Whole Foods Market Announces Record First Quarter Results

Sales Increase 21% to Over $1.1 Billion; Diluted EPS Increase 45% to $0.60; Company Raises EPS Guidance for Fiscal Year

AUSTIN, Texas, Feb. 11 /PRNewswire-FirstCall/ -- Whole Foods Market, Inc. (NASDAQ:WFMI) today reported sales and earnings for the first quarter ended January 18, 2004. Sales for the 16-week quarter increased 21% to $1.1 billion from $924 million in the prior year. This increase was driven by 8% weighted average year-over-year square footage growth and comparable store sales growth of 14.7%. Sales in identical stores (excluding one relocated store and two major store expansions) increased 14.3% for the quarter. In Southern California, members of the United Food and Commercial Workers union were on strike during the last fourteen weeks of the sixteen-week quarter. Nineteen of the Company's stores experienced an increase in sales due to the strike, 17 of which are in the comparable store base. Excluding the stores positively impacted by the strike, comparable store sales increased 12.8% for the quarter.

Net income for the quarter increased 51% to $38.7 million from $25.6 million in the prior year. Diluted earnings per share increased 45% to $0.60 from $0.42 in the prior year. The Company attributes the above-average increase in net income and earnings per share to the stronger-than-expected sales across the country, a positive contribution from the Harry's stores and facilities compared to a loss in the prior year, and lower pre-opening expenses of $1.8 million compared to $3.8 million in the prior year. Additionally, last year's first quarter results included a pre-tax impairment charge of $1.4 million related to the Company's investment in Gaiam, Inc. compared to a loss of approximately $0.5 million relating to the sale of the Company's investment in Gaiam Inc. during the first quarter this year.

"This was one of the best quarterly performances in our 23-year history. For the first time, our sales for the quarter surpassed $1 billion. Our 12.8% comparable stores sales increase, excluding the strike-impacted stores, was well above our 10-year average of 8.5%, and this was on top of a 10.5% comparable store sales increase in the prior year," said John Mackey, Whole Foods Market CEO, President, Chairman and Co-founder. "We translated our 21% sales growth into a 45% increase in diluted earnings per share, and due to our strong results this quarter we are raising our guidance for the fiscal year."

Net operating profit after taxes (NOPAT) increased 49% to $41.0 million for the quarter. The Company's capital charge for the quarter was $37.4 million, resulting in Economic Value Added (EVA) of $3.6 million, an improvement of $7.2 million over the prior year.

Gross profit in the first quarter increased 22% to $385 million, or 34.4% of sales. The 39 basis point increase was due to lower occupancy expense as a percentage of sales and improved contribution from non-retail facilities. Direct store expenses increased 21% to $282 million, or 25.2% of sales. Store contribution increased 27% to $103 million, or 9.2% of sales, an improvement of 46 basis points as a percentage of sales. General and administrative (G&A) expenses increased 15% to $36 million, or 3.2% of sales, an improvement of 17 basis points as a percentage of sales.

In the first quarter, the Company opened a second store in San Francisco, CA, ending the quarter with 146 stores totaling approximately 4.6 million square feet. Pre-opening and relocation expense was $1.8 million for the quarter primarily related to four new store openings planned for the first half of the fiscal year, as well as to accelerated depreciation for several planned store relocations. Capital expenditures in the quarter were $69 million of which $35 million was for new store development. The Company produced cash flow from operations of $84 million during the quarter.

On January 16, 2004, the Company paid approximately $9 million to shareholders in its first quarterly dividend. The $0.15 per share dividend was paid to shareholders of record as of January 6, 2004. Subject to capital availability and a determination that cash dividends continue to be in the best interest of the Company's shareholders, it is the intention of the Board of Directors to pay a quarterly dividend on an ongoing basis. Cash and equivalents, including restricted cash, totaled approximately $182 million at the end of the first quarter, and long-term debt, which includes $154 million in Zero Coupon Convertible Debentures, was approximately $171 million.

On January 30, 2004, subsequent to the end of the first quarter, the Company issued approximately $20 million of cash and $16 million of stock (or approximately 239,000 shares) for the previously announced acquisition of Fresh & Wild Holdings Limited. Fresh & Wild operates seven natural and organic food stores in London and Bristol and has one store in development scheduled to open later this year. For the twelve months ended December 31, 2003, total sales were approximately 17.6 million British Pounds ($28.9 million(1)), and identical store sales increased 10%.

