Whole Foods Market, Inc. (WFMI 60.05, +6.30, +11.72%) reported results for the 16-week first quarter ended January 16, 2011. Sales for the quarter increased 14% to $3.0 billion. Comparable and identical store sales increased 9.1%, or 12.6% and 11.6% on a two-year stacked basis, respectively. Earnings before interest, taxes, depreciation and amortization ("EBITDA") increased 26% from the prior year to $234.3 million, income available to common shareholders increased 79% to $88.7 million, and diluted earnings per share increased 59% to $0.51. Results included a LIFO charge of $2.0 million versus $0.2 million in the prior year; relocation, store closure and lease termination costs of $3.1 million versus $12.4 million in the prior year; and net interest income of $0.3 million versus net interest expense of $8.8 million in the prior year.
"Our identical store sales growth continued to gain momentum for the fifth consecutive quarter on both a one- and two-year basis and at 9.1% is the highest we have produced in over four years," said Walter Robb, co-chief executive officer of Whole Foods Market. "Based on our consistently strong top- and bottom-line results, along with ongoing signs of increasing consumer confidence, we are raising our sales and earnings outlook for the year. Our new range for identical store sales growth of 7% to 9% appropriately reflects that we have yet to cycle over our toughest comparisons, while also allowing for the possibility that our 9% year-to-date results could be sustainable especially given the likelihood of some positive impact from inflation."
For the quarter, the LIFO charge was $2.0 million versus $0.2 million in the prior year, a negative impact of six basis points. Excluding LIFO, gross profit increased 29 basis points to 34.6% of sales driven by an improvement in occupancy costs as a percentage of sales. Direct store expenses improved 32 basis points to 26.3% of sales due to leverage in depreciation, healthcare costs and wages as a percentage of sales. As a result, store contribution, excluding LIFO, improved 60 basis points to 8.3% of sales.
For stores in the identical store base, gross profit improved 46 basis points to 34.8% of sales, direct store expenses improved 54 basis points to 26.1% of sales, and store contribution improved 100 basis points to 8.7% of sales.
G&A expenses increased seven basis points to 2.9% of sales due primarily to higher wages as a percentage of sales.
Pre-opening expenses were $8.6 million versus $12.8 million in the prior year, including pre-opening rent of $4.9 million versus $7.6 million in the prior year. Relocation, store closure and lease termination costs were $3.1 million versus $12.4 million in the prior year. This included store closure reserve adjustments of $1.0 million versus $10.1 million in the prior year.
Net interest income was $0.3 million versus net interest expense of $8.8 million in the prior year driven by a $326 million decrease in total debt and a $186 million increase in cash and investments year over year.
During the quarter, the Company produced $253.0 million in cash flow from operations and invested $91.0 million in capital expenditures, of which $45.6 million related to new stores. This resulted in free cash flow of $162.0 million. In addition, the Company repaid $100 million of its term loan maturing in August 2012. At the end of the quarter, total cash and cash equivalents, restricted cash, and investments were $762.0 million, and total debt was $408.3 million. Subsequent to the close of the first quarter, the Company repaid another $200 million of its term loan, leaving $190 million currently outstanding. The Company also reinstated its quarterly cash dividend at $0.10 per share, paying $17.3 million to shareholders on January 20, 2011.
Growth and Development
The Company opened three stores and expanded one store by 29,000 square feet in the first quarter. The Company expects to open three new stores, including one relocation, in the second quarter. The Company currently has 302 stores totaling approximately 11.4 million square feet.
Since the fourth quarter earnings release, the Company reduced the size of one store in development by 11,100 square feet and terminated the lease for one store in development totaling 45,000 square feet. The Company also recently signed six new leases in Ottawa, Canada; Danbury, CT; Jamaica Plain, MA; Lynnfield, MA; Marlboro, NJ; and San Antonio, TX. These stores currently are scheduled to open in fiscal year 2012 and beyond.
About Whole Foods Market
Founded in 1980 in Austin, Texas, Whole Foods Market (www.wholefoodsmarket.com) is the leading natural and organic foods supermarket, and America's first national certified organic grocer. In fiscal year 2010, the Company had sales of approximately $9.0 billion and currently has 302 stores in the United States, Canada, and the United Kingdom. Whole Foods Market employs approximately 59,000 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.