Conference Call Scripts

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2014

May 6 – 2nd Quarter Results

Cindy:

Good afternoon and thank you for joining us. On today’s call are John Mackey and Walter Robb, Co-Chief Executive Officers; A.C. Gallo, President; Glenda Flanagan, Executive Vice President and Chief Financial Officer; Jim Sud, Executive Vice President of Growth & Development; and David Lannon and Ken Meyer, Executive Vice Presidents of Operations.

As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in our company’s most recently filed Form 10-K.

Please note our press release and scripted remarks are available on our website. I will now turn the call over to John Mackey.

John:

Thank you, Cindy. Good afternoon everyone. First, I will share highlights from the quarter and then turn to our updated outlook for 2014 and strategic vision for the next few years.

In Q2, our sales grew approximately $300 million to a record $3.3 billion. Our comparable store sales excluding the Easter shift increased five percent, reflecting healthy market share gains. We increased our operating square footage eight percent to 14.2 million, expanding our reach to 374 stores across 41 states and three countries. We are particularly proud to have produced average weekly sales per store of $742,000, translating to record sales per gross square foot of $1,000!

As we have called out since the fourth quarter, we believe our comps have been impacted by many factors including our own strategies around value and growth as well as increasing competition, the macro environment and weather.

Since Q3 last year, our average price per item growth has moderated 160 basis points, from 3.3 percent to a three-year low of 1.7 percent this quarter. We attribute this primarily to our proactive value strategy and believe this is the biggest contributor to the change in our comp trends over the last several quarters.

A dynamically changing competitive environment is certainly a factor as well. With the growing demand for fresh, healthy foods, the offering of natural and organic products is expanding everywhere – in new stores, existing stores and online. Looking at the big picture, this is positive for us as it affirms our mission for the last 36 years and speaks to the increasing growth opportunity; however, we believe it is currently impacting our transaction count growth. In addition, severe weather in several of our larger regions impacted shopping patterns again this quarter, with customers making fewer trips and buying more items each trip.

In looking at the sequential change in comps from Q1 to Q2, we estimate the Easter shift was approximately 50 basis points, the moderation in average price per item growth was 26 basis points, and an increase in the impact from cannibalization was 5 basis points. Our comps have always included some impact from cannibalization, and with our accelerated growth over the last few years, we are seeing a slightly greater impact today; however, at the same time we are gaining market share. Austin and Boston, two of our oldest markets, are great examples where we have recently increased our square footage significantly in a short period of time, temporarily negatively impacting our comps but resulting in 20% higher annualized run-rate sales in the last year.

Turning to the income statement, our gross margin was 51 basis points lower than our record 36.4 percent result last year due primarily to an increase in cost of goods sold as a percentage of sales. This increase reflects our value efforts and the cycling over of significant improvements in shrink we produced last year.

Our value strategy, while impacting our sales growth and gross margin year to date, has driven significant improvements in our relative price positioning – improvements of over 400 basis points in some cases. Based on our prior experience, we believe these investments will translate into higher sales growth over time.

We have mentioned value several times today, which is certainly important as we seek to appeal to a broader customer base. Even more important, however, are our ongoing efforts to further differentiate our product offering and advance our leadership in the areas that matter most to our loyal customers. Customers look to us to create and curate new and exciting products, and we offer thousands of items that can only be found at Whole Foods Market. We continue to develop exclusive partnerships, in part through efforts like our Local Producer Loan Program through which we have provided over $12 million in loans, building relationships with 176 unique suppliers. As we raise the bar on differentiation, our customers have responded, with sales of mission- and attribute-based products such as organic, non-GMO, Whole Trade Guarantee, responsibly-farmed seafood, and grass-fed beef, along with sales of our exclusive brand products, continuing to grow faster than the store average.

Strong store-level operating disciplines drove our sixth consecutive year of improvement in direct store expenses to a record 25.3 percent of sales, and our third consecutive year of double-digit store contribution margin. While we were not able to improve upon last year’s record 7.6 percent operating margin, our business model still generated a healthy 15.6 percent return on invested capital and produced $282 million of operating cash flow. We invested $143 million in new and existing stores, returned $45 million in dividends to our shareholders, repurchased $55 million of stock, and ended the quarter with $1.5 billion in cash and investments.

Since Q1, we have added eight stores in six new markets, including the acquisition of four New Frontiers Natural Marketplace stores. Our EVA-based approach to site selection allows us to succeed in markets as diverse as Jackson, Mississippi to San Luis Obispo, California. For the last eight quarters, our new store class has averaged sales of $503,000 per week translating to sales per gross square foot of $729, new store productivity levels of 86 percent, and contribution margin of four percent. Most importantly, our comp stores less than two years old have averaged 15 percent return on invested capital.

Turning now to our updated outlook for fiscal year 2014, and our longer-term strategic view of the business...

We were overly optimistic in our ability to compare against the record-breaking results we have produced for the last few years, particularly in light of the rapidly changing competitive landscape and our ongoing strategy around value. We are resetting expectations for this year and, for the first time, laying out our strategic vision for the next several years. This is not guidance, but rather a framework around how we intend to manage our business over the intermediate term.

We are very confident in our future growth potential. We are upping our game, evolving, differentiating, innovating and improving our value while cutting our costs. With an average of over 21,000 items per store, we are uniquely positioned as the leading creator and curator of the highest quality and widest selection of natural and organic products. We are also more than just a grocery store, we are a restaurant and premier brand, with sales of $2.5 billion in prepared foods and bakery and $1.7 billion in exclusive brands in the last year.

And, as digital technologies transform our lives and the retail landscape, we are investing in technology to meet and connect with our customers where they are, whether physically, digitally or both. We have several pilot projects in process including click-and-collect, direct delivery, payment at food venues using Square, a mobile app, affinity program and expanded access to our eStore from just the holidays to year round. We aim to create seamless and unique experiences that add choices, convenience and flexibility to support our customers’ busy lifestyles.

As we continue our value strategy to broaden our appeal and drive sales growth over the longer term, we expect our gross margin to return to our historical range of 34 to 35 percent over the next several years. We have successfully reduced operating expenses by 175 basis points over the last five years and will be working to further improve our cost structure to offset the impact of these value and tech investments. We expect to produce year-over-year improvement in operating margin in 2015 and beyond.

We believe we will continue gaining share as the demand for fresh, healthy foods outpaces rising competition, creating millions and millions of new customers for us. To put it into perspective, we expect to increase our sales by $11 billion, approaching $25 billion over the next five years. It took us 34 years to cross the $11 billion mark! We are moving aggressively to take advantage of the tremendous growth opportunity, and with 56 new leases signed over the last 12 months, we now have a record 114 stores in our development pipeline. We expect to end the year approaching 400 stores and cross the 500-store mark in 2017. Over the longer term, we see demand for 1,200 Whole Foods Market stores in the U.S. alone.

We will now take questions. Our call will end at 4:45 Central time today to allow more time for questions. Please limit yourself to one question at a time so that everyone has an opportunity to participate. Thank you.

At close of call: Thank you for listening in. A transcript of the scripted portion of this call along with a recording of the call is available on our website as well. We look forward to speaking with you again in July for our Q3 earnings call.

February 12 - 1st Quarter Results

Cindy:

Good afternoon and thank you for joining us. On today’s call are John Mackey and Walter Robb, Co-Chief Executive Officers; A.C. Gallo, President; Glenda Flanagan, Executive Vice President and Chief Financial Officer; Jim Sud, Executive Vice President of Growth & Development; and David Lannon and Ken Meyer, Executive Vice Presidents of Operations.

As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in our company’s most recently filed Form 10-K. Please note our press release and scripted remarks are available on our website. We assume you have read our press release, so we will use this time to focus on highlights from the quarter as well as our future outlook.

I will now turn the call over to Walter Robb.

Walter:

Thank you, Cindy. Good afternoon everyone. In Q1, our sales increased $383 million to a record $4.2 billion. Our average weekly sales per store increased to $719,000, translating to sales per gross square foot of $983. We opened 10 new stores, growing our store base to 371 and increasing our square footage over eight percent to 14.2 million. Our strong results and capital expense disciplines drove a healthy 13.3 percent return on invested capital and generated $337 million of operating cash flow. We invested $219 million in new and existing stores, returned $37 million in dividends to our shareholders, repurchased $62 million of stock, and ended the quarter with $1.5 billion in cash and investments.

We are pleased with our near-record Q1 operating margin of six percent given that our 5.4 percent comps, while still reflecting healthy market share gains, were light of our expectations. After increasing 5.8 percent for the first five weeks, our comps dropped to 5.2 percent for the last 11 weeks, reflecting a softer December as many retailers have reported. We are not immune to the larger macro environment, and severe winter weather across much of the U.S. impacted shopping patterns, with customers making fewer trips and buying more items each trip. The biggest change from Q4 to Q1, however, was the 106 basis point moderation in average price per item growth, which we believe reflects the impact of our stepped up value efforts, particularly over the last two quarters. These efforts include improving our relative price positioning, expanding our value offerings across the store, and increasing our promotional activity.

Since the recession, we have focused on improving our price competitiveness primarily within our grocery departments, and we are now expanding our successful value efforts into our perishable areas as well. We are continuing to maintain our high quality standards, which clearly differentiate us from our competitors, while broadening our selection to include more value. In produce, for example, we are adding more high-grade conventional offerings to complement our organic offerings, allowing customers a broader range of choices. And in meat, all of our U.S. stores now offer fresh packaged chicken under our 365 Every Day Value brand. Well-recognized for value and quality by our customers, our 365 products tend to be the best sellers in most grocery categories, and we believe our chicken program will show similar results.