The Company opened its second New York City store located at Columbus Circle on February 5, 2004 and will open its first store in Louisville, KY on February 12, 2004. The Company expects to open one additional store during the second quarter in Colorado Springs, CO.

"Our 59,000 square foot Columbus Circle store is the largest supermarket in Manhattan and is receiving an incredibly positive reaction," said John Mackey. "Interest has been so high that over the past weekend customers had to wait for people to leave the store before more were allowed to enter. While we certainly expect some of the curiosity to level off, we expect this store to set a company record for first-week sales, and we believe it will quickly become our top-volume store."

The Company is pleased to announce the recent signing of seven new store sites in Birmingham, AL; Hollywood and Thousand Oaks, CA; Coral Gables, FL; Omaha, NE; Swampscott, MA; and Toronto, Canada.

Goals for Fiscal Year 2004:

The Company continues to expect total sales growth for fiscal year 2004 in the range of 15% to 20%. The Company expects weighted average year-over-year square footage growth for the year of 10%, including 41,000 square feet related to the expansion of six existing stores. Square footage growth is expected to be higher in the second half of the fiscal year as the Company plans to open four new stores in the first half of the year and nine to ten new stores, including one Fresh & Wild store and a relocation of an existing store, in the second half of the fiscal year. The Company now expects its Union Square store in New York City to open late in the first quarter of fiscal year 2005, rather than in fiscal year 2004, due to delays in the developer delivering the site to the Company.

The Company is initiating a guidance range for second quarter comparable store sales growth of 11% to 14%. This is higher than the Company's historical performance, reflecting continued strong sales momentum across the country, some positive sales benefit from the ongoing strike, Easter shifting from the third quarter last year to the second quarter this year, and a below- average 7% comparable store sales increase in the prior year. The Company expects comparable store sales growth for the second half of the year to be in range of 8% to 10% assuming the strike in Southern California has ended and noting the increasingly tougher year-over-year comparisons.

The Company continues to expect operating margin improvement in fiscal year 2004 primarily due to slight improvements in gross profit, direct store expenses and G&A as a percentage of sales. Pre-opening and relocation expense is expected to be in the range of $10 million to $12 million.

Capital expenditures are expected to be in the range of $210 million to $240 million for the year. The Company does not anticipate any borrowings on its $100 million credit line for the year. The Company expects interest expense, net of investment and other income, to be in the range of $3 million to $4 million, excluding the impact of potential future quarterly dividends.

Based on the Company's comparable store sales guidance of 11% to 14%, the Company is initiating diluted earnings per share guidance for the second quarter of $0.47 to $0.50, an expected year-over-year increase of 15% to 22%. The Company expects pre-opening and relocation expense of approximately $2.5 million to $3 million in the second quarter due to three new store openings planned for the second quarter and nine to ten new store openings planned for the second half of the fiscal year, as well as accelerated depreciation for several planned store relocations. Due to the higher-than- expected first quarter earnings and some expected continued positive benefit from the ongoing strike in the second quarter, the Company is raising its previously stated guidance for fiscal year 2004 diluted earnings per share to $1.93 to $2.02 from $1.88 to $1.96.

The Company is not prepared to issue fiscal year 2005 guidance at this time but emphasizes that year-over-year sales and earnings comparisons in the first quarter of the year will be difficult due to the above-average results the Company produced this year primarily due to the strike.

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, the Company provides information regarding 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 the Company's results of operations and financial condition. In addition, management uses this measure for reviewing the financial results of the Company and for bonus and capital planning purposes.

About Whole Foods Market:

Founded in 1980 in Austin, Texas, Whole Foods Market(R) (www.wholefoodsmarket.com ) is the largest natural and organic foods retailer. The Company had sales of $3.1 billion in fiscal year 2003 and currently has 154 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 28, 2003. The Company does not undertake any obligation to update forward-looking statements.

(1) Based on an average exchange rate of approximately $1.64 per British
Pound for the twelve months ended December 31, 2003

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