Company Reports Diluted EPS of $0.20, Including $0.05 in FTC-Related Legal Costs, and Generates $31.8 Million of Positive Free Cash Flow
AUSTIN, Texas, Feb. 18 /PRNewswire-FirstCall/ -- Whole Foods Market, Inc. (Nasdaq: WFMI) today reported results for the 16-week first quarter ended January 18, 2009. Sales for the quarter were $2.5 billion, in line with the prior year. Excluding $15.6 million of sales in the prior year from 13 subsequently closed Wild Oats stores, sales increased 1%. Comparable store sales decreased 4.0% versus a 9.3% increase in the prior year. Identical store sales, excluding eight relocated stores and three major expansions, decreased 4.9% versus a 7.1% increase in the prior year. Excluding the negative impact of foreign currency translation, comparable store sales decreased 3.4%, and identical store sales decreased 4.2%.
For the quarter, earnings before interest, taxes, depreciation and amortization ('EBITDA') were $147.8 million, and earnings before interest, taxes, depreciation and other non-cash expenses ('EBITANCE') were $166.1 million. Approximately $99.1 million relating to depreciation and amortization, share-based payments, LIFO and deferred rent was expensed for accounting purposes but was non-cash. For the quarter, income available to common shareholders was $27.8 million, and diluted earnings per share were $0.20. These results included $11.0 million, or $0.05 per diluted share, in legal costs related to the Federal Trade Commission ('FTC') lawsuit.
During the quarter, the Company produced $142.1 million in cash flow from operations and invested $110.3 million in capital expenditures, of which $82.1 million related to new stores. In addition, the Company paid a cash dividend to preferred stockholders of $2.8 million. Cash and cash equivalents increased to $272.6 million, and total debt was $748.4 million. During the quarter, the Company received $413.1 million net of closing costs from the Series A Preferred Stock investment and paid down $195.0 million on its credit line, net of borrowings. Currently, the Company has approximately $260.6 million available on its credit line, net of $89.4 million in outstanding letters of credit. The Company continues to be in compliance with all applicable covenants in its credit agreements.
'The difficult strategic decisions we made last August to contain costs and cut capital spending are helping us successfully manage through this challenging economic environment,' said John Mackey, chairman, chief executive officer, and co-founder of Whole Foods Market. 'Despite flat sales in the first quarter, our EBITDA was approximately equal to last year; we produced strong cash flow from operations, and we generated $31.8 million of positive free cash flow. We are demonstrating we can operationally adjust to lower sales volumes and believe that this flexibility, combined with our improved balance sheet, will enable us to emerge stronger and better positioned over the long term.'
The Company is no longer breaking out the results of the acquired Wild Oats stores from the results of its core business. The continuing Wild Oats stores were included in the Company's comparable and identical store base for the entire first quarter of the current and prior year. Historical results include the acquired Wild Oats stores as of the last four weeks of fiscal year 2007.
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 FTC-related legal costs, Hurricane Katrina charges and credits, and share-based payments expense related to the Company's September 2005 accelerated vesting of stock options.
FY04-FY08
Average 1Q08 2Q08 3Q08 4Q08 1Q09
------- ---- ---- ---- ---- ----
Sales growth 20.5% 31.4% 27.6% 21.6% 15.5% 0.4%
Comparable
store sales
growth 10.2% 9.3% 6.7% 2.6% 0.4% -4.0%
Identical store
sales growth 9.1% 7.1% 5.1% 1.9% -0.5% -4.9%
Gross profit 34.7% 33.6% 34.9% 34.4% 33.3% 33.4%
Direct store
expenses 25.9% 26.2% 26.6% 26.6% 26.6% 26.5%
Store
contribution 8.8% 7.4% 8.3% 7.7% 6.8% 6.8%
G&A expenses 3.3% 3.6% 3.6% 3.3% 2.9% 2.9%
Due to seasonality, the Company's gross margin is typically lower in the first quarter than in the remaining three quarters of the year, averaging 34.0% in the first quarter for the past five years. For the quarter, gross profit decreased 28 basis points to 33.4% of sales. The LIFO charge was $3.6 million versus $2.6 million in the prior year. Direct store expenses increased 29 basis points to 26.5% of sales. As a result, store contribution decreased 57 basis points to 6.8% of sales.
