EX-99 2 newsrelease.htm PRESS RELEASE Whole Foods Market Reports Fourth Quarter Results

EXHIBIT 99.1

Whole Foods Market Reports Fourth Quarter Results

Comparable Store Sales Increase 8.7%; Company Produces 5.0% Operating Margin and $0.42 in Earnings Per Share, Raises Quarterly Dividend 40% to $0.14 Per Share, and Announces $200 Million Share Repurchase Authorization

AUSTIN, Texas, Nov. 2, 2011 (GLOBE NEWSWIRE) -- Whole Foods Market, Inc. (Nasdaq:WFM) today reported results for the 12-week fourth quarter ended September 25, 2011. Sales for the quarter increased 12% to $2.4 billion. Comparable store sales increased 8.7%, or 17.4% on a two-year stacked basis. Identical store sales, excluding six relocations and one expansion, increased 8.4%, or 17.1% on a two-year stacked basis. Earnings before interest, taxes, depreciation and amortization ("EBITDA") increased 12% from the prior year to $185.3 million, net income increased 31% to $75.5 million, and diluted earnings per share increased 26% to $0.42. Results included a LIFO charge of $3.8 million versus a credit of $1.2 million in the prior year; pre-opening expenses of $10.9 million versus $4.9 million in the prior year; net interest income of $1.4 million versus net interest expense of $5.7 million in the prior year; and an effective tax rate of 36.4% versus 39.6% in the prior year.

"We are pleased to end the fiscal year on a high note, crossing $10 billion in sales and reporting our eighth consecutive quarter of accelerating two-year identical store sales growth," said John Mackey, co-founder and co-chief executive officer of Whole Foods Market. "Our outlook for fiscal year 2012 reflects consistent identical store sales growth, a record number of new store openings, EBITDA of close to $1 billion, and significant operating margin improvement. We are continuing to produce quality results and expect the lessons we learned during the recession will drive even higher levels of operating performance and returns on invested capital over time."

The following table shows the Company's comparable and identical store sales results for the last five quarters and for the first five weeks of the first quarter through October 30, 2011.

            QTD
  4Q10 1Q11 2Q11* 3Q11* 4Q11 1Q12
Sales growth 14.7% 13.8% 11.6% 10.9% 12.2% 13.0%
             
Comparable store sales growth 8.7% 9.1% 7.8% 8.4% 8.7% 8.7%
Two-year comps 7.7% 12.6% 16.5% 17.2% 17.4% 17.6%
             
Identical store sales growth 8.7% 9.1% 7.8% 8.1% 8.4% 8.2%
Two-year idents 6.4% 11.6% 15.5% 16.5% 17.1% 17.1%
 Sequential basis point change 178 518 392** 106** 53  
 
*Comparable and identical store sales growth includes a negative 50 basis point impact in 2Q11 and a positive 60 basis point impact in 3Q11 from the Easter shift.
**Excluding the Easter shift in both quarters, two-year idents on a sequential basis increased 440 basis points to 16.0% in 2Q11 and declined five basis points to 15.9% in 3Q11. 

For the quarter, the LIFO charge was $3.8 million versus a credit of $1.2 million in the prior year, a negative impact of 21 basis points. Excluding LIFO, gross profit increased 11 basis points to 34.7% of sales driven by an improvement in occupancy costs as a percentage of sales. Direct store expenses improved 54 basis points to 25.9% of sales due primarily to leverage in wages, depreciation, and healthcare as a percentage of sales.  As a result, store contribution, excluding LIFO, improved 65 basis points to 8.8% of sales.

For stores in the identical store base, gross profit improved 14 basis points to 34.8% of sales, direct store expenses improved 71 basis points to 25.8% of sales, and store contribution improved 85 basis points to 9.0% of sales.

G&A expenses were flat at 3.1% of sales.

Pre-opening expenses were $10.9 million versus $4.9 million in the prior year, with five new store openings in the fourth quarter this year compared to one in the fourth quarter last year. Relocation, store closure and lease termination costs were $1.8 million versus $0.8 million in the prior year. 