Our sales momentum and operating disciplines, along with moderating inflation, helped generate another quarter of record gross margin for Q1. Occupancy leverage was partially offset by a slight increase in cost of goods sold, reflecting our expanded price investments. Our internal pricing surveys showed improvements from Q4 to Q1 in our competitive price positioning across virtually all competitors and all areas – known value items, non-perishables and perishables. While we are seeing a sales and gross margin impact, based on our prior experience, we believe the impact will be short term and that our value strategy will benefit both customers and shareholders over the long term.

Turning to growth, we continue to accelerate our rate of openings, and our new stores continue to open at higher levels, exceeding our expectations. Over the past three months, we have had a succession of opening day sales records. This quarter our Brooklyn store broke the record Port Chester set last quarter, and then our newest Austin store broke Brooklyn’s record just one month later! With ten new store openings this quarter, there were many exciting innovations from coffee, beer and wine bars to our highly popular cold-pressed raw juices, to new ramen noodle and oyster venues, waffle and bagel stations, and our second rooftop garden.

Our EVA-based approach to site selection allows us to consider markets from Memphis to Brooklyn. While our expectations for sales productivity and operating expenses vary depending on the type of market and other factors, when balanced with the appropriate level of capital investment, we are finding that a wide variety of markets can produce healthy returns for our shareholders.

For the last eight quarters, on average, our new store class has consisted of 30 stores open for approximately six and a half months. At 36,000 square feet in size, they have generated average weekly sales of $505,000 translating to sales per gross square foot of $729, new store productivity levels of 86 percent and a contribution margin of approximately 4.5 percent. Most importantly, our comp stores less than two years old have produced an average 16 percent return on invested capital, which we believe is the best new store metric for investors to focus on.

Turning now to our updated outlook for fiscal year 2014, based on our first quarter results and updated assumptions for the remainder of the fiscal year, we believe it is prudent to take a more conservative point of view on our outlook for sales and earnings. For the fiscal year, we now expect sales growth of 11 to 12 percent, comparable store sales growth of 5.5 to 6.2 percent, and diluted earnings per share of $1.58 to $1.65.

We have broadened our EPS range to allow us more flexibility with regard to our value efforts. The lower end of our sales and earnings guidance reflects a year-over-year decrease in gross margin for the remainder of the year, while the high end assumes gross margin is flat, reflecting our ongoing value strategy and record gross margin of 36.2 percent last year. Over the longer term, we believe we can achieve our value goals while remaining within our historical range for gross margin of 34 to 35 percent.

The higher G&A expense is due primarily to increased spending on technology. We remain focused on improving and extending the customer experience, and an integral first step is moving to a unified commerce platform. Just yesterday, we announced a new partnership with Square enabling us to offer digital checkout at venues in select stores. In addition, several lab stores will be testing out other exciting innovations.

Higher pre-opening expenses are due primarily to pre-opening rent associated with the recent opportunistic acquisition of seven former Dominick’s locations, which will allow us to quickly and significantly expand our presence in the greater Chicago area. The locations will remain closed for remodeling this fiscal year before re-opening in 2015.

Please note the Easter holiday shift this year, which we estimate will have a negative impact on comps in Q2 and a positive impact in Q3 of 50 to 60 basis points. We also note that our store openings are back-end loaded this year, with 13 in the first half and 20-25 expected in the second half.

When the first Whole Foods Market store opened in 1980, we had no idea that we would become the 8th largest public food and drug retailer in the U.S., ranking #232 on the Fortune 500. Our more than 80,000 team members are the heart and soul of our company, and our “not-so-secret” sauce. In January, we were very proud to be one of only 13 companies ranked for 17 consecutive years as one of the "100 Best Companies to Work For" in America by Fortune magazine.

Each week, over seven million customers visit our 373 stores in 41 states and three countries, and, with four million followers, we are the #2 retail brand on Twitter. In 2005, it was a major milestone for us to report that we had six stores averaging $1 million in sales per week. We now have over 50 stores achieving that level with several averaging over $2 million.

Food retailing is more competitive than ever, and with the growing demand for fresh, healthy foods, the offering of natural and organic products seems to be expanding everywhere, in stores and online. Looking at the big picture, this is a positive for us as it affirms our mission for the last 36 years and speaks to the increasing growth opportunity.

We believe our industry-leading results highlight our ability to innovate and compete, the unique power of our brand and the excitement our stores create within their communities. We are very confident in our future growth potential and are moving aggressively to take advantage of the opportunity. With 57 new leases signed over the last 12 months, we have a record 107 stores in our development pipeline. We believe that in 2017 we will reach 500 stores, and over the longer term, we see demand for 1,200 Whole Foods Market stores in the U.S. alone.

We will now take questions. Our call will end at 4:30 Central time. Please limit yourself to one question at a time so that everyone has an opportunity to participate. Thank you.

At close of call: Thank you for listening in. A transcript of the scripted portion of this call along with a recording of the call is available on our website as well. We look forward to speaking with you again in May for our Q2 earnings call.

2013

November 6 - 4th Quarter Results

Cindy:

Good afternoon and thank you for joining us. On today’s call are John Mackey and Walter Robb, Co-Chief Executive Officers; A.C. Gallo, President; Glenda Flanagan, Executive Vice President and Chief Financial Officer; Jim Sud, Executive Vice President of Growth & Development; and David Lannon and Ken Meyer, Executive Vice Presidents of Operations.

As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in our company’s most recently filed Forms 10-Q and 10-K.

Please note our press release and scripted remarks are available on our website. We assume you have read our press release, so we will use this time to focus on highlights from the quarter and year, as well as our future outlook. Please note last fiscal year was 53 weeks with the extra week falling in Q4. Our comments today will reflect results on a comparative 12- and 52-week basis. We also want to remind investors that our average weekly sales and gross profit as a percentage of sales are typically highest in Q2 and Q3, and lowest in Q4 due to seasonally slower sales during the summer months.

I will now turn the call over to John Mackey.

John:

Thank you, Cindy. Good afternoon everyone. We delivered record fourth quarter results including:

  • 12 store openings;
  • average weekly sales per store of $694,000, translating to sales per gross square foot of $947;
  • gross margin of 35.6 percent;
  • direct store expenses of 25.4 percent of sales;
  • store contribution of 10.3 percent;
  • operating margin of 6.4 percent;
  • EBITDA margin of 9.2 percent; and
  • a return on invested capital of 14 percent.

We are pleased with our better-than-expected financial leverage particularly given that comps, while still reflecting market share gains, were light of our expectations. Following three quarters of consistent one- and two-year results averaging approximately seven and 16 percent, respectively, our comps increased 5.9 percent, or 14.5 percent on a two-year basis. This change in trends, beyond the 45 basis points attributed to our Team Member Double Discount Day in Q3, was seen in both transaction count and basket size and was broad-based across geographies, departments and store age classes.

While we cannot say definitively what drove the change, we know that several factors, including strategic price matching, cannibalization, competition and currency, had a larger negative impact on certain regions in Q4.

For example, at the end of Q3, we made a significant round of strategic price matches, which initially impact our sales but which we believe will drive sales growth over the long term.

In addition, we have opened six new stores in Boston this year, including five in the fourth quarter. Exciting innovations, such as a greenhouse on the roof supplying produce to our Lynnfield store, have completely revitalized our brand in what is one of our oldest markets. It doesn’t get more local than that! These stores impact our existing stores initially but, as we typically experience, should drive healthy comps for the region next year.

On a broader level, inflation continues to moderate, and we are not immune to the larger macro environment. As several retailers are reporting, discretionary spending has been impacted as consumer confidence has dropped to a six-month low.

While the current uncertainty in the economy might be impacting our ability to attract new crossover customers at the same rate, our core customers appear to be fairly resilient. Year over year, we have continued to see shifts toward organic products and discretionary categories as well as meaningful increases in 50 dollar-plus sized baskets.

In addition, our new stores are continuing to perform very well and exceed our expectations. For the last eight quarters, on average, our new store class has consisted of 28 stores open for approximately six and a half months. At 36,000 square feet in size, they have produced average weekly sales of $515,000 translating to sales per square foot of $738, and have generated a contribution margin of approximately five percent.

As you know, we evaluate potential new sites on an EVA basis allowing us to consider a wide-variety of markets from Savannah, Georgia to Brooklyn, New York. While we would expect different levels of sales productivity and operating expenses, when balanced with the appropriate levels of capital investment, we are able to produce healthy returns for our shareholders, which is our ultimate financial goal. For the last eight quarters, our comparable stores less than two years old have produced an average 15 percent return on invested capital, and we believe this is the best metric for investors to focus on.

We remain committed to expanding our value offerings across the store, increasing our promotional activity and improving our relative price positioning, and with our latest round of strategic price matches, we have significantly closed the gap against a major competitor. Our sales momentum and operating disciplines, along with moderating inflation, helped generate record gross margin performance for Q4, with occupancy leverage, shrink reduction and buyside initiatives more than offsetting the impact of our value initiatives.

We have narrowed the pricing gap versus our competitors on known value items to its narrowest margin yet, while continuing to raise the bar even higher on our standards of transparency. We are the first and only U.S. public food retailer to commit to labeling GMOs, and we recently announced a new rating system for fresh produce and floral that will measure performance on important sustainable farming topics, including pest management, farmworker welfare, and pollinator protection.

In summary, fiscal year 2013 was yet another record-breaking year on many levels. Our sales approached $13 billion, translating to sales per gross square foot of $972. We opened 32 new stores, expanding into 10 new markets and increasing our ending square footage eight percent to 13.8 million. We improved operating margin 48 basis points to 6.8 percent, generated over $1.2 billion in EBITDA, and exceeded our initial split-adjusted EPS guidance of $1.42 to $1.44 by growing EPS 19 percent year over year to $1.47. Our outstanding financial performance generated over $1 billion in operating cash flow and $472 million in free cash flow. We returned $508 million in dividends to our shareholders, repurchased $125 million of common stock, and ended the year with $1.4 billion in cash and investments.

