Whole Foods Market, Inc. (Nasdaq: WFMI) yesterday reported sales and earnings for the fourth quarter ended September 24, 2000. Results from core retail operations for the twelve and 52-week periods are as follows (in millions except percentages and per share data):
% %
4Q00 4Q99 Change FY00 FY99 Change
Sales $438.3 $357.9 22% $1,837.9 $1,492.1 23%
Gross profit 152.5 123.0 24% 633.6 503.4 26%
Pro forma income
from operations* 25.4 19.4 31% 102.3 81.3 26%
Effective tax rate 39.5% 39% 39.5% 39%
Pro forma
net income* 13.2 11.0 20% 54.0 45.7 18%
Pro forma
diluted EPS * $0.48 $0.40 20% $1.98 $1.66 19%
Results exclude non-recurring charges to earnings and the cumulative impact of the tax rate adjustment in 4Q00.
Comparable store sales increased 8.6% for the quarter and for the fiscal year. Sales in identical stores increased 6.8% for the quarter and 7.0% for the year. The 160 basis point difference between the comparable increase and the identical increase for the year reflects four relocated stores and one remodeled store that are not included in the identical number. These five stores saw an average 96% increase in square footage. As the Company continues to relocate smaller stores to larger boxes, it expects to continue to see a similar variance between comparable and identical sales increases.
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Store contribution for the quarter was 9.4% of sales. Excluding new and acquired stores, store contribution for the quarter was 10.5%. Gross margins increased approximately 42 basis points to 34.8% of sales. Ongoing initiatives in the areas of national purchasing, category management, as well as a sales mix shift to higher gross margin departments, continue to have a positive impact on gross margins.
Direct store expenses were up 64 basis points over the same quarter of last year. New and acquired stores accounted for approximately 48 basis points of this increase. Over the last four quarters, the Company has added 20 new and acquired stores to its store base. Sales from new and acquired stores accounted for 16% of total sales during the fourth quarter versus only 9% of total sales in the prior year. The higher percentage of sales coming from these new stores coupled with the higher average expenses for new stores versus existing stores is fueling the increase in direct store expenses. However, existing stores did experience a 16 basis point increase primarily due to a sales mix shift to higher direct labor departments, such as prepared foods. While direct store expenses as a percentage of sales have increased, the larger increases in gross margin have been more than offsetting resulting in higher net contribution.
For the quarter, EBITDA from core retail increased 34% to $43 million or 9.7% of sales compared to 8.9% of sales in the prior year. For the year, EBITDA from core retail increased 27% to $166 million or 9.1% of sales compared to 8.8% of sales in the prior year.
During the fourth quarter, the Company opened five new stores to end the fiscal year with 117 stores. The Company is pleased to announce it has signed leases for four new stores in Santa Monica, CA; Portland, OR; Pittsburgh, PA; and Toronto, Canada and now has 23 stores in development with an average store size of 34,000 square feet.
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By GlobalData“We have several anticipated blockbuster stores in our development pipeline. Our Denver store which we opened earlier this month produced the second highest opening week sales in our Company’s history and is already in our top 10 highest volume stores,” said John Mackey, Chairman and Chief Executive Officer of Whole Foods Market. “Other anticipated blockbuster stores include our first store in Manhattan, a great location in Washington D.C., as well as additional stores in Houston, Philadelphia, and Cambridge. All of these stores, except for Cambridge, are scheduled to open in the first half of the year and all are expected to quickly move into our top tier of highest volume stores.”
The Company’s stated goal is to build long term intrinsic value measured by incremental improvement in EVA. For the fiscal year 2000, the Company’s core retail operations generated negative EVA of approximately $15 million, which is an incremental improvement of approximately $5 million or 27% over the prior year. This is the net result of approximately $62 million in net operating profit after taxes, less a capital charge of approximately $77 million using a cost of capital of 11%.
As previously announced, the Company recognized a pre-tax, non-cash charge of $10 million in the fourth quarter to write-off its preferred stock investment in American WholeHealth, Inc. as recent events and circumstances indicated that asset had become permanently impaired.