For stores in the identical store base, gross profit decreased 21 basis points from the prior year to 33.6% of sales due primarily to higher occupancy costs, including an increase in property taxes and rent as a percentage of sales. Direct store expenses improved 13 basis points from the prior year to 26.0% of sales due primarily to leverage in wages and certain other direct store expenses that more than offset increases in workers' compensation, healthcare and depreciation as a percentage of sales. As a result, store contribution decreased eight basis points to 7.6% of sales.
G&A expenses, excluding $11.0 million in FTC-related legal costs, improved 66 basis points to 2.9% of sales primarily 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.
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
----------------- ----- ----- ------ ---- -----------
Over 11 years old
(15.6 years old,
s.f. weighted) -4.4% 67% 88 27,000 2,373,100
Between eight
and 11 years old -4.4% 38% 58 30,500 1,769,600
Between five and
eight years old(2) -7.8% 36% 40 34,300 1,371,400
Between two and
five years old -4.2% 15% 52 46,300 2,408,500
Less than two years
old (including eight
relocations) 4.6% -2%(3) 27 56,200 1,516,200
------------ ---- --- --- ------ ---------
All comparable stores
(7.7 years old, s.f.
weighted) -4.0% 25% 265 35,600 9,438,800
All stores (7.2 years
old, s.f. weighted) 21% 279 36,400 10,155,100
(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
In the first quarter, the Company opened five stores, including two relocations. So far in the second quarter, the Company has closed one Wild Oats store in Albuquerque, NM. The Company currently has 278 stores totaling 10.1 million square feet. The Company recently signed one new lease for a 45,000-square-foot store in Burlington, VT currently scheduled to open after fiscal year 2010.
In the second quarter, the Company announced the split of its North Atlantic region into two regions - the North Atlantic region, consisting of all stores and facilities in Maine through Central Connecticut, and the new U.K. region, consisting of four acquired Fresh & Wild stores, which were recently rebranded, and the Kensington store in London.
'We believe there is great growth potential in the U.K., and we are taking proactive steps to improve our operations there,' said Mr. Mackey. 'Our overall operating cash flow in the U.K. on a currency-adjusted basis improved to negative $1.7 million in the first quarter from negative $3.3 million in the first quarter last year, and we believe that dedicated and focused executive leadership will drive further improvements in our financial performance, resulting in strong returns over the longer term.'
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(2)
--------------------- ---- -------- -------- -------
Number of stores
(including relocations) 20 5 17 68
Number of relocations 6 2 6 13
Number of lease
acquisitions, ground
leases and owned
properties 4 1 7 9
New markets 3 1 2 8
Average store size
(gross square feet) 53,000 53,600 50,000 47,900
As a percentage of
existing store
average size 146% 147% 137% 131%
Total square footage 1,060,700 268,000 849,600 3,291,000
As a percentage
of existing square
footage 11% 3% 8% 32%
Average tender period
in months 9.7 11.9
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)(1) $15.9 mil
Average development cost
per square foot(1) $300
(1) Includes estimated costs for three stores
(2) Includes leases tendered
FTC Update
On January 28, 2009, to allow both sides to negotiate a possible settlement, the FTC agreed to suspend its antitrust review of the consummated Wild Oats merger through February 5, 2009. On February 4, 2009 the Commission extended the withdrawal of this matter from adjudication through March 6, 2009. The Company looks forward to continuing constructive dialogue with the FTC to find a mutually agreeable resolution to this matter. The Company is not able to make any further comments at this time.
Assumptions for Fiscal Year 2009
The uncertain and rapidly changing economic environment makes it highly difficult to forecast future results. Therefore the Company has not given comparable store sales growth guidance for fiscal year 2009.