We remain well positioned to internally fund our accelerated new store growth while maintaining a healthy cash balance and, reflecting confidence in our future growth and cash flow generation, today announced a 20 percent increase in our quarterly dividend to $0.12 per share and an additional $500 million stock repurchase authorization, bring our total available authority to $800 million.

Turning now to our revised outlook for fiscal year 2014, for the first five weeks of Q1, comparable store sales increased 5.8 percent, roughly in line with our Q4 results. Based on recent trends, we believe it is prudent to take a more conservative point of view on our sales and earnings outlook for the year. For fiscal year 2014, we now expect sales growth of 11 to 13 percent, comparable store sales growth of 5.5 to 7 percent, identical store sales growth of 5 to 6.5 percent, and diluted earnings per share of $1.65 to $1.69, an increase of 12 to 15 percent. Please see the guidance table of our press release for additional detail.

While resetting expectations is always difficult, we want to underscore that we have just delivered our fourth consecutive year of increases in new store openings while producing improvements in operating margin and higher returns on invested capital, and our outlook for fiscal year 2014 reflects a continuation of these trends.

Each week, over seven million customers visit our 367 stores in 40 states and three countries. In 2005, it was a major milestone for us to report that we had six stores averaging $1 million in sales per week. We now have over 50 stores achieving that level. Yes, food retailing is more competitive than ever, and with the growing demand for fresh, healthy foods, it seems like everyone is adding to or expanding their offering of natural and organic products. However, we believe the strength of these numbers highlights our ability to innovate and compete, the unique power of our brand and the excitement our stores create within their communities. With 47 new leases signed over the last 12 months, we have 94 stores in our development pipeline and see demand for 1,000 Whole Foods Market stores in the U.S. alone.

We will now take questions. Please limit yourself to one question at a time so that everyone has an opportunity to participate. Our call will end at 4:30 Central time. Thank you.

At close of call: Thank you for listening in. Please visit Whole Foods Market in store and online for everything you need to enjoy great meals over the holidays, and join us in February for our first quarter earnings call. Check out the “Beyond the Numbers” section of our Investor Relations webpage for additional information about our new stores, new produce standards and more. A transcript of the scripted portion of this call along with a recording of the call is available on our website as well.

July 31 - 3rd Quarter Results

Cindy:

Good afternoon and thank you for joining us. On today’s call are John Mackey and Walter Robb, Co-Chief Executive Officers; A.C. Gallo, President; Jim Sud, Executive Vice President of Growth & Development; and David Lannon and Ken Meyer, Executive Vice Presidents of Operations.

As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in our company’s most recently filed Form 10-K.

Please note our press release and scripted remarks are available on our website. We assume you have read our press release, so we will use this time to focus on highlights from the quarter as well as our future outlook. All references to shares outstanding and per share amounts are adjusted to reflect our two-for-one stock split on May 29th.

I will now turn the call over to Walter Robb:

Walter:

Thank you, Cindy. Good afternoon everyone. We are pleased to deliver another outstanding quarter. We produced a 20 percent increase in earnings per share on a 12 percent increase in sales, once again reporting record or near record results on many levels, including:

  • average weekly sales per store of $728,000, translating to sales per gross square foot of $996;
  • gross margin of 36.6 percent;
  • store contribution of 11 percent;
  • operating margin of 7.5 percent;
  • EBITDA margin of 10 percent; and
  • a return on invested capital of 16.5 percent.

Our solid performance and capital discipline generated $228 million in operating cash flow. We invested $115 million in new and existing stores, resulting in $133 million in free cash flow. In addition, we repurchased $25 million of stock and returned $37 million in dividends to our shareholders. We ended the quarter with $1.5 billion in cash and investments, and $384 million in share repurchase authority.

Our sales trends have remained consistent over the last three quarters. For Q3, excluding an estimated 45 basis point positive impact from our Team Member Appreciation Double Discount Day, our identical store sales increased 6.7 percent, or 15.3 percent on a two-year basis. The increase was driven by an approximate four percent increase in transaction count and three percent increase in basket size.

Our sales momentum and operating disciplines, along with moderating inflation, helped generate another quarter of record gross margin performance. We remain committed to expanding our value offerings across the store, increasing our promotional activity, and improving our relative price positioning. We continue to be very competitive in non-perishables with more opportunities to narrow the gap in perishables, which reflect our higher quality standards.

This quarter our value efforts were more than offset by occupancy leverage, shrink reduction and buyside initiatives. In addition, cost of goods sold was positively impacted 19 basis points by a decrease in wholesale revenue related to our meat procurement program. Excluding this, our gross margin was 36.4 percent, in line with the second quarter.

Direct store expenses increased 27 basis points to 25.6 percent of sales. Excluding the negative impact of the decrease in wholesale revenue and increase in team member discount costs related to our Double Discount Day, our direct store expenses as a percentage of sales were in line with our Q2 results of 25.4 percent.

Store contribution was 11 percent of sales, in line with our record Q2 results.

We opened four stores this quarter, expanding into three new markets. We are able to enter markets as diverse as suburban Danbury, Connecticut to urban Detroit, Michigan by tailoring our store size, product selection and pricing strategy to the particular community.

In Detroit, we implemented a new value strategy in our perishable areas that has been very well received. We are opening a similar store in New Orleans later this year and think there are opportunities to duplicate elements of this value strategy for perishables in select markets across the country.

Our new stores are continuing to deliver very healthy returns. For the last eight quarters, on average, our new store class has consisted of 26 stores open for approximately six months. At 37,000 square feet in size, they have produced average weekly sales of $528,000 translating to sales per gross square foot of $745, and have generated a five percent contribution margin. These results, combined with our capital investment and pre-opening expense discipline, enabled us to deliver another quarter of high return on invested capital. For the quarter, our 25 comparable stores less than two years old produced an after-tax ROIC of 19 percent, another Q3 record.

Check out the “Beyond the Numbers” section of our Investor Relations webpage for additional information about our new stores and more.

Turning now to our updated outlook for the fiscal year and initial outlook for FY14…

Based on our strong Q3 results and our updated assumptions for the fourth quarter, we have raised our fiscal 2013 diluted EPS outlook by one to two cents. Our new fiscal year EPS range of $1.45 to $1.46 implies EPS of $0.30 to $0.31 for Q4.

As we typically do at this point in the year, we are also narrowing our fiscal year ranges for comps and idents based on our year-to-date results. Our idents for the first three weeks of Q4 are 5.5 percent, which we attribute primarily to a tough comparison of 9.5 percent in the prior year. Our guidance for the quarter is 6.5 to 7 percent, or 14.8 to 15.3 percent on a two-year basis. This guidance reflects an expected acceleration in idents over the last nine weeks of Q4 as our year-ago comparison eases 150 basis points to eight percent. The high end of the two-year range is consistent with our Q3 results excluding the positive impact from our Double Discount Day.

Regarding gross margin, our long-term strategy remains in place. We are continuing to implement various value efforts, including more aggressive price matching against select competitors. We have been successful at offsetting these efforts thus far but are not expecting the same degree of leverage in Q4. We also want to remind investors that our average weekly sales and gross profit as a percentage of sales are typically highest in the second and third quarters, and lowest in the fourth quarter due to seasonally slower sales during the summer months.

On a 12-week to 12-week basis, we expect operating income before pre-opening to increase a healthy 16 to 20 percent in Q4. We expect a record 12 new store openings versus seven last year, as well as a high number of openings in Q1 of next year, to drive a significant year-over-over increase in pre-opening expense and lower EPS growth of 7 to 11 percent compared to the 20 percent we produced year to date.

Our initial outlook for fiscal year 2014 reflects another great year of consistent sales growth, record new store openings and strong operational performance. We expect sales growth of 12 to 14 percent, comps of 6.5 to 8 percent, idents of 6 to 7.5 percent, and EPS growth of 17 to 18 percent.

This is a very exciting time for our company. We are dedicated to providing communities with fresh, healthy, natural and organic food and are on track to deliver our fourth consecutive year of increases in new store openings. We continue to gain market share and see demand for 1,000 Whole Foods Market stores in the U.S. alone. Our outstanding operational performance is funding our growth, and our new stores are creating a cycle of innovation across the company. We have signed 50 new leases over the last 12 months and now have 94 signed leases, nearly a three-year supply of new stores, in the pipeline. We expect accelerating square footage growth for several years to come.

Each week, over seven million customers visit our 355 stores in 40 states and three countries. We are confident that we can maintain our leadership position and continue to gain market share as we step up our new store openings, improve our relative value proposition, further differentiate our shopping experience, and reinforce our standing as America's healthiest grocery store.

We will now take questions. Please limit yourself to one question at a time so that everyone has an opportunity to participate. Our call will end at 4:30 Central time. Thank you.

At close of call: Thank you for listening in. Please join us in early November for our fourth quarter earnings call. A transcript of the scripted portion of this call along with a recording of the call is available on our website.

May 7 - 2nd Quarter Results

Cindy:

Good afternoon and thank you for joining us. On today’s call are John Mackey and Walter Robb, Co-Chief Executive Officers; A.C. Gallo, President; Glenda Flanagan, Executive Vice President and Chief Financial Officer; Jim Sud, Executive Vice President of Growth & Development; and David Lannon and Ken Meyer, Executive Vice Presidents of Operations.

As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in our company’s most recently filed Form 10-K.

Please note our press release and scripted remarks are available on our website. We assume you have read our press release, so we will use this time to focus on highlights from the quarter as well as our future outlook.

I will now turn the call over to John Mackey:

John:

Thank you, Cindy. Good afternoon everyone. In Q2, we delivered another quarter of strong sales and earnings growth, producing a 19 percent increase in earnings per share on a 13 percent increase in sales. We reported record results on many levels including:

  • average weekly sales per store of $725,000, translating to sales per gross square foot of $991;

  • gross margin of 36.4 percent;

  • store contribution of 11 percent;

  • operating margin of 7.5 percent;

  • EBITDA margin of 10.1 percent; and

  • a return on invested capital of 16.7 percent.

