting of all outstanding stock options (excluding options held by the Board of Directors and the members of the executive team) sometime prior to July 4, 2005, the date the new rules are effective for the Company. This accelerated vesting of options will create a one-time, mostly non-cash charge in the third 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 fourth quarter of fiscal year 2005 until it reaches 10% of net income in fiscal year 2010. EBCE in the fourth quarter of fiscal year 2005 is expected to be approximately $500,000 consisting primarily of grants to the executive team and the Board of Directors, since the Company will not accelerate those options. This estimated expense does not impact the Company"s annual guidance.

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 sixteen weeks ended January 16, 2005.


About Whole Foods Market: Founded in 1980 in Austin, Texas, Whole Foods Market(R) is the largest natural and organic foods retailer. The Company had sales of $3.9 billion in fiscal year 2004 and currently has 166 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

Whole Foods Market, Inc.
Condensed Consolidated Statements of Operations (unaudited)
(In thousands, except per share amounts)

Sixteen weeks ended
January 16, January 18,
2005 2004

Sales $1,368,328 $1,118,148
Cost of goods sold and occupancy costs 894,186 732,704
Gross profit 474,142 385,444
Direct store expenses 347,846 282,195
Store contribution 126,296 103,249
General and administrative expenses 40,401 35,869
Pre-opening and relocation costs 3,573 1,796
Operating income 82,322 65,584
Other income (expense):
Interest expense (1,708) (2,478)
Investment and other income 1,194 1,464
Income before income taxes 81,808 64,570
Provision for income taxes 32,723 25,828
Net income $49,085 $38,742

Basic earnings per share $0.78 $0.64
Weighted average shares outstanding 62,794 60,309

Diluted earnings per share $0.73 $0.60
Weighted average shares outstanding,
diluted basis 69,013 66,634

Dividends per share $0.19 $0.15

A reconciliation of the numerators and denominators of the basic and
diluted earnings per share calculations follows (in thousands):

Sixteen weeks ended
January 16, January 18,
2005 2004
Net income (numerator for basic
earnings per share) $49,085 $38,742
Interest on 5% zero coupon
convertible subordinated
debentures, net of income taxes 1,393 1,422
Adjusted net income (numerator for
diluted earnings per share) $50,478 $40,164
Weighted average common shares
outstanding (denominator
for basic earnings per share) 62,794 60,309
Potential common shares outstanding:
Assumed conversion of 5% zero coupon
convertible subordinated debentures 3,076 3,283
Assumed exercise of stock options 3,143 3,042
Weighted average common shares outstanding
and potential additional common shares
outstanding (denominator for diluted
earnings per share) 69,013 66,634

Basic earnings per share $0.78 $0.64
Diluted earnings per share $0.73 $0.60

Whole Foods Market, Inc.
Condensed Consolidated Balance Sheets
January 16, 2005 (unaudited) and September 26, 2004
(In thousands)

2005 2004
Current assets:
Cash and cash equivalents $228,112 $198,377
Restricted cash 33,212 23,160
Trade accounts receivable 61,880 64,972
Merchandise inventories 165,209 152,912
Prepaid expenses and other current assets 30,479 16,702
Deferred income taxes 28,894 28,894
Total current assets 547,786 485,017
Property and equipment, net of
accumulated depreciation and amortization 936,443 889,771
Goodwill 112,503 112,186
Intangible assets, net of accumulated
amortization 23,628 24,831
Other assets 6,050 20,302
Total assets $1,626,410 $1,532,107

Liabilities And Shareholders" Equity
2005 2004
Current liabilities:
Current installments of long-term
debt and capital lease obligations $5,972 $5,973
Trade accounts payable 95,060 90,751
Accrued payroll, bonus and other
benefits due team members 113,645 100,536
Dividends payable 12,200 9,361
Other accrued expenses 137,472 124,641
Total current liabilities 364,349 331,262
Long-term debt and capital lease obligations,
less current installments 95,330 164,770
Deferred rent liability 25,361 25,880
Other long-term liabilities 1,581 1,581
Deferred income taxes 20,175 20,175
Total liabilities 506,796 543,668
Shareholders" equity:
Common stock, no par value, 150,000
shares authorized; 64,791 and 62,771
shares issued; 64,283 and 62,407 shares
outstanding in 2005 and 2004 respectively 627,573 535,107
Accumulated other comprehensive income 3,932 2,053
Retained earnings 488,109 451,279
Total shareholders" equity 1,119,614 988,439
Commitments and contingencies
Total liabilities and shareholders"
equity $1,626,410 $1,532,107

Whole Foods Market, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)

Sixteen weeks ended
January 16, January 18,
2005 2004
Cash flows from operating activities
Net income $49,085 $38,742
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 38,486 32,182
Loss on disposition of assets 515 529
Tax benefit related to exercise of
employee stock options 9,199 6,666
Interest accretion on long-term debt 2,269 2,314
Other 1,604 1,521
Net change in current assets and
Trade accounts receivable 2,775 (8,708)
Merchandise inventories (13,297) (14,758)
Prepaid expense and other current assets 1,082 (1,723)
Trade accounts payable 4,309 3,451
Accrued payroll, bonus and other
benefits due team members 13,109 13,862
Other accrued expenses 12,452 10,330
Net cash provided by operating activities 121,588 84,408
Cash flows from investing activities
Development costs of new store locations (55,663) (35,211)
Other property, plant and equipment
expenditures (29,403) (33,929)
Acquisition of intangible assets --- (49)
Increase in restricted cash (10,052) (17,859)
Payment for purchase of acquired
entities, net of cash acquired --- (3,172)
Other investing activities --- 1,815
Net cash used in investing activities (95,118) (88,405)
Cash flows from financing activities
Dividends paid (9,416) (9,079)
Issuance of common stock 12,765 11,932
Payments on long-term debt and capital
lease obligations (84) (5)
Net cash provided by financing activities 3,265 2,848
Net increase in cash and cash equivalents 29,735 (1,149)
Cash and cash equivalents at beginning
of period 198,377 165,779
Cash and cash equivalents at end of period $228,112 $164,630

Supplemental disclosure of cash flow
Interest paid $364 $503
Federal and state income taxes paid $13,070 $19,403

Whole Foods Market, Inc.
Other Financial Information
(In thousands, except per share amounts)

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 table reflects a reconciliation of this non-GAAP financial measure to GAAP net income, which the Company believes to be the most directly comparable GAAP financial measure.

Sixteen weeks ended
January 16, January 18,
2005 2004

GAAP Net income $49,085 $38,742
Provision for income taxes 32,723 25,828
Interest expense and other 2,997 3,737
NOPBT 84,805 68,307
Taxes (40%) (33,922) (27,323)
NOPAT 50,883 40,984
Capital Charge (9%) (43,945) (37,351)
EVA $6,938 $3,633

The following tables reflect the pro forma effects of recognizing
compensation cost for stock options in accordance with Statement of
Financial Accounting Standards No. 123:

Stock-Based Compensation
Sixteen weeks ended
January 16, January 18,
Net income 2005 2004
Net income $49,085 $38,742
After-tax pro forma expense (9,425) (6,235)
Pro forma net income $39,660 $32,507
Dilution 19% 16%

Earnings per share
Net income $0.73 $0.60
After-tax pro forma expense (0.13) (0.09)
Pro forma net income $0.60 $0.51
Dilution 18% 15%

Source: Whole Foods Market, Inc.
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