Net interest income was $1.4 million versus net interest expense of $5.7 million in the prior year. This change was due mainly to a decrease in total debt from the prior year.

The effective tax rate was 36.4% versus 39.6% in the prior year due to savings realized by the Company as a result of certain initiatives and investments.

During the quarter, the Company produced $159.6 million in cash flow from operations and invested $93.4 million in capital expenditures, of which $47.4 million related to new stores. This resulted in free cash flow of $66.3 million. In addition, the Company paid $17.7 million in dividends to shareholders and received $85.8 million in proceeds from the exercise of team member stock options.

The Company finished the year with total cash and cash equivalents, restricted cash, and investments of $799.1 million, and total debt (capital lease obligations) of $17.9 million. 

The Company today announced that its Board of Directors declared a 40% increase in the Company's quarterly dividend to $0.14 per share from $0.10 per share. The next dividend is payable on January 24, 2012 to shareholders of record as of January 13, 2012. 

In addition, the Company's Board of Directors authorized a new share repurchase program in the amount of $200 million through November 1, 2013.  Under the program, purchases can be made from time to time using a variety of methods, which may include open market purchases or purchases through a Rule 10b5-1 trading plan, all in accordance with Securities and Exchange Commission and other applicable legal requirements. The specific timing, price and size of purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations. The repurchase program does not obligate the Company to acquire any particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at the Company's discretion. 

"With today's dividend increase and share repurchase announcements, our board of directors has shown a clear vote of confidence in our ability to consistently execute and generate strong free cash flow," said Walter Robb, co-chief executive officer of Whole Foods Market. "We are well positioned to internally fund our accelerated new store growth, maintain a healthy cash reserve, increase our dividend, and seek additional value creation for our shareholders through selective stock repurchases."

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* Stores Size Square Feet
Over 15 years old (18.9 years old, s.f. weighted) 5.7% 105% 62 26,700 1,656,600
Between 11 and 15 years old  7.5% 74% 67 31,700 2,123,500
Between eight and 11 years old 7.0% 63% 42 33,800 1,419,700
Between five and eight years old 8.3% 51% 50 44,100 2,204,500
Between two and five years old 11.5% 14% 56 54,200 3,037,000
Less than two years old (including six relocations) 18.3% 7% 21 42,100 884,300
           
All comparable stores (8.6 years old, s.f. weighted) 8.7% 39% 298 38,000 11,325,700
All stores (8.3 years old, s.f. weighted)   36% 311 38,000 11,832,300
           
*Reflects store-level capital and net operating profit after taxes ("NOPAT"), including pre-opening expense

Fiscal Year Results

For the 52 weeks ended September 25, 2011, sales increased 12% to $10.1 billion. Comparable store sales increased 8.5%, or 15.7% on a two-year stacked basis. Identical store sales, excluding six relocations and one expansion, increased 8.4%, or 14.9% on a two-year stacked basis. EBITDA increased 17% to $834.7 million, income available to common shareholders increased 43% to $342.6 million, and diluted earnings per share increased 35% to $1.93. Fiscal-year results included a LIFO charge of $10.3 million versus a credit of $7.7 million in the prior year; store closure reserve adjustments of $1.6 million versus $6.9 million in the prior year; a gain of $3.2 million in the prior year from the sale of a non-operating property; net interest income of $4.1 million versus net interest expense of $26.2 million in the prior year; and an effective tax rate of 37.9% versus 40.3% in the prior year.   

For the fiscal year, the Company produced $754.8 million in cash flow from operations and invested $365.0 million in capital expenditures, of which $203.5 million related to new stores. This resulted in free cash flow of $389.9 million. In addition, the Company repaid the $490 million balance on its term loan, made three dividend payments to shareholders totaling $52.6 million, and received $296.7 million in proceeds from the exercise of team member stock options.

The following table shows the Company's results for the fiscal year for certain line items compared to its historical five-year ranges and averages.