Our solid performance and capital discipline generated $178 million in free cash flow. We invested $109 million in new and existing stores, repurchased $37 million of stock, and returned $37 million in dividends to our shareholders. We ended the quarter with $1.3 billion in cash and investments, and $409 million in share repurchase authority.

We reported 6.6 percent identical store sales growth and were pleased with the momentum we saw during the quarter. Our idents accelerated from 6.1 percent for the first three weeks to 6.7 percent for the last nine weeks. On a two-year basis, our idents held steady at 15 percent throughout the quarter.

Our identical store sales growth was driven by approximately equal increases in transaction count and basket size. We attribute this shift in the mix primarily to more severe winter weather in several regions this year versus last, which resulted in customers making fewer trips and buying larger baskets per trip. In our regions not impacted by weather, we were closer to our 60/40 historical mix. In addition to the weather impact, we also had another tougher comparison in transaction count as we saw a 110 basis point increase from Q1 to Q2 of 2012.

We are not aware of any public food retailers producing these levels of same-store-sales results and believe our efforts around value and differentiation continue to be a significant contributor to our market share gains.

We remain committed to our current path of expanding our value offerings across the store, increasing our promotional activity, and improving our relative price positioning. We believe our gross margin results reflect our incremental progress, as our cost of goods sold was flat year over year with a reduction in shrink offsetting our value efforts. The slight improvement in gross margin was driven by leverage in occupancy costs.

In addition, our pricing surveys indicate that during the quarter our pricing on known value non-perishable products continued to be very sharp and that our perishable teams improved their price competitiveness. We are pleased with our performance but want to point out that survey results may vary quarter to quarter due to the dynamic competitive environment. Our strategy is focused on driving sales growth over the longer term.

While we are focused on value, the Whole Foods Market brand is defined by our high quality standards, and we continue to find ways to further distance ourselves from other food retailers.

In March, we became the first national grocery chain to set a deadline for full GMO transparency, announcing that all products in our U.S. and Canadian stores containing genetically modified organisms will be clearly labeled by 2018. We believe that quality and transparency are inseparable and that providing detailed information about the products we offer—such as 5-StepTM Animal Welfare ratings in meat, Eco-ScaleTM ratings for cleaning products, sustainability ratings in seafood, and now GMO labeling—is one of the reasons millions of people place their trust in us each day.

We also wanted to appreciate our shoppers who joined our in-store fundraising efforts to raise more than $6 million during Whole Planet Foundation’s Annual Prosperity Campaign. Through grants to microfinance partners in the U.S. and 56 other countries, Whole Planet Foundation funds microloans in developing communities where we source products. To date, the foundation has committed $35 million globally.

During the quarter, we opened six stores in both urban and suburban areas ranging in size from 16,000 to 50,000 square feet. Our new store in South Bend, Indiana is another great example of our ability to enter a smaller market with the right-sized store and generate a lot of excitement. At 25,000 square feet, the store was the region’s busiest opening in terms of sales per square foot and set a company record with over 16,000 Facebook “likes” at opening.

Our new stores are delivering healthy returns. For the last eight quarters, on average, our new store class has consisted of 25 stores open for approximately six months. At 37,000 square feet in size, they have produced average weekly sales of $547,000 translating to sales per gross square foot of $759, and have generated a contribution margin of just over five percent. These results, combined with our capital investment and pre-opening expense discipline, enabled us to deliver another quarter of high return on invested capital. For the quarter, our 23 comparable stores less than two years old produced an after-tax ROIC of 19 percent, another Q2 record.

Check out the “Beyond the Numbers” section of our Investor Relations webpage for additional information about our new stores, GMO labeling initiative, Whole Planet Foundation and more.

Turning now to our updated outlook for the fiscal year . . .

Based on our strong Q2 results and updated assumptions, we are raising our EPS range for the year to $2.86 to $2.89, which implies EPS of $1.32 to $1.35 for the remainder of the year. We expect our tax rate to be at the low end of our prior range and have narrowed our pre-opening and relocation expense range based on 32 new stores this year.

As we typically do at this point, we are also narrowing our fiscal year ranges for comps and idents based on our year-to-date results. The mid-points of these ranges are in line with our Q2 year-to-date results of 7.1 percent and 6.8 percent, respectively. We are certainly pleased to see further momentum in our Q3-to-date idents but note this is just a three-week period and reflects an estimated 200 basis point positive impact from Team Member Appreciation Double Discount Day. Excluding this event, our quarter-to-date two-year idents are in line with Q2.

Our long-term gross margin strategy has not changed. While our gross margin results for Q2 were slightly better than our forecast, we expect the year-over-year change in the back half of the year to be less than we produced in the first half. We expect a significant year-over-over increase in pre-opening expense in Q4, reflecting 12 new store openings this year versus seven last year as well as a high number of openings anticipated in Q1 of next year. We also want to remind investors that Q4 is twelve weeks this year versus thirteen weeks last year.

The demand for fresh, healthy foods continues to grow, and we see tremendous new store opportunities in all types of markets, from urban to suburban as well as new and existing. We are consistently producing healthy free cash flow and have opened a record 32 new stores over the last four quarters, demonstrating our ability to internally fund and execute our accelerated growth plans. With 89 signed leases representing over three million square feet in our development pipeline, we are well positioned to accelerate our square footage growth through 2014 and hopefully beyond.

Each week, close to seven million customers visit our 349 stores in 40 states and three countries. We believe we will maintain our leadership position and continue to gain market share as we step up our new store openings, improve our relative value proposition, further differentiate our shopping experience, and reinforce our standing as America's healthiest grocery store.

We will now take questions. Please limit yourself to one question at a time so that everyone has an opportunity to participate. Our call will end at 4:30 Central time. Thank you.

February 13 - 1st Quarter Results

Cindy:

Good afternoon and thank you for joining us. On today’s call are John Mackey and Walter Robb, Co-Chief Executive Officers; A.C. Gallo, President; Glenda Flanagan, Executive Vice President and Chief Financial Officer; Jim Sud, Executive Vice President of Growth & Development; and David Lannon and Ken Meyer, Executive Vice Presidents of Operations.

As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in our company’s most recently filed Form 10-K.

Please note our press release and scripted remarks are available on our website. We assume you have read our press release, so we will use this time to focus on highlights from the quarter as well as our future outlook.

I will now turn the call over to Walter Robb:

Walter:

Thank you, Cindy. Good afternoon everyone. In Q1, we produced a 20 percent increase in earnings per share on a 14 percent increase in sales, delivering another quarter of strong sales and earnings growth. We opened 10 new stores, more than we ever have in a single quarter, and reported record Q1 results including:

  • a 22 basis point increase in gross margin to 35.0 percent;

  • a 30 basis point decrease in direct store expenses to 25.4 percent of sales;

  • a 52 basis point improvement in store contribution to 9.6 percent of sales;

  • a 48 basis point increase in operating margin to 6.1 percent;

  • a 41 basis point improvement in EBITDA margin to 8.8 percent; and

  • a 24 basis point improvement in return on invested capital to 13.1 percent.

Our solid performance and capital discipline generated $148 million in free cash flow during the quarter. We produced $316 million in cash through a combination of $303 million in cash flow from operations and $9 million in proceeds from team member stock option exercises. We invested $155 million in new and existing stores, repurchased $26 million of common stock, and returned $397 million in dividends to our shareholders, including a special dividend of $371 million. We ended the quarter with cash and investments of $1.2 billion and $446 million in share repurchase authority.

Turning to sales, our identical store sales increased 7.1 percent, or 15.3 percent on a two-year basis, in line with the idents we reported for the first five weeks of the first quarter. We saw a five percent increase in transaction count and two percent increase in basket size. The moderation in our sales trends since the fourth quarter was broad-based across regions, store departments, and store age classes, which we attribute in part to a decline in consumer confidence and the macro environment. We also had a tougher comparison in transaction count, as we saw a nearly 200 basis point sequential increase in our transaction count growth from Q4 of 2011 to Q1 of 2012. On a two-year basis, our 11 percent transaction count increase this quarter was approximately in line with last quarter. Transaction count increases continued to drive our growth, and the increase in our basket size was driven entirely by a higher average price per item, as we selectively passed through some product cost increases and as customers continued trading up. In keeping with what we have reported over the last two years, we saw year-over-year shifts in sales toward exclusive brands and organic products, higher-priced tiers, and several discretionary categories, as well as a meaningful increase in 50 dollar-plus sized baskets.

We are continuing to find ways to further differentiate our product offering. Following last fall’s successful launch of 70 new exclusive brand frozen products, in January we launched the Engine 2 Plant-Strong product line. Developed in collaboration with Rip Esselstyn, author and founder of “The Engine 2 Diet,™” these products complement our Health Start Here initiative, offering plant-based foods that are low in fat and sodium, contain minimal to no added sugar, and no animal products or added oils.

During the quarter, we opened nine stores in Ontario, Canada; Davis, California; Littleton, Colorado; Cheltenham, England; Tampa; Boise; Orland Park, Illinois; Columbia, South Carolina; and Virginia Beach; and we relocated one store in Tucson. This is the first quarter ever when we have opened stores in three different countries! Our new stores range in size from 20,000 to 43,000 square feet and are located in a mix of urban and suburban areas, as well as new and existing markets, demonstrating the breadth of opportunity for Whole Foods Market stores across the U.S., U.K. and Canada.

Check out the “Beyond the Numbers” section of our Investor Relations webpage for additional information about our new stores, Engine 2 products and more.

