Whole Foods Market Reports Fourth Quarter and Fiscal Year Results and Declares First Dividend

Sales for the Quarter Increase 18%, With 8.8% Comparable Store Sales Growth; Sales for the Fiscal Year Top $3 Billion

AUSTIN, Texas, Nov. 12 /PRNewswire-FirstCall/ -- Whole Foods Market, Inc. (NASDAQ:WFMI) today reported sales and earnings for the fourth quarter and fiscal year ended September 28, 2003. Sales for the 12-week quarter increased 18% to $751 million from $638 million in the prior year. This increase was driven by 10% weighted average year-over-year square footage growth and comparable store sales growth of 8.8%. Sales in identical stores (excluding one relocated store and two major store expansions) increased 8.3% for the quarter. Sales for the fiscal year increased 17% to $3.1 billion from $2.7 billion in the prior year, with 11% weighted average year-over-year square footage growth, comparable store sales growth of 8.6%, and identical store sales growth (excluding three relocated stores and two major store expansions) of 8.1%.

Net income for the quarter increased 8% to $23.8 million from $22.0 million in the prior year, and diluted earnings per share increased 5% to $0.38 from $0.36 in the prior year. This was in line with the Company's $0.38 to $0.39 range of guidance. Net income for the fiscal year increased 23% to $103.7 million, or $1.66 per share, from $84.5 million, or $1.40 per share in the prior year. Net income and earnings per share for the fiscal year include a pre-tax gain in the third quarter of approximately $3.0 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. Excluding this gain, adjusted net income for the fiscal year increased 21% to $101.9 million, and adjusted diluted earnings per share increased 16% to $1.63.

"Last year we spoke of three challenges that we saw for Whole Foods Market in fiscal year 2003. These challenges included continuing to improve our operations, increasing our store development pipeline, and successfully integrating the Harry's stores into our company," said John Mackey, Chairman, President and Chief Executive Officer of Whole Foods Market. "In a year that was full of unusual events ranging from the outbreak of war, continued weakness in the economy, extreme weather across various parts of the country, and a blackout in the Northeast, we are pleased to have met these challenges and achieved such strong results for our shareholders. We produced an 8.6% increase in comparable store sales on top of a difficult 10.0% comparison in the prior year. We signed 29 leases, increasing our development pipeline to 35 stores and a record 1.6 million square feet, an increase of over 85% compared to this time last year. Our Harry's stores are comping above the overall company average reflecting the success of our remodeling efforts as well as the implementation of our culture and empowerment systems in those stores. In addition, we produced cash flow from operations of $280 million, ending the year with approximately $166 million in cash. As an EVA company that believes in maximizing returns on capital to our shareholders, we are proud to announce the commencement of our first quarterly dividend of fifteen cents per share."

For the quarter, net operating profit after taxes (NOPAT) increased 11% to $25.8 million. The Company's capital charge for the quarter was $29.9 million, resulting in Economic Value Added (EVA) of negative $4.1 million compared to negative $1.1 million in the prior year. For the fiscal year, EVA improved $1.5 million to negative $9.5 million.

Gross profit in the fourth quarter increased 15% to $258 million, or 34.3% of sales, from $224 million, or 35.1% of sales, in the prior year. As a percentage of sales, gross profit decreased 84 basis points. The decrease was primarily due to a $3.4 million LIFO inventory credit in the fourth quarter last year compared to a charge of $159,000 in the fourth quarter this year, a negative impact of 55 basis points. Gross profit was also negatively impacted by approximately 16 basis points due to product losses at the Company's ten stores affected by the blackout in the Northeast and nine stores affected by Hurricane Isabel, as well as inventory markdowns and losses related to the relocation of two stores in Ann Arbor, Michigan. Direct store expenses increased 17% to $191 million, or 25.5% of sales, from $163 million in the prior year, an improvement of six basis points as a percentage of sales. In total, the Company incurred approximately $1 million, or $0.01 in diluted earnings per share, of product losses, additional labor and other expenses related to the Northeast blackout and Hurricane Isabel. Store contribution increased 8% to $66 million, or 8.8% of sales, from $61 million in the prior year, a decline of 78 basis points as a percentage of sales. General and administrative (G&A) expenses increased 2% to $22 million, or 3.0% of sales, an improvement of 45 basis points as a percentage of sales.

For the 134 stores in the comparable store base, a 37 basis point improvement in direct store expenses to 25.1% of sales was offset by an 86 basis point decrease in gross profit to 34.3% of sales, resulting in a 49 basis point decrease in store contribution to 9.1% of sales.

Capital expenditures in the quarter were $44 million of which $24 million was for new store development. Capital expenditures for the year were $173 million of which $89 million was for new store development. The Company produced cash flow from operations of $75 million during the quarter and $280 million during the year. At the end of the fiscal year, the Company had approximately $166 million in cash and approximately $169 million in long-term debt. Long-term debt includes $151 million in Zero Coupon Convertible Debentures due in 2018. The Company has no amounts drawn on its $100 million line of credit.