   FY06-FY10 Range FY06-FY10  
   Low High Average FY11
Sales growth 1.0% 23.6% 14.2% 12.2%
Comparable store sales growth -3.1% 11.0% 5.4% 8.5%
Identical store sales growth -4.3% 10.3% 4.4% 8.4%
Ending square footage growth 6% 46% 15% 5%
Percent of sales from new & relocated stores 7% 9% 7% 4%
         
Gross profit 34.0% 34.9% 34.6% 35.0%
Direct store expenses 25.4% 26.7% 26.3% 26.0%
Store contribution 7.5% 9.6% 8.3% 9.0%
G&A expenses 3.0% 3.4% 3.2% 3.1%

Growth and Development

The Company opened five stores, including two relocations, in the fourth quarter and has opened five stores so far in the first quarter. The Company expects to open one additional store in the first quarter. The Company currently has 316 stores totaling approximately 12 million square feet. 

The Company recently signed nine new leases averaging 32,100 square feet in size in Phoenix, AZ; Tucson, AZ; Davis, CA; Littleton, CO; Tallahassee, FL; Tulsa, OK; Addison, TX; Katy, TX; and London, England.  These stores currently are scheduled to open in fiscal year 2012 and beyond. 

The following table provides additional information about the Company's store openings in fiscal years 2010, 2011, and 2012 year to date; leases currently tendered but unopened; and total development pipeline (including leases currently tendered) for stores scheduled to open through fiscal year 2015. 

  Stores Stores Stores Current Current
  Opened Opened Opened Leases Leases
New Store Information FY10 FY11 FY12 YTD Tendered Signed
Number of stores (including relocations) 16 18 5 16 62
Number of relocations 0 6 0 2 7
New markets 4 0 1 4 19
Average store size (gross square feet) 42,600 39,400 35,900 35,200 35,300
Total square footage 682,200 708,700 179,700 562,700 2,192,000
Average tender period in months 10.9 12.5      
Average pre-opening expense per store (incl. rent) $2.6 mil $2.5 mil      
Average pre-opening rent per store $1.2 mil $1.2 mil      
Average development cost (excl. pre-opening)* $11.1 mil $9.8 mil      
Average development cost per square foot* $261 $248      
           
*Costs will vary depending on the size of the store, geographic location, degree of work performed by the landlord and complexity of site development issues. To a significant degree, they also depend on how the project is structured, including costs for elements that often increase or decrease rent, e.g., lease acquisition costs, shell and/or garage costs, and landlord allowances. For stores opened in FY11, development costs are estimated for projects not yet final.

Outlook for Fiscal Year 2012

The Company is maintaining its previously issued guidance for fiscal year 2012. The Company notes that fiscal year 2012 will be a 53-week year, with the extra week falling in the fourth quarter, making it a 13-week quarter.  The following table provides information on the Company's estimated and actual fiscal year 2011 results, along with expectations for fiscal year 2012 on a 53-week basis.

      FY12
  FY11(E) FY11(A)  53-Week Outlook*
Sales growth 12.2% - 12.4% 12.2% 13% - 15%
Comparable store sales growth 8.5% - 8.7% 8.5% 6.8% - 8.8%
 Two-year comps 15.6% - 15.8% 15.7% 15.3% - 17.3%
Identical store sales growth 8.3% - 8.6% 8.4% 6.5% - 8.5%
 Two-year idents 14.8% - 15.1% 14.9% 14.9% - 16.9%
       
Number of new stores 18 18 24 - 27
% of sales from new stores 4% 4% 5%
Ending square footage growth 5% 5% 7% - 8%
       
LIFO charge $10.0 - $11.0 mil $10.3 mil $5 - $8 mil
G&A expenses 3.1% 3.1% 3.0%
Pre-opening and relocation costs $48.5 - $50.0 mil $49.2 mil $51 - $56 mil
Operating margin 5.4% 5.4% 5.7% - 5.8%
EBITDA $833 - $836 mil $834.7 mil $960 - $980 mil
Net interest income $3.6 - $4.1 mil $4.1 mil $6 - $8 mil
       