Fiscal years 2011 and 2012 were two of the best years in our company’s 33-year history, and our outlook for 2013 reflects another year of healthy comparable store sales growth, continued operating margin improvement, and record new store openings.

Based on our year-to-date results, we have fine-tuned our fiscal 2013 ranges for comps and idents, keeping the mid-points approximately in line with our prior guidance. We are maintaining our $2.83 to $2.87 range for EPS, which implies $2.05 to $2.09 for the remainder of the year. The high end of this EPS range would require a meaningful acceleration in comps to the high end of our ranges.

As reflected in our guidance, we do not expect to produce the same level of EPS growth over the remainder of the year as we produced in the first quarter. We know that one of the keys to broadening our appeal and growing our sales over the longer term is to improve our relative value positioning. Last year, we produced record gross margin results, particularly in Q2 and Q3 of 36.3 and 36 percent, respectively. While we expect to once again deliver strong results, the ongoing strategy that we have communicated is that we intend to expand our value offerings across the store and improve our competitive price positioning. As such, we are not forecasting an improvement in gross margin this year, and given our Q1 results, this implies lower year-over-year gross margin in Q2-Q4.

We remain on track to open a record number of new stores over the next two fiscal years. In terms of pre-opening and relocation expense, this translates to a back-end loaded fiscal 2013. For the fourth quarter, we expect a significant year-over-over increase in pre-opening and relocation expense reflecting the opening of 10-12 new stores in the quarter along with a high number of openings in the first quarter of 2014 as well.

We remind investors that fiscal year 2013 is a 52-week year comparing against 53 weeks in fiscal year 2012, with the extra week falling in the fourth quarter of last year.

Since our fourth quarter earnings release, we have signed 11 new leases averaging 39,000 square feet in size. With 29 new stores opened and 48 new leases signed over the last four quarters, we are demonstrating our ability to execute on our accelerated growth plans while paving the way for that growth to continue. We currently have 85 stores in development totaling over three million square feet and representing 24 percent of our operating store base.

Our new stores are delivering healthy returns. For the last seven quarters, on average, our new store class has consisted of 23 stores open for approximately six months. At 37,500 square feet in size, they have produced average weekly sales of $554,000 translating to sales per square foot of $764, and have generated a contribution margin of just over five percent. These results, combined with our lower average capital investment and pre-opening expenses per store, enabled us to deliver another quarter of high return on invested capital. For the quarter, our 23 comparable stores less than two years old produced an ROIC of 14 percent, the strongest Q1 result we have reported in eight years.

For the 16th year in a row, we were recognized by FORTUNE magazine as one of the “100 Best Companies to Work for in America.” We are proud to have created over 7,800 jobs over the past year and are seeing low turnover and high morale as our team members embrace the advancement opportunities our growth offers.

Each week, over six million customers visit our 345 stores in 40 states and three countries. We are well-positioned to internally fund our expansion plans and have the pipeline and infrastructure in place for ending square footage growth to accelerate through 2014 and hopefully beyond. We believe we will maintain our leadership position and continue to gain market share as we step up our new store openings, improve our relative value proposition, further differentiate our shopping experience, and reinforce our standing as America's healthiest grocery store.

We will now take questions. Please limit yourself to one question at a time so that everyone has an opportunity to participate. Our call will end at 4:30 Central time. Thank you.

Thank you for listening in. Please join us in May for our second quarter earnings call. A transcript of the scripted portion of this call along with a recording of the call is available on our website.

2012

November 7 - 4th Quarter Results

Cindy:

Good afternoon and thank you for joining us. On today’s call are John Mackey and Walter Robb, Co-Chief Executive Officers; A.C. Gallo, President; Glenda Flanagan, Executive Vice President and Chief Financial Officer; Jim Sud, Executive Vice President of Growth & Development; and David Lannon and Ken Meyer, Executive Vice Presidents of Operations.

As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in our company’s most recently filed Forms 10-Q and 10-K.

Please note our press release and scripted remarks are available on our website. We assume you have read our press release, so we will use this time to focus on highlights from the quarter and year as well as our future outlook. Please note fiscal year 2012 was 53 weeks with the extra week falling in Q4, making it a 13-week quarter.

I will now turn the call over to John Mackey.

John:

Thank you, Cindy. Good afternoon everyone. I would like to begin by expressing sympathy for the many people, including our team members, customers, and suppliers, impacted by Hurricane Sandy. On behalf of our leadership team, I would also like to thank our team members for their exceptional efforts in the wake of this storm. We are proud to have been among the last to close and first to re-open our doors in so many communities impacted by this powerful and destructive storm.

Turning now to our financial results, our Q4 performance reflects another quarter of strong sales momentum and earnings growth. On a 12-week to 12-week basis, we produced 33 percent EPS growth on 14 percent sales growth. We delivered significant year-over-year improvement and record Q4 results including:

  • a 76 basis point increase in gross margin to 35.3 percent;

  • a 40 basis point decrease in direct store expenses to 25.5 percent of sales;

  • a 117 basis point improvement in store contribution to 9.8 percent of sales;

  • a 105 basis point increase in operating margin to 6 percent, marking our third consecutive quarter of over 100 basis points of improvement;

  • a 79 basis point improvement in EBITDA margin to 8.7 percent; and

  • a 157 basis point improvement in return on invested capital to 12.7 percent.

Our comparable store sales increased 8.5 percent, and our identical store sales increased 8.3 percent. Given the continued moderation in inflation and sluggish economic data points, we were very pleased to produce an acceleration in our two- and three-year stacked idents. Our three-year stacked ident increased to 25.4 percent, reflecting three years of eight percent-plus increases. In line with the trends we have seen all year, transaction count increased seven percent, with broad-based sales momentum across regions, departments, and store age classes. Year over year, our customers continued to shift their purchases toward organic products and discretionary categories. We also continued to see meaningful increases in 50 dollar-plus sized baskets.

Our robust sales and focused operating disciplines along with moderating inflation helped generate another quarter of healthy margin performance. Our 54 basis point increase in gross margin, ex-LIFO, was driven by improvements in both occupancy costs and cost of goods sold. Sequentially from Q3, we saw an approximate 70 basis point decrease in total gross margin. This decrease is in line with our three-year average sequential drop and is due primarily to seasonality, as well as some impact from our price investment strategy to improve our relative value positioning. The success of this ongoing strategy is reflected in our continued sales momentum and the results from our most recent competitive survey. The survey indicates we meaningfully improved our pricing position versus our competitors during the quarter, resulting in our most competitive position in more than three years.

An important element to our value strategy is to continue to expand our private label offering, and we are very excited about our recent launch of 70 new 365 and Whole Foods Market exclusive brand frozen items. These high-quality dishes are at a value price point and cover key categories such as skillet meals, pizzas, appetizers, desserts and ice creams. The products just started hitting stores in late September, and initial sales results are very positive.

During the quarter, we opened seven stores in West Des Moines, Iowa; Basalt, Colorado; New York City; Charlotte, North Carolina; San Francisco; San Antonio, and Newport Beach, California. West Des Moines, Basalt and Charlotte are all new markets for us. These seven stores vary in size from 27,000 to 51,000 square feet and encompass trade areas with a broad range in the percentage of college grads, population density and median household income levels. We believe the diversity of these locations speaks to the breadth and variety of market opportunities available to us in new and existing markets as well as both urban and suburban locations.

We continue to be very pleased with the performance of our new stores. For the last six quarters, on average, our new store class has consisted of 22 stores open for approximately six months. At 38,000 square feet in size, they have produced average weekly sales of $564,000 translating to sales per square foot of $780, and have generated a contribution margin of approximately six percent. Our outstanding results in new stores, combined with lower average capital investment and pre-opening expenses per store, are driving strong returns. For the quarter, our 19 comparable stores less than two years old produced a return on invested capital of 16 percent, the strongest Q4 result we have produced in eight years.

Check out the “Beyond the Numbers” section of our Investor Relations webpage for additional information about our new stores, expanded private label offering and more.

Since our third quarter earnings release, we have signed 11 new leases averaging 37,500 square feet in size in Altamonte Springs and Clearwater, Florida; Hyannis, Massachusetts; North Carolina; Morristown, New Jersey; two stores in New York City; Philadelphia and South Hills, Pennsylvania; Dallas; and Seattle. We are pleased to have finally secured a location on the Upper East Side of New York City and to be expanding into Harlem as well. We have signed 45 new leases over the last 12 months and expect to open a record 32 to 34 new stores this fiscal year. This includes the recently announced acquisition of six leases from Johnnie’s Foodmaster, which is scheduled to close on November 30th. The leases, for stores averaging 31,000 square feet in size, include South Weymouth, Arlington, Charlestown, Brookline, Melrose and Somerville, Massachusetts and will expand our presence in the Greater Boston area to 26 stores.

In summary, fiscal 2012 was a record-breaking year on so many levels. Our sales approached $12 billion, translating to sales per gross square foot of $950. We reported three consecutive quarters of three-year identical store sales growth of over 24 percent. We improved operating margin 94 basis points to 6.4 percent, generated over $1 billion in EBITDA, and substantially exceeded our initial 53-week EPS guidance of $2.21 to $2.26, by actually growing EPS 31 percent year over year to $2.52. We opened 25 new stores, increasing our ending square footage 7.6 percent to over 12.7 million, and we created over 8,500 new jobs. We narrowed the pricing gap versus our competitors on known value items to its narrowest margin yet, while continuing to raise the bar on our standards by eliminating all red-rated species in our seafood departments last March.

Our solid performance, capital discipline, and increasing stock price generated $1.3 billion of cash during the year through a combination of $920 million in cash flow from operations and $370 million in proceeds from team member stock option exercises. We invested $456 million in new and existing stores, returned $95 million in quarterly dividends to our shareholders, and repurchased $29 million of common stock. For the year, our total cash and investments increased $745 million to $1.5 billion.