The Company’s previously stated guidance for sales growth of 20-25% for fiscal year 2001 remains unchanged. Comparable store sales are expected to be in the 7-9% range for the year. The Company expects diluted earnings per share for fiscal year 2001 of approximately $2.32 to $2.37, which has been adjusted to eliminate approximately $3 million in rent and interest income from Amrion and to reflect a 40% effective tax rate. Amrion’s operating results will not impact the Company’s income from continuing operations in fiscal year 2001.
On October 26th, the Company communicated that it had retained an investment banking firm to help evaluate strategic alternatives and opportunities for the Company’s investment in Amrion. Today the Company announced that it has signed a definitive agreement to purchase 100% of the common stock of Amrion from the venture capital investors. Today the Company also announced that its Board of Directors has adopted a plan to discontinue operations at Amrion. It is the Company’s intention to aggressively pursue a sale of the Amrion direct marketing and manufacturing divisions.
The Company’s consolidated results of operations in the fourth quarter includes charges totaling approximately $49 million related to the losses from Amrion and the plan to discontinue that business. Those charges are reported in three line items. The first line item is equity in loss of unconsolidated affiliate of $14 million. The majority of this amount is the previously announced write-off of Amrion’s investment in American Whole Health and the write-down of its investment in Real Goods Trading Corporation. The second line item is a loss of approximately $9 million from discontinued operations. This represents the losses in fiscal year 2000 from Amrion’s direct marketing and manufacturing divisions that are being discontinued and thus required to be reported separately. The third line item is an estimated loss of approximately $26 million from the disposal of the Company’s assets of the discontinued business. This $26 million estimated loss on disposal will be updated in the Company’s Form 10K and 10Q filings with the SEC until such time as the plan for disposal is completed. The final amounts realized from the disposal as well as Amrion’s actual losses in fiscal year 2001 will have no effect on the Company’s income from continuing operations in fiscal year 2001.
In summary, the total charge recognized is approximately $49 million, the majority of which is the write-down of the Company’s investment in and receivables from Amrion, net of taxes and net of estimated realizable value.
Whole Foods Market, a Fortune 1000 company, opened its first store in Austin, Texas, in 1980. Since then, Whole Foods has grown to operate the country’s largest chain of natural foods supermarkets with 118 stores in 22 states plus the District of Columbia. We invite you to learn more about Whole Foods Market at www.wholefoodsmarket.com.
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, including but not limited to general business conditions, the timely development and opening of new 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 26, 1999. The Company does not undertake any obligation to update forward-looking statements.
Whole Foods Market, Inc. And Subsidiaries
Condensed Core Retail Income Statements (Unaudited)
In thousands, except per share data
Twelve weeks ended Fifty-two weeks ended
Sept. 24 Sept. 26 Sept. 24 Sept. 26
2000 1999 2000 1999
Sales $438,343 357,862 1,837,922 1,492,111
Cost of goods sold
and occupancy costs 285,857 234,884 1,204,344 988,716
Gross profit 152,486 122,978 633,578 503,395
Selling, general and
administrative expenses 123,357 99,915 514,881 412,651
Amortization 1,611 830 5,926 3,507
Pre-opening and
relocation costs 2,120 2,862 10,459 5,914
Asset disposal costs --- 5,940 --- 5,940
Income from operations 25,398 13,431 102,312 75,383
Other income (expense):
Interest expense, net (3,611) (1,382) (13,108) (6,448)
Investment losses (10,000) --- (10,000) ---
Income before income taxes 11,787 12,049 79,204 68,935