Tax rate 38.3% 37.9% 38.5% - 39.0%
Diluted shares outstanding 177 mil 177 mil 183 mil
       
Diluted EPS $1.91 - $1.92 $1.93 $2.21 - $2.26
 YOY % change 34% 35% 15% - 17%
Capital expenditures $375 - $385 mil $365 mil $410 - $460 mil
       
*The Company estimates the impact on earnings from the extra week to be $0.06 per share. On a 52-week to 52-week basis, excluding the impact of the extra week in the fourth quarter, the Company expects total sales growth of 11% to 13% and earnings per share growth of 12% to 14%.  

The Company is committed to producing positive free cash flow on an annual basis, including sufficient cash flow to fund the 62 stores in its current development pipeline. The following table provides information about the Company's estimated store openings for the next two fiscal years

   Estimated   Average Square Ending Square
  Openings Relocations Feet per Store Footage Growth
Fiscal year 2012 24 - 27 1 - 2 35,000 7% - 8%
Fiscal year 2013 28 - 32 2 - 3 35,000 7% - 8%

Over the long term, the Company considers 1,000 stores to be a reasonable indication of its market opportunity in the United States as the Whole Foods Market brand continues to strengthen, consumer demand for natural and organic products continues to increase, and the Company's flexibility on new store size opens up additional market opportunities. The Company believes Canada and the United Kingdom hold great promise as well.

About Whole Foods Market

Founded in 1980 in Austin, Texas, Whole Foods Market (www.wholefoodsmarket.com) is the leading retailer of natural and organic foods and America's first national "Certified Organic" grocer. In fiscal year 2011, the Company had sales of approximately $10 billion and currently has 316 stores in the United States, Canada, and the United Kingdom. Whole Foods Market employs approximately 64,000 Team Members and has been ranked for 14 consecutive years as one of the "100 Best Companies to Work For" in America by Fortune magazine.

The Whole Foods Market, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=6063

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 general business conditions, changes in overall economic conditions that impact consumer spending, including fuel prices and housing market trends, the impact of competition 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-Q for the third fiscal quarter ended July 3, 2011.  Whole Foods Market undertakes no 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 (800) 862-9098, and the conference ID is "Whole Foods."  A simultaneous audio webcast will be available at www.wholefoodsmarket.com. 

Whole Foods Market, Inc.        
Consolidated Statements of Operations (unaudited)        
(In thousands, except per share amounts)        
         
  Twelve weeks ended Fifty-two weeks ended
  September 25, 2011 September 26, 2010 September 25, 2011 September 26, 2010
Sales  $ 2,353,833 $ 2,097,394  $ 10,107,787  $ 9,005,794
Cost of goods sold and occupancy costs  1,540,783 1,370,768  6,571,238  5,869,519
Gross profit 813,050 726,626 3,536,549  3,136,275
Direct store expenses  609,356 554,218  2,628,811  2,376,590
Store contribution  203,694  172,408  907,738  759,685
General and administrative expenses  73,675 65,820  310,920  272,449
Operating income before pre-opening and store closure  130,019  106,588  596,818  487,236
Pre-opening expenses  10,885 4,907  40,852  38,044
Relocation, store closure and lease termination costs  1,826 765  8,346  11,217
Operating income  117,308  100,916  547,620  437,975
Interest expense  -- (7,291)  (3,882)  (33,048)
Investment and other income  1,443 1,618  7,974  6,854
Income before income taxes  118,751  95,243  551,712  411,781
Provision for income taxes  43,276 37,745  209,100  165,948
Net income  75,475  57,498  342,612  245,833
Preferred stock dividends  --  --  --  5,478
Income available to common shareholders  $ 75,475  $ 57,498  $ 342,612  $ 240,355
         
Basic earnings per share  $ 0.42  $ 0.33  $ 1.96  $ 1.45
Weighted average shares outstanding  177,767  171,961  175,221  166,244
         