We are well positioned to internally fund our accelerated new store growth while maintaining a healthy cash balance, and today announced a 43 percent increase in our quarterly dividend to $0.20 per share. In addition, we plan to create additional value for our shareholders through selective utilization of our remaining $170 million in stock repurchase authority.

Turning to fiscal year 2013, for the first five weeks of Q1, we reported comparable stores sales of 7.3 percent. During this short period, we were impacted by last year’s Living Social deal and had 91 stores and four facilities in four regions impacted by Hurricane Sandy. While most stores and facilities were only closed temporarily, many stores in the northeast region were closed for several days, with several New York City stores just becoming fully operational last Friday. Given many customers were without power, and thus their shopping patterns were disrupted, we have not yet seen a full return to normal in these regions. Our comps company-wide for the past two days were over 11 percent, with the Northeast region comping over 20 percent, clearly indicating customers are continuing to restock.

We are maintaining our guidance for fiscal year 2013 and expect another year of healthy comparable store sales growth, continued operating margin improvement, and record new store openings. Our guidance includes the Johnnie’s lease acquisitions but does not include a charge related to Hurricane Sandy that we expect to take in the first quarter once our estimated uninsured losses are determined.

We have opened 13 stores since our last earnings release. We currently have 79 stores in development totaling 2.9 million square feet and representing about 22 percent of our operating store base. Our new stores are performing extremely well. With our pipeline and infrastructure in place, ending square footage growth is expected to continue to accelerate through 2014. We are well-positioned to internally fund our growth and believe we will continue to gain market share through further differentiating our shopping experience, improving our relative value proposition, and reinforcing our standing as America's healthiest grocery store.

We will now take questions. Please limit yourself to one question at a time so that everyone has an opportunity to participate. Our call will end at 4:30 Central time. Thank you.

Thank you for listening in. Please visit Whole Foods Market for everything you need to enjoy great meals over the holidays, and join us in February for our first quarter earnings call. A transcript of the scripted portion of this call along with a recording of the call is available on our website.

July 25 - 3rd Quarter Results

Cindy:

Good afternoon and thank you for joining us. On today’s call are John Mackey and Walter Robb, Co-Chief Executive Officers; A.C. Gallo, President; Glenda Flanagan, Executive Vice President and Chief Financial Officer; Jim Sud, Executive Vice President of Growth & Development and David Lannon and Ken Meyer, Executive Vice Presidents of Operations.

As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in our company’s most recently filed Forms 10-Q and 10-K.

Please note our press release and scripted remarks are available on our website. We assume you have read our press release, so we will use this time to focus on highlights from the quarter and our future outlook.

I will now turn the call over to Walter Robb.

Walter:

Thank you, Cindy. Good afternoon everyone. Our Q3 results reflect another quarter of strong sales momentum and outstanding execution. We produced 27 percent EPS growth on 14 percent sales growth, delivering significant year-over-year improvement including:

  • a 62 basis point increase in gross margin to 36 percent;

  • a 57 basis point decrease in direct store expenses to 25.3 percent of sales;

  • a 119 basis point improvement in store contribution to 10.7 percent of sales;

  • a 104 basis point increase in operating margin to 6.9 percent;

  • a 94 basis point improvement in EBITDA margin to 9.6 percent; and

  • a 192 basis point improvement in return on invested capital to 15.2 percent.

Our solid performance, capital discipline, and increasing stock price generated close to $300 million of cash during the quarter through a combination of $211 million in cash flow from operations and $88 million in proceeds from team member stock option exercises. We invested $113 million in new and existing stores, repurchased $25 million of common stock, and returned $26 million in quarterly dividends to our shareholders. During the quarter, our total cash and investments increased $154 million to $1.5 billion.

Turning back to sales, given the continued moderation in inflation along with some sluggish economic data points, we were very pleased to produce our second consecutive quarter of 24.5 percent three-year stacked idents, or three years of 8 percent-plus increases. Excluding the Easter shift, our comparable store sales increased 8.9 percent, and our identical store sales increased 8.6 percent. Transaction count increased seven percent, with broad-based sales momentum across regions, departments, and store age classes. On a year-over-year basis, our customers have continued to shift their purchases toward organic products and several discretionary categories. We also continued to see meaningful increases in 50 dollar-plus sized baskets.

Our robust sales and focused operating disciplines along with moderating inflation helped generate another quarter of exceptional margin performance. The 51 basis point increase in gross margin, ex-LIFO, was driven primarily by equal improvements in occupancy costs and costs of goods sold. Sequentially from Q2, we saw an approximate 30 basis point decrease in gross margin which we attribute in part to seasonality as well as some impact from our strategy of improving our relative value positioning by increasing our level of price investments. The success of this ongoing strategy is reflected in our continued sales momentum as well as our most recent competitive survey which indicates that we improved our pricing position versus our competitors during the quarter.

Turning to new store growth, we are very excited to have opened a record nine new stores in Q3 in Greensboro and Wilmington, North Carolina; Kailua, Hawaii; Edina, Minnesota; Wexford, Pennsylvania; Laguna Niguel, California; two stores in Austin, and a relocation of our Soho store in London. Greensboro and Wilmington are both new markets for us. Kailua is our second store on Oahu and third store in Hawaii. We closed our small store in Soho and opened a new 18,000 square foot store in Piccadilly that is a great location and triple the size. And, more than seven years after opening our flagship store in Austin, we now have two new stores in our hometown. This quarter’s openings speak to the breadth and variety of market opportunities available to us in new and existing markets as well as both urban and suburban locations.

We continue to be very pleased with the performance of our new stores. For the last five quarters, on average, our new store class has consisted of 21 stores open for approximately six months. At 38,000 square feet in size, they have produced average weekly sales of $575,000 translating to sales per square foot of $786, and have generated a contribution margin of just under six percent. We expect these outstanding results, combined with our lower average capital investment per store, will drive strong returns over time.

Check out the “Beyond the Numbers” section of our Investor Relations webpage for more information about the new stores we opened during the quarter.

Since our second quarter earnings release, we have signed 12 new leases averaging 38,000 square feet in size in Palm Desert, California; Pompano Beach, Florida; Park Ridge, Illinois; Wichita, Kansas; Boston; Columbia, Maryland; Kansas City, Missouri; Lincoln, Nebraska; Parsippany, New Jersey; Wynnewood, Pennsylvania; Dallas; and Houston. Four of these leases are in new markets. We have signed 37 new leases over the last 12 months and are on track to open 25 new stores this year, 28 to 32 new stores next year, and 33 to 38 new stores in fiscal 2014. We currently have 76 stores in development totaling 2.8 million square feet and representing about 22 percent of our operating store base.

I will now give some additional color on our raised outlook for fiscal year 2012, which is a 53-week year, and our initial outlook for fiscal year 2013, a 52-week year. Please refer to our press release for more detailed information.

For the first three weeks of Q4, idents increased 9.5 percent, or 18.8 percent on a two-year basis. While we are very pleased with these results, they represent a short period of time and also include some positive impact from the July 4th holiday shift. Our new range for the year implies idents of 7.6 to 8.6 percent for Q4, or 16 to 17 percent on a two-year basis and 24.7 to 25.7 percent on a three-year basis. For two- and three-year trends, these ranges are in line with our Q3 results on the low end and reflect an acceleration on the high end.

As currently reflected in Street estimates, we typically see higher average weekly sales in our second and third quarters which drive stronger bottom-line results, and then sales tend to drop in the fourth quarter, which is seasonally our weakest quarter. Based on our Q3 results and our higher expectations for the fourth quarter, we have raised our fiscal 2012 outlook for operating margin to 6.4 percent and our diluted EPS range by five to seven cents. Our new fiscal year EPS range of $2.51 to $2.52 implies EPS of $0.59 to $0.60 for Q4. This includes the estimated impact on earnings from the extra week in Q4 of approximately $0.06 per share. For the fiscal year, adjusting for the impact of the extra week in Q4, we expect 27 percent EPS growth on total sales growth of 13 to 14 percent.

For fiscal year 2013, on a 52-week to 52-week basis, we expect comps of 6.5 to 8.5 percent and EPS of $2.83 to $2.87.

In summary, in an economic environment that is proving difficult for many retailers, we are thriving. We have opened 19 stores year to date and created over 7,000 new jobs throughout the company over the last twelve months. We just reported excellent quarterly results, raised our guidance for the current fiscal year and initiated guidance for next year. For 2013, we expect another year of healthy comparable store sales growth, a record 28 to 32 new store openings, continuous operating margin improvement, and earnings growth of 16 to 17 percent. Our growth plans are on track with ending square footage growth expected to accelerate through 2014. We are well-positioned to internally fund our growth and believe we will continue to gain market share through further differentiating our shopping experience, improving our relative value proposition, and reinforcing our standing as America’s healthiest grocery store.

We will now take questions. Please limit yourself to one question at a time so that everyone has an opportunity to participate. Our call will end at 4:30 Central time. Thank you.

Thank you for listening in. Please join us in early November for our fourth quarter earnings call. A transcript of the scripted portion of this call along with a recording of the call is available on our website.

May 2 - 2nd Quarter Results

Cindy:

Good afternoon and thank you for joining us. On today’s call are John Mackey and Walter Robb, Co-Chief Executive Officers; A.C. Gallo, President; Glenda Flanagan, Executive Vice President and Chief Financial Officer; Jim Sud, Executive Vice President of Growth & Development and David Lannon and Ken Meyer, our recently promoted Executive Vice Presidents of Operations.

As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause the company’s actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors that affect the company, including the risks outlined in the company’s most recently filed Forms 10-Q and 10-K.

Please note our press release and scripted remarks are available on our website. We assume you have read our press release, so we will use this time to focus on highlights from the quarter.

I will now turn the call over to John Mackey.