In the fourth quarter, the Company opened two new stores in Santa Monica, CA and Las Vegas, NV and relocated two smaller stores in Ann Arbor, MI to a new 51,000 square foot store, ending the year with 145 stores and total square footage of approximately 4.5 million. The Company has recently signed leases for eight new stores, one each in Redwood City, CA; Red Bank, NJ; West Hartford, CT; Denver, CO; Brooklyn, NY; Oakland, CA, and two in Chicago, IL. The Company currently has 35 stores in development averaging 45,000 square feet in size. Square footage under development is a record 1.6 million.

In late September, Team Members at the Company's Madison, Wisconsin store presented a petition to the Company requesting that the United Food and Commercial Workers (UFCW) no longer be considered their official bargaining representative. As a result, the National Labor Relations Board (NLRB) scheduled a November 17th vote for the store's full Team Member base to decide whether the UFCW would represent them. With the vote scheduled, Madison Team Members then presented a second petition with sufficient signatures to allow the Company to legally withdraw recognition from the union without holding the scheduled vote. Although Whole Foods Market and the UFCW had consented to an election and had entered into an election agreement with the NLRB, the UFCW filed Unfair Labor Practice charges against the Company on November 7th, effectively blocking the vote from occurring in November or in the near future. The Company believes these charges, like the many others filed by the union, are baseless and ultimately will be dismissed. In light of this significant change of circumstances, the Company has decided that the best way to respect the wishes of its Team Members in Madison is now to withdraw recognition from the union, and the Company has done so as of today. It is possible for the UFCW to attempt to challenge this decision, but the Company fully expects to put this brief period of unionization in its history behind it and move on together with a renewed sense of cooperation and shared vision.

Goals for fiscal year 2004:

The Company expects total sales growth for fiscal year 2004 to be in the range of 15% to 20%, with weighted average year-over-year square footage growth of 10% to 11% and comparable store sales growth of 8% to 10%. The Company previously expected comparable store sales growth of 7% to 9% for the year. Square footage growth includes 41,000 square feet related to the expansion of six existing stores and is expected to be higher in the second half of the fiscal year, as the Company expects to open three or four new stores in the first half of the year and nine to 11 new stores during the remainder of the year, including the relocation of an existing store.

The Company is currently in the seventh week of its sixteen-week first quarter. During the second week of the quarter, labor unions at several major supermarkets in Southern California went on strike. The Company has 19 stores with sales benefiting from the strike, 17 of which are in the comparable store base. For the first six weeks of the first quarter, comparable store sales growth averaged 13.7% in all stores and just over 11% excluding stores positively impacted by the strike. It is difficult to forecast the eventual impact of the strike on sales and comps for the quarter, as the Company does not have relevant data on which to rely and much depends on the duration of the strike. The Company has already seen the positive sales benefit lessen in degree when the union stopped picketing at Kroger's Ralph's stores two weeks ago. Based on the best information the Company has available today and the difficult 10.5% comparison in the prior year, the Company is initiating a guidance range for first quarter comparable store sales growth of 9.5% to 12.5%, including the estimated positive impact from the strike.

The Company expects to produce operating margin improvement in fiscal year 2004 primarily through 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, more heavily weighted in the second half of the year.

Capital expenditures are expected to be in the range of $210 million to $240 million for the year. The Company does not expect 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.

The Company is initiating diluted earnings per share guidance for the first quarter of $0.56 to $0.58, an expected year-over-year increase of approximately 33% to 38%. This above-average increase is due to the Company's expectations of a positive benefit from the strike, a positive contribution from the three Harry's stores compared to a loss in the prior year, and lower pre-opening expenses. Additionally, this year's first quarter guidance does not include any potential impairment of or loss related to the Company's remaining $2.2 million investment in Gaiam, Inc., whereas the prior year's first quarter included a pre-tax impairment charge of $1.4 million, or $0.01 in diluted earnings per share. For the full year, the Company is raising its previously stated guidance for diluted earnings per share to $1.88 to $1.96 from $1.87 to $1.95.

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, the Company provides information regarding adjusted net income, adjusted diluted earnings per share and EVA in the press release as additional information for 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 the Company's results of operations and financial condition. In addition, management uses these measures for reviewing the financial results of the Company and for budget planning purposes. The following table reflects reconciliations of GAAP information to non-GAAP measures.

About Whole Foods Market:

Founded in 1980 in Austin, Texas, Whole Foods Market(R) (www.wholefoodsmarket.com ) is the largest natural and organic foods supermarket retailer. In fiscal year 2003, the Company had sales of $3.1 billion and currently has 145 stores in the United States and Canada.

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 29, 2002. The Company does not undertake any obligation to update forward-looking statements.

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