Diluted earnings per share  $ 0.42  $ 0.33  $ 1.93  $ 1.43
Weighted average shares outstanding, diluted basis  179,832  172,761  177,279  171,710
         
Dividends declared per common share  $ 0.10  $ --   $ 0.40  $ -- 
         
A reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations follows:
         
  Twelve weeks ended Fifty-two weeks ended
  September 25, 2011 September 26, 2010 September 25, 2011 September 26, 2010
Income available to common shareholders (numerator for basic earnings per share)  $ 75,475  $ 57,498  $ 342,612  $ 240,355
Preferred stock dividends  --   --   --   5,478
Adjusted income available to common shareholders (numerator for diluted earnings per share)  $ 75,475  $ 57,498  $ 342,612  $ 245,833
Weighted average common shares outstanding (denominator for basic earnings per share)  177,767  171,961  175,221  166,244
Potential common shares outstanding:        
Assumed conversion of preferred shares  --  --  --  4,751
Incremental shares from assumed exercise of stock options  2,065  800  2,058  715
Weighted average common shares outstanding and potential additional common shares outstanding (denominator for diluted earnings per share)  179,832  172,761  177,279  171,710
         
Basic earnings per share  $ 0.42  $ 0.33  $ 1.96  $ 1.45
Diluted earnings per share  $ 0.42  $ 0.33  $ 1.93  $ 1.43
Whole Foods Market, Inc.    
Consolidated Balance Sheets (unaudited)    
September 25, 2011 and September 26, 2010    
(In thousands)    
     
     
Assets 2011 2010
Current assets:    
Cash and cash equivalents  $ 212,004  $ 131,996
Short-term investments - available-for-sale securities  442,320  329,738
Restricted cash  91,956  86,802
Accounts receivable  175,310  133,346
Merchandise inventories  336,799  323,487
Prepaid expenses and other current assets  73,579  54,686
Deferred income taxes  121,176  101,464
Total current assets  1,453,144  1,161,519
Property and equipment, net of accumulated depreciation and amortization  1,997,212  1,886,130
Long-term investments - available-for-sale securities  52,815  96,146
Goodwill  662,938  665,224
Intangible assets, net of accumulated amortization  67,234  69,064
Deferred income taxes  50,148  99,156
Other assets  8,584  9,301
Total assets  $ 4,292,075  $ 3,986,540
     
Liabilities And Shareholders' Equity    
Current liabilities:    
Current installments of long-term debt and capital lease obligations  $ 466  $ 410
Accounts payable  236,913  213,212
Accrued payroll, bonus and other benefits due team members  281,587  244,427
Dividends payable  17,827  --
Other current liabilities  342,568  289,823
Total current liabilities  879,361  747,872
Long-term debt and capital lease obligations, less current installments  17,439  508,288
Deferred lease liabilities  353,776  294,291
Other long-term liabilities  50,194  62,831
Total liabilities  1,300,770  1,613,282
     
Shareholders' equity:    
Common stock, no par value, 300,000 shares authorized; 178,886 and 172,033 shares issued and outstanding in 2011 and 2010, respectively  2,120,972  1,773,897
Accumulated other comprehensive income (loss)  (164)  791
Retained earnings  870,497  598,570
Total shareholders' equity  2,991,305  2,373,258
Commitments and contingencies    
Total liabilities and shareholders' equity  $ 4,292,075  $ 3,986,540
Whole Foods Market, Inc.    
Consolidated Statements of Cash Flows (unaudited)    
September 25, 2011 and September 26, 2010    
(In thousands)    
     