John:

Thank you, Cindy. Good afternoon everyone. We are pleased to report another consistently strong quarter, producing the best results in our thirty-two year history. We delivered record results on many levels including:

  • average weekly sales per store of $697,000 translating to sales per square foot of $971;

  • gross margin of 36.3 percent;

  • store contribution of 10.8 percent;

  • operating margin of 7.1 percent;

  • EBITDA margin of 9.7 percent; and

  • a return on invested capital of 16.3 percent.

Our solid execution, capital discipline, and increasing stock price generated over $413 million of cash during the quarter through a combination of $256 million in cash flow from operations and $157 million in proceeds from team member stock option exercises. We invested $102 million in new and existing stores and returned $25 million in quarterly dividends to our shareholders. Our total cash and investments increased during the quarter by nearly $300 million to $1.3 billion.

Turning to sales, given slightly moderating inflation and rising gas prices through much of the quarter, we were very pleased to produce a three-year stacked ident of over 24 percent. We are not aware of any public food retailers producing these kinds of results, and while not a record, the first quarter of 2008 was the last time we produced three-year idents this high. Our increase in transaction count accelerated to over seven percent and our sales momentum continues to be broad-based across regions, departments, and store age classes. Even stores over 15 years old comped at seven percent, with healthy transaction count increases of six percent.

Our robust sales and outstanding execution along with moderating inflation helped generate exceptional margin performance for the quarter. The 70 basis point increase in gross margin was driven by almost equal improvements in both occupancy costs and COGS. We have better tools, and access to better data, which are resulting in a much higher level of sophistication in purchasing, inventory management, particularly shrink control, as well as pricing management and optimization.

While we are very proud to have produced record margin results this quarter, our longer term strategy has not changed, and while we have confidence that we can continue to deliver excellent results, we do not consider margins over 35 percent to be sustainable. We know one of the keys to growing our sales is to improve our relative value positioning over time so while we might have some quarters that are higher, our goal remains to consistently deliver gross margin on an annual basis within our historical range of 34 to 35 percent.

Turning to new store growth, during the second quarter we opened three new stores in Pembroke Pines, Florida; Glen Mills, Pennsylvania; and Lynnwood, Washington. We believe our new store results are reflecting the success of our broader real estate approach and our ability to go into all types of markets. New stores continued to show great year-over-year improvement in operating performance in Q2. Compared to last year’s class of new stores, this year’s class was 14 percent smaller in size, averaging 38,000 square feet, and produced average weekly sales per store of $576,000, translating to 23 percent higher sales per square foot of $791. These new stores produced about 340 basis points higher store contribution versus last year’s class.

In other news, we are proud to announce that as of April 22nd, Earth Day, we were the first national grocer to stop selling red-rated seafood, including Atlantic halibut, grey sole and skate. A red rating indicates that a species is suffering from overfishing or that current fishing methods harm other marine life or habitats. Our knowledgeable fishmongers will recommend alternatives such as MSC-certified Pacific halibut and yellow-rated Dover sole and Atlantic flounder. We want to thank our suppliers who have worked closely with us to find high-quality green- and yellow-rated seafood so we could meet this self-imposed deadline one year earlier than scheduled.

We also wanted to appreciate our shoppers who joined our in-store fundraising efforts to raise more than $5.5 million during Whole Planet Foundation’s Prosperity Campaign. Through grants to microfinance partners in the U.S. and 50 other countries, Whole Planet Foundation funds microloans in developing communities where we source products. To date, the foundation has committed more than $26.5 million and disbursed more than $16.5 million worldwide.

We encourage you to visit the “Beyond the Numbers” section of our Investor Relations webpage for more information about our seafood ratings, Whole Planet Foundation, pictures from new stores, and more.

Since our first quarter earnings release, we have signed eight new leases averaging 38,600 square feet in size in Alpharetta and Savannah, Georgia; Maple Grove, Minnesota; Albany and Brooklyn, New York; Memphis, Tennessee; Toronto, Ontario; and North Burnaby, British Columbia. Savannah and Albany are both new markets for us. We have signed 33 new leases over the last 12 months and are on track to open between 24 to 27 new stores in fiscal 2012 and 28 to 32 new stores in fiscal 2013. We currently have in development 70 stores totaling 2.5 million square feet which translates to about 21 percent of our operating store base.

I will now give some additional color on our raised outlook for fiscal year 2012 which is a 53-week year. Please refer to our press release for more detailed information.

In the second quarter, we beat Street estimates by five cents. Based on our Q2 results and updated assumptions for the rest of the year, we have raised our outlook for the fiscal year. Our new identical sales range for the year implies seven to 8.6 percent for the remainder of the year. The low end reflects the possibility for further deceleration of the two-year ident, with the three-year ident staying around 24 percent. The high end implies the two-year ident remains in line with Q2 and the three-year ident accelerates to over 25 percent. We have raised our expectations for operating margin to 6.3 percent and diluted EPS range to $2.44 to $2.47 which implies EPS of $1.15 to $1.18 for the back half of the year.

As currently reflected in Street estimates, we typically see higher average weekly sales in our second and third quarters which drive stronger bottom-line results, and then sales tend to drop in the fourth quarter which is seasonally our weakest quarter. We estimate the impact on earnings from the extra week in Q4 to be $0.06 per share. For the fiscal year, excluding the impact of the extra week in Q4, we expect EPS growth of 23 percent to 25 percent on total sales growth of around 13 percent.

In summary, it’s great to be in such a positive position where we can confidently raise our outlook for the remainder of the year. We have tremendous sales momentum as well as the capital and expense disciplines in place to leverage that momentum to the bottom line. We see great opportunities on the real estate front and are focused on continuing to build our new store pipeline. Our broader real estate strategy is bearing fruit as evidenced by the improving performance of our new stores. The marketplace remains highly competitive, but we believe we will continue to gain market share through further differentiating our shopping experience, improving our relative value positioning, and reinforcing our position as America’s healthiest grocery store.

We will now take questions. Please limit yourself to one question at a time so that everyone has an opportunity to participate. Our call will end at 4:30 Central time. Thank you.

At close of call: Thank you for listening in. Please join us in late July for our third quarter earnings call. A transcript of the scripted portion of this call along with a recording of the call is available on our website.

February 8 - 1st Quarter Results

Good afternoon and thank you for joining us for the Whole Foods Market first quarter earnings conference call. On the call today are John Mackey and Walter Robb, Co-Chief Executive Officers; A.C. Gallo, President and Chief Operating Officer, Glenda Flanagan, Executive Vice President and Chief Financial Officer; and Jim Sud, Executive Vice President of Growth & Development.

As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause the company's actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors that affect the company, including the risks specified in the company's most recently filed Forms 10-Q and 10-K.

Please note our press release and scripted remarks are available on our website. We assume you have read our press release, so we will use this time to focus on highlights from the quarter.

I will now turn the call over to Walter Robb.

Thank you, Cindy. Good afternoon everyone. We are pleased to begin the year delivering another quarter of consistently strong results. For the first quarter, we produced:

  • 8.7 percent comparable store sales growth;

  • average weekly sales per store of $667,000 translating to near record sales per square foot of $929;

  • 9.1 percent store contribution;

  • 5.6 percent operating margin and our 11th consecutive quarter of year-over-year operating margin improvement;

  • 8.3 percent EBITDA margin;

  • a 28 percent increase in diluted earnings per share to $0.65; and

  • 12.6 percent NOPAT return on invested capital.

Our solid execution, capital discipline, and increasing stock price generated over $340 million of cash during the quarter through a combination of $261 million in cash flow from operations and $80 million in proceeds from team member stock option exercises. We invested $111 million in new and existing stores, returned $18 million in quarterly dividends to our shareholders, and repurchased $4 million of common stock. Our total cash and investments increased during the quarter by $209 million to just over $1 billion, a company milestone.

Turning to sales, given increasingly tougher comparisons and slightly moderating inflation, we are particularly pleased to deliver our 9th consecutive quarter of accelerating two-year comps which were 17.7 percent for the quarter. Our sales momentum continues to be broad-based across regions, departments, and store age classes. Even stores over 15 years old comped at six percent, with strong transaction count increases of over four percent.

We are pleased to see increases in transaction count back over six percent, reflecting our ability both to attract new customers and retain our loyal core customers. With the moderation in inflation, the break out between our transaction and basket size increases was back to the 80/20 mix we were reporting prior to the sharp increase in inflation in the back half of last year.

Our core customers spend on average close to three times more than new customers, so as the increase in our average transaction count accelerated and inflation moderated in Q1, we saw the increase in our average basket size moderate as well to two percent. We were able to selectively pass through product cost increases while customers continued to trade up, resulting in a higher average price per item which drove an increase in our basket size. This was offset slightly by a decrease in items per transaction. On a year-over-year basis, our customers have shifted their purchases toward organic products, higher price tiers, and several discretionary categories. We also continued to see strong increases in 50 dollar-plus sized baskets.

Excluding LIFO, gross profit increased 10 basis points to 34.7 percent of sales driven by an improvement in occupancy costs as a percentage of sales. Similar to our results in the fourth quarter, we did not see COGS leverage as we remained focused on balancing rising product costs with maintaining our relative value positioning to drive sales over the longer term. During the holidays, it was important to get the center of the plate in order to get the rest of the holiday meal, so we were very sensitive to maintaining the right price levels in our meat departments despite sharp cost increases in beef. Inflation isn't going away, but we believe the moderation will give us additional flexibility to consistently deliver gross margin on an annual basis within our historical range of 34 to 35 percent while maintaining our sales momentum.

Turning to new store growth, during the first quarter we opened six new stores in Folsom, California; Jamaica Plain, Massachusetts; Minnetonka, Minnesota; Yonkers, New York; and our first stores in Oklahoma City and Scotland.