Income taxes 6,969 4,699 35,284 26,885
Income before cumulative
effect of change in
accounting principle 4,818 7,350 43,920 42,050
Cumulative effect of
change in accounting
principle, net
of income taxes --- --- (375) ---
Net income $4,818 7,350 43,545 42,050
Basic earnings per share:
Income before cumulative
effect of change in
accounting principle 0.18 0.28 1.68 1.59
Cumulative effect of
change in accounting
principle, net
of income taxes --- --- (0.01) ---
Basic earnings per share 0.18 0.28 1.67 1.59
Weighted average
shares outstanding 26,328 26,342 26,124 26,374
Diluted earnings per share:
Income before cumulative
effect of change in
accounting principle 0.18 0.27 1.62 1.53
Cumulative effect of
change in accounting
principle, net
of income taxes --- --- (0.01) ---
Diluted earnings per share 0.18 0.27 1.60 1.53
Weighted average shares
outstanding,
diluted basis 27,478 27,425 27,185 27,446
Selected Financial Information Fiscal Fiscal
2000 1999
Cash and marketable securities 395 3,582
Inventories 93,858 75,535
Long-term debt (including current maturities) 303,204 215,462
Shareholders' equity 300,470 311,220
Whole Foods Market, Inc. And Subsidiaries
Condensed Consolidated Income Statements
(Unaudited) In thousands, except per share data
Twelve weeks ended Fifty-two weeks ended
Sept. 24 Sept. 26 Sept. 24 Sept. 26
2000 1999 2000 1999
Sales $ 438,334 358,113 1,838,630 1,492,519
Cost of goods sold
and occupancy costs 285,848 233,865 1,205,096 985,000
Gross profit 152,486 124,248 633,534 507,519
Selling, general and
administrative expenses 123,356 102,425 516,418 420,094
Amortization expense 1,611 830 5,926 3,507
Pre-opening
and relocation costs 2,121 2,862 10,497 5,914
Asset disposal costs --- 5,940 --- 5,940
Operating income
from continuing operations 25,398 12,191 100,693 72,064
Other income (expense):
Interest expense (3,611) (1,382) (13,108) (6,448)
Investment losses (10,000) --- (10,000) ---
Income from continuing
operations before income
taxes and cumulative 11,787 10,809 77,585 65,616
effect of change
in accounting principle
Provision for income taxes 6,969 4,057 34,584 25,590
Equity in loss
of unconsolidated affiliate,
net of income taxes 14,074 --- 14,074 ---
Income (loss) from
continuing operations before
cumulative effect of change
in accounting principle (9,256) 6,752 28,927 40,026
Discontinued operations:
Income (loss) from
discontinued operations,
net of income taxes (9,197) (1,249) (9,415) 2,129
Loss on disposal
of discontinued operations,
net of income taxes (25,881) --- (25,881) ---
Income (loss) before
cumulative effect of change
in accounting principle (44,334) 5,503 (6,369) 42,155
Cumulative effect of change
in accounting principle,
net of income taxes --- --- (375) ---
Net income (loss) $(44,334) 5,503 (6,744) 42,155
Basic earnings per share:
Income (loss) from
continuing operations
before cumulative effect
of change in accounting
principle $(0.35) 0.26 1.11 1.52
Discontinued operations:
Income (loss) from
discontinued operations,
net of income taxes (0.35) (0.05) (0.36) 0.08
Loss on disposal
of discontinued operations,
net of income taxes (0.98) --- (0.99) ---
Cumulative effect of
change in accounting
principle, net
of income taxes --- --- (0.01) ---
Basic earnings per share $(1.68) 0.21 (0.26) 1.60
Weighted average
shares outstanding 26,328 26,342 26,124 26,374
Diluted earnings per share:
Income (loss) from continuing
operations before cumulative
effect of change in
accounting principle $(0.35) 0.25 1.06 1.46
Discontinued operations:
Income (loss) from
discontinued operations,
net of income taxes (0.35) (0.05) (0.35) 0.08
Loss on disposal
of discontinued operations,
net of income taxes (0.98) --- (0.95) ---
Cumulative effect
of change in accounting
principle, net
of income taxes --- --- (0.01) ---
Diluted earnings per share $(1.68) 0.20 (0.25) 1.54
Weighted average shares
outstanding, diluted
basis 26,328 27,425 27,185 27,446
Note: Net loss per common share is based on weighted average shares outstanding for periods with loss from continuing operations.
