Austin, Texas-based Whole Foods Market, Inc. has reported sales and earnings for the Q1 ended 20 January 2002.
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Sales for the 16-week period increased 21% over the prior year. This increase was driven by 16% year-over- year square footage growth and better than expected comparable store sales growth of 9.4%. Sales in identical stores (excluding three relocated stores) increased 7.5% for the quarter. Net income for the quarter increased 34% to US$20.1m from US$15m in the prior year, and diluted earnings per share increased 26% to US$0.34, compared to US$0.27 in the prior year.
“For the ninth consecutive quarter, we delivered top line growth of over 20% driven by impressive sales at both our new and existing stores,” said John Mackey, Chairman, President and CEO of Whole Foods Market. “New stores produced average weekly sales of $380,000, and our comparable store sales increases continue to be the highest for public supermarket companies and among the highest in retailing overall.”
For all stores, store contribution was 8.6% of sales, gross profit decreased 37 basis points to 33.9% of sales, and direct store expenses improved 22 basis points to 25.3% of sales. For stores in the comp base, store contribution was 9.5% of sales, gross profit improved 20 basis points to 34.5% of sales driven by lower cost of goods sold, and direct store expenses improved 44 basis points to 25.0% of sales.
General and administrative expenses decreased approximately 5 basis points from the prior year primarily due to lower amortization expense. Depreciation and amortization was US$26m in the quarter, and EBITDA increased 20% to US$62.6m or 8% of sales.
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By GlobalDataThe company’s stated goal is to build long term intrinsic value measured by improvement in EVA. EVA was negative US$7.9m for the quarter, a US$1.1m improvement over the prior year. This improvement reflects a 40% tax rate and 10% weighted average cost of capital (WACC) in both years. The Company recalculated its WACC which decreased from 11% to 10% due to a lower cost of debt attributable to the substantial decrease in interest rates since the beginning of 1999 when the Company’s previous WACC was first calculated. Stores produced EVA of US$24m. NOPAT increased 20% to US$23m, and total capital increased 10% to US$1bn.
During the Q1, the company acquired three stores, opened one new store in Maryland, relocated its 14,000 square foot store in Northridge, CA, to a new 28,000 square foot location and closed two stores as previously announced. So far during the second quarter, the Company has opened one new store in Kansas City and plans to open two additional stores. The Company has signed a lease for one new store in Madison, NJ, and currently has 20 stores in development with an average store size of 36,000 square feet. Approximately 25% of these stores will be in new markets including Portland, OR; Toronto, Canada; Pittsburgh, Albuquerque and Las Vegas.
Capital expenditures, excluding the Harry’s acquisition, were US$47m for the quarter of which US$28m was for new store development. The Company borrowed US$32m to fund the Harry’s transaction. The Company also completed the sale of a facility in Thornton, Colorado for approximately US$15m in cash. The company used the proceeds from the sale along with cash flow from operations and the exercise of stock options to pay down about US$35m on its credit facility, resulting in a net decrease on the credit line of US$3m. As of the end of the quarter, the company had approximately US$256m in total long-term debt and about US$129m available on its line of credit.
In the Q1, the company adopted SFAS No. 142 relating to the new rules on accounting for goodwill and other intangible assets. The company has completed its transitional goodwill impairment tests and did not record an impairment charge upon adoption of SFAS No. 142.
Forward-Looking Guidance:
The company is maintaining its previously stated sales growth guidance for the fiscal year of 15% to 20%, adjusted for the 53 weeks in fiscal year 2001. It has already opened one new store and plans to open two additional stores during the second quarter. The company expects to open three to five new stores per quarter in the H2 of the fiscal year. Comparable store sales guidance is 7% to 8% for the second quarter. The company is expecting comparable stores sales of 5% to 8% for the H2 of the year due to tougher comparisons year-over-year in the third and fourth quarters.
The company expects gross profit margin to be lower for the fiscal year due to the newly acquired Harry’s stores, which are expected to negatively impact gross margins in the range of 20 to 30 basis points, and to allow the company to maintain pricing flexibility in the event of any further or prolonged economic weakness. The company expects the degree of impact from the acquired stores to be higher in the H1 of the year and then lessen as the integration of those stores progresses.
The company is focused on producing operating margin improvement primarily through the leveraging of direct store expenses; however, the higher operating expenses of new stores will continue to have a partially offsetting impact. General and administrative expenses as a percentage of sales are expected to increase slightly due to an increased marketing investment related to the company’s national branding initiative as well as the additional infrastructure for the new South Region headquartered in Atlanta, GA. Pre- opening and relocation expense is expected to be in the range of US$11m to US$13m for the year.
Capital expenditures are expected to be in the range of US$180m to US$200m for the year, excluding the US$35m Harry’s acquisition and any potential future cash acquisitions. Excluding acquisition-related borrowings, borrowings for the remainder of the year are expected to be in the range of US$10m to US$15m and net interest expense is expected to be between US$10m to US$11m for the year. The Company expects diluted earnings per share for the fiscal year in the range of US$1.30 to US$1.36.