  Fifty-two weeks ended
  September 25, 2011 September 26, 2010
Cash flows from operating activities    
Net income  $ 342,612  $ 245,833
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 287,109 275,589
Loss (gain) on disposition of fixed assets 2,228 (170)
Impairment of long-lived assets 1,317 2,237
Share-based payment expense 27,259 22,894
LIFO expense (benefit) 10,250 (7,670)
Deferred income tax expense (benefit) 19,540 (33,534)
Excess tax benefit related to exercise of team member stock options (22,741) (2,982)
Deferred lease liabilities 53,381 39,636
Other 5,713 (2,371)
Net change in current assets and liabilities:    
Accounts receivable (35,422) (28,447)
Merchandise inventories (23,267) (3,048)
Prepaid expenses and other current assets (18,987) (1,640)
Accounts payable 23,768 23,454
Accrued payroll, bonus and other benefits due team members 37,204 36,133
Other current liabilities 53,831 20,030
Net change in other long-term liabilities (8,950) (659)
Net cash provided by operating activities 754,845 585,285
Cash flows from investing activities    
Development costs of new locations (203,457) (171,379)
Other property and equipment expenditures (161,507) (85,414)
Purchase of available-for-sale securities (1,228,920) (1,072,243)
Sale of available-for-sale securities 1,155,795 646,594
Increase in restricted cash (5,154) (15,779)
Acquisition of intangible assets (5,157) (1,837)
Payment for purchase of acquired entities, net of cash acquired (1,972) (14,470)
Other investing activities (352) (878)
Net cash used in investing activities (450,724) (715,406)
Cash flows from financing activities    
Common stock dividends paid (52,620) -- 
Preferred stock dividends paid --  (8,500)
Issuance of common stock 296,719 46,962
Excess tax benefit related to exercise of team member stock options 22,741 2,982
Payments on long-term debt and capital lease obligations (490,394) (210,350)
Net cash used in financing activities (223,554) (168,906)
Effect of exchange rate changes on cash and cash equivalents (559) 893
Net change in cash and cash equivalents 80,008 (298,134)
Cash and cash equivalents at beginning of period 131,996 430,130
Cash and cash equivalents at end of period  $ 212,004  $ 131,996
     
Supplemental disclosure of cash flow information:    
Interest paid  $ 15,837  $ 39,156
Federal and state income taxes paid  $ 192,485  $ 193,044
Non-cash transaction:    
Conversion of redeemable preferred stock into common stock  $ --   $ 418,247
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 Earnings before interest, taxes, depreciation and amortization ("EBITDA"), Adjusted EBITDA and Free cash flow 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. In addition, management uses these measures for reviewing the financial results of the Company as well as a component of incentive compensation. The Company defines Adjusted EBITDA as EBITDA plus non-cash asset impairment charges. The Company defines Free cash flow as net cash provided by operating activities less capital expenditures. 
         
The following is a tabular presentation of the non-GAAP financial measures, EBITDA and Adjusted EBITDA including a reconciliation to GAAP net income, which the Company believes to be the most directly comparable GAAP financial measure. 
         
  Twelve weeks ended Fifty-two weeks ended
EBITDA and Adjusted EBITDA September 25, 2011 September 26, 2010 September 25, 2011 September 26, 2010
Net income  $ 75,475  $ 57,498  $ 342,612  $ 245,833
Provision for income taxes  43,276  37,745  209,100  165,948
Interest expense, net  (1,443)  5,673  (4,092)  26,194
Operating income  117,308  100,916  547,620  437,975
Depreciation and amortization  68,027  64,516  287,109  275,589
Earnings before interest, taxes, depreciation & amortization (EBITDA)  185,335  165,432  834,729  713,564
Impairment of assets  629  217  1,317  2,237
Adjusted EBITDA  $ 185,964  $ 165,649  $ 836,046  $ 715,801
         
The following is a tabular reconciliation of the Free cash flow non-GAAP financial measure. 
  Twelve weeks ended Fifty-two weeks ended
Free cash flow September 25, 2011 September 26, 2010 September 25, 2011 September 26, 2010
Net cash provided by operating activities  $ 159,642  $ 124,355  $ 754,845  $ 585,285
Development costs of new locations  (47,409)  (28,000)  (203,457)  (171,379)
Other property and equipment expenditures  (45,977)  (29,026)  (161,507)  (85,414)
Free cash flow  $ 66,256  $ 67,329  $ 389,881  $ 328,492
CONTACT: Cindy McCann
         VP of Investor Relations
         512.542.0204