Sales Increase 24% and Diluted EPS Increase 32% to $0.54; Record-High 17.1% Comparable Store Sales Growth; Company Raises 2004 Sales and EPS Guidance
AUSTIN, Texas, May 4 /PRNewswire-FirstCall/ -- Whole Foods Market, Inc. (NASDAQ:WFMI) today reported sales and earnings for the second quarter ended April 11, 2004. Sales for the 12-week quarter increased 24% to $902 million from $725 million in the prior year. This increase was driven by 7% weighted average year-over-year square footage growth and comparable store sales growth of 17.1%. Sales in identical stores (excluding one relocated store and one major store expansion) increased 17.0% for the quarter.
The Company has historically produced comparable store sales growth well above the supermarket industry average and has shown accelerating trends over the last ten years as natural and organic products have entered the mainstream consciousness, as the Company's execution has improved and as its brand equity has increased. The Company attributes its record-breaking 17.1% comparable store sales growth in the second quarter to these factors as well as to: (1) a below-average 7.0% comparable store sales increase in the prior year which was due to several factors including severe weather and the negative Easter shift and (2) a positive 70 basis point impact from the strike in Southern California. Excluding the stores positively impacted by the strike, comparable store sales increased 16.4% for the quarter.
Net income for the quarter increased 38% to $35.3 million, or 3.9% of sales, from $25.6 million, or 3.5% of sales, in the prior year. Diluted earnings per share increased 32% to $0.54 from $0.41 in the prior year. Net operating profit after taxes (NOPAT) increased 37% to $37.2 million for the quarter. The Company's capital charge for the quarter was $29.5 million, resulting in Economic Value Added (EVA) of $7.7 million, an improvement of $5.0 million over the prior year.
"We produced another quarter of outstanding results with strong sales, earnings and EVA improvement," said John Mackey, Whole Foods Market CEO, President, Chairman and Co-founder. "We are seeing great performance from all of our regions; however, we would like to highlight what we are seeing in Southern California post-strike. We estimate that we have retained approximately 30% of the sales we gained and maintained during the strike. As customers were newly introduced or were reintroduced to our stores, a significant percentage of them appeared to find it a more appealing shopping experience. We are very pleased with this level of retention, as we believe it points to the significant growing attraction of our store concept and therefore the customer opportunity that exists in our other markets across the country."
For the twenty-eight week period ended April 11, 2004, sales increased 23% over the prior year to $2.0 billion, with sales in comparable stores increasing 15.8% and sales in identical stores increasing 15.5%. Net income year to date has increased 45% to $74.0 million, or $1.14 per share, from $51.2 million, or $0.83 per share in the prior year. Year to date, EVA has improved to $11.4 million from negative $782,000 in the prior year.
In the second quarter, gross profit increased 99 basis points to 35.5% of sales, and direct store expenses increased 49 basis points to 25.4% of sales, resulting in a 50 basis point increase in store contribution to 10.0% of sales. For the 142 stores in the comparable store base, gross profit improved 118 basis points to 35.7% of sales, and direct store expenses increased 31 basis points to 25.2% of sales, resulting in an 87 basis point increase in store contribution to 10.4% of sales. General and administrative (G&A) expenses increased 24% to $28.8 million, or 3.2% of sales, an improvement of two basis points as a percentage of sales.
In the second quarter, the Company opened three new stores in New York, NY; Louisville, KY; and Colorado Springs, CO, ending the quarter with 156 stores totaling approximately 4.8 million square feet. Capital expenditures, excluding acquisitions, in the quarter were $70 million of which $46 million was for new store development. The Company produced cash flow from operations of $113 million during the quarter.
Cash and cash equivalents, including restricted cash, totaled approximately $214 million at the end of the second quarter, and long-term debt, which includes $155 million in Zero Coupon Convertible Debentures, was approximately $177 million. On April 19, 2004, subsequent to the end of the quarter, the Company paid approximately $9 million to shareholders in its second $0.15 quarterly dividend. Moody's Investors Service recently upgraded the Company's credit ratings, and the Company's corporate rating is now Baa3, an investment grade rating.
The Company is pleased to announce the recent signing of seven new store leases in Los Altos, CA; Miami, FL; Atlanta, GA; Chicago, IL; Portland, OR; Columbus, OH; and Fairfax, VA. The following table provides additional information about the Company's store development pipeline.
Goals for Fiscal Year 2004
Due to the Company's strong 23% sales growth in the first half of the year, the Company is raising its expectation for total sales growth for fiscal year 2004 to the range of 18% to 22%. 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 opened four new stores in the first half of the year and expects to open nine to ten new stores, including a relocation of an existing store, in the second half of the fiscal year.
The Company does not expect the comparable store sales increases produced in the first half of the year to continue. The Company expects comparable store sales growth for the second half of the year to be in the range of 10% to 12% reflecting a return to more normalized levels as well as the difficult Easter comparison in the third quarter, an expectation that some Southern California customers may return to their historical shopping patterns over time, and increasingly tougher year-over-year comparisons.
The Company expects operating margin improvement in fiscal year 2004 primarily due to an increase in gross profit and a slight improvement in 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 at the high end of the $210 million to $240 million range 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 $2 million to $3 million.
After producing higher-than-expected sales and earnings in the first quarter, the Company raised its fiscal year 2004 diluted earnings per share guidance to $1.93 to $2.02 from $1.88 to $1.96. Based on the higher-than- expected second quarter sales and earnings, the Company is again raising its fiscal year 2004 diluted earnings per share guidance to $2.03 to $2.10.
The Company notes that in the third quarter of the prior year, it recognized a pre-tax gain included in investment and other income of approximately $3 million, or $0.03 in diluted earnings per share, related to the distribution of proceeds from the sale of Blooming Prairie Cooperative, a cooperative natural foods distributor in which the Company was a member.
The Company is not prepared to issue fiscal year 2005 guidance at this time but emphasizes that comparisons will be especially difficult next year against the above-average results the Company has produced so far this year, including 23% sales growth, 15.8% comparable store sales growth and 38% earnings per share growth. As a result, the Company expects below-average increases in sales, comparable store sales and earnings in the first half of fiscal year 2005.
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 156 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.