Our new stores continue to generate a lot of excitement. In Folsom, we had 1,000 customers waiting for our doors to open, with some even camping out the night before. Folsom is about 20 miles outside of Sacramento and is one of the areas of the country that was hit fairly hard by the housing collapse. It's a good example of the success we are seeing with our broader real estate approach and our ability to go into some of these smaller, more suburban markets. In many cases, these markets offer less competition, allowing our differentiated store experience to stand out even more in the marketplace than it does in some of the larger, more competitive markets. While sales per square foot may not be as high as in the more densely populated markets, the economic case is compelling because rent is significantly less, and with the smaller size, our capital spend is less as well.

We believe our new store results are reflecting the success of our broader strategy. Our new stores showed strong year-over-year improvement in operating performance in the first quarter. Compared to last year's class of new stores, this year's class was 17 percent smaller in size, averaging 38,000 square feet, and produced average weekly sales per store of $561,000, translating to 29 percent higher sales per square foot of $776. These new stores produced about 450 basis points higher store contribution versus last year's class.

In other news, we were extremely pleased to be ranked #32 on Fortune's list of the "100 Best Companies to Work For." To be one of only 13 companies ranked consecutively since the list was first published in 1998 validates our commitment to our core value of 'Supporting Team Member Happiness and Excellence.'

We encourage you to visit the "Beyond the Numbers" section of our Investor Relations webpage for more information about our Fortune ranking, videos from new stores, including our Giffnock opening in Scotland featuring the Red Hot Chili Pipers, and more.

Since our fourth quarter earnings release, we have signed eight new leases averaging 33,000 square feet in size in Frisco, Colorado; Miami, Florida; Orland Park, Illinois; South Bend, Indiana; Minneapolis, Minnesota; Jackson, Mississippi; Port Chester, New York; and Cleveland, Ohio. Frisco, South Bend and Jackson are new markets for us. We have signed 34 new leases over the last 12 months and are on track to open between 24 and 27 new stores in fiscal 2012 and 28 to 32 new stores in fiscal 2013. We currently have 69 stores, or 2.4 million square feet, in development equal to 20 percent of our 12 million square feet in operation.

I will now give some additional color on our raised outlook for fiscal year 2012 which is a 53-week year. Please refer to our press release for more detailed information.

In the first quarter, we beat Street estimates by five cents. Based on our Q1 results and updated assumptions for the rest of the year, we have raised our operating margin to 5.9 percent and diluted EPS range to $2.28 to $2.32 for fiscal 2012. This implies six percent operating margin and EPS of $1.63 to $1.67 for the remaining three quarters of the year.

We also slightly raised the low end of our sales, comp and identical store sales growth ranges. We are seeing our sales momentum carry into Q2 with a 9.4 percent comp, or 18.1 percent on a two-year basis. These are obviously great numbers, but keep in mind this is just a three-week period and that last year's results were impacted by severe winter weather so several of our regions had much easier year-ago comparisons. In addition, we do expect inflation to continue to moderate from here.

As currently reflected in Street estimates, we typically see higher average weekly sales in our second and third quarters which drive stronger bottom-line results, and then sales tend to drop in the fourth quarter which is seasonally our weakest quarter. We would like to point out that last year's Q2 and Q3 results were very strong, particularly the gross margin improvement. We expect our year-over-year improvement in gross margin for the remainder of the year to be more in line with the results we produced in the last two quarters. In addition, our year-over-year EPS growth in Q1 was driven in large part by lower direct store expenses, and while we hope that trend will continue, certain expenses like health care costs are difficult to predict. On a 52-week to 52-week basis, our raised outlook reflects a healthy 17 to 19 percent increase in operating profits for the remainder of the year on an 11 to 13 percent increase in total sales; however, the EPS increase is less due primarily to the year-over-year change in our tax rate and share count.

In summary, it's great to start the year off on such a high note. There are some positive things happening on the economic front which we are hopeful will continue. We have tremendous sales momentum as well as the capital and expense disciplines in place to leverage that momentum to the bottom line. We see great opportunities on the real estate front and are focused on continuing to build our new store pipeline. Our broader real estate strategy is bearing fruit as evidenced by the strong performance of our new stores. The marketplace remains highly competitive, but we believe we will continue to gain market share through further differentiating our shopping experience, reinforcing our position as America's healthiest grocery store, and maintaining our relative value positioning.

Before we turn our call over for Q&A, we would like to congratulate Michael Besancon on his upcoming retirement and thank him for his 17 years of outstanding leadership. Michael has served as a regional vice president, a regional president and most recently as our senior global vice president of purchasing, distribution and communications in addition to leading our Green Mission task force. Having worked in the natural products industry for 41 years, Michael is one of the most knowledgeable natural and organic foods pioneers, and his wisdom and compassion will be missed.

We will now take your questions. Please limit your questions to one at a time so that everyone has an opportunity to participate. Our call will end at 4:45 Central time. Thank you.

Thank you for listening in. Please join us in May for our second quarter earnings call. A transcript of the scripted portion of this call along with a recording of the call is available on our website at www.wholefoodsmarket.com.

2011

November 2 - 4th Quarter Results

Good afternoon and thank you for joining us for the Whole Foods Market fourth quarter earnings conference call. On the call today are John Mackey and Walter Robb, Co-Chief Executive Officers; A.C. Gallo, President and Chief Operating Officer, Glenda Flanagan, Executive Vice President and Chief Financial Officer; and Jim Sud, Executive Vice President of Growth & Development.

As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause the company's actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors that affect the company, including the risks specified in the company's most recently filed Forms 10-Q and 10-K.

Please note our press release and scripted remarks are available on our website. We assume you have read our press release, so we'll use this time to focus on highlights from the quarter and year.

I will now turn the call over to John Mackey.

Thank you, Cindy. Good afternoon everyone. We are very proud to end what has already been a great year on such a high note. For the fourth quarter, we produced:

  • 8.7 percent comparable store sales growth;

  • average weekly sales per store of $630,000 translating to $863 in sales per square foot;

  • 8.7 percent store contribution in our seasonally softest quarter of the year;

  • 5 percent operating margin and our 10th consecutive quarter of year-over-year operating margin improvement;

  • 7.9 percent EBITDA margin;

  • a 26 percent increase in diluted earnings per share to $0.42; and

  • 36 percent NOPAT ROIC for all stores.

Our solid execution, capital discipline, and increasing stock price generated over $1 billion of cash during the year through a combination of $755 million in cash flow from operations and $297 million in proceeds from team member stock option exercises. We invested $365 million in new and existing stores, paid off the remaining $490 million of our term loan, returned $53 million in quarterly dividends to our shareholders, and increased our total cash and investments during the year by $154 million to $799 million.

Today we announced a 40 percent increase in our quarterly dividend to $0.14 per share and a $200 million share repurchase program. We are well positioned to internally fund our accelerated new store growth, maintain a healthy cash balance, increase our dividend, and seek additional value creation for our shareholders through selective share repurchases.

Turning to sales, we are excited to be reporting 8.7 percent comparable store sales growth, our seventh consecutive quarter of comps of 7.8 percent or higher. We believe our efforts around value and differentiation continue to be a significant contributor to our momentum, helping drive a five percent increase in our transaction counts during the quarter. Our basket size increased four percent, once again driven entirely by a higher average price per item, as we selectively passed through product cost increases and as customers traded up. As we have been reporting throughout the year, on a year-over-year basis, our customers have shifted their buying toward branded and organic products, higher-priced tiers, and to several discretionary categories. We also continued to see strong increases in 50 dollar-plus sized baskets.

As demonstrated by our healthy sales and gross margin, we have successfully balanced rising product costs and maintained our relative value positioning. We are hopeful, however, that as many are forecasting, inflation peaked in Q4 and will moderate in Q1.

In the face of increasingly tougher comparisons, we are pleased that we maintained a 17 percent two-year ID for Q4 and for the first five weeks of the first quarter. We are not aware of any public food retailer putting up these kinds of numbers. We attribute much of our market share gains to our well-executed value efforts which have positively impacted our price image while continuing to raise the bar in areas that matter to our customers – particularly our quality standards, and health and wellness.

To update you on one of our wellness initiatives, we have now opened four in-store Wellness Clubs in Chicago, Oakland, New York City and Dedham, Massachusetts. Our Wellness Club offerings include nutrition courses; culinary classes; Supper Clubs; coaching and support; a wellness assessment tool; and access to benefits from a growing local network of community businesses. Members also receive a 10 percent discount on thousands of designated healthy foods when they shop in our stores with Wellness Clubs. We are learning and evolving with each Club we open and have one more pilot scheduled in Princeton, New Jersey in January. While still very early, we are pleased with the initial results we are seeing. We hope customers will continue to embrace the concept and that we can expand our offering to more customers in the future.

Turning to new store growth, during the quarter we opened three new stores in Marietta, Georgia; Mississauga, Canada; Washington, D.C.; and relocated two stores in Wellesley, Massachusetts; and Upper Arlington, Ohio, resulting in a total of 18 new stores for the year.

Our new store results showed strong year-over-year improvements in both operating performance and NOPAT return on invested capital in the fourth quarter. Compared to last year's class of new stores, this year's class was 11 percent smaller in size, averaging 40,000 square feet, and produced average weekly sales per store of $565,000, translating to 23 percent higher sales per square foot of $747. These new stores produced over 400 basis points higher store contribution and 325 basis points higher NOPAT ROIC versus last year's class.

We encourage you to visit the "Beyond the Numbers" section of our Investor Relations webpage for more information about our Wellness Clubs, videos from our newest stores, and more.

Since our third quarter earnings release, we have signed nine new leases averaging 32,000 square feet in size in Phoenix and Tucson, Arizona; Davis, California; Littleton, Colorado; Tallahassee, Florida; Tulsa, Oklahoma; Addison and Katy, Texas; and London, England. We have signed 32 new leases over the last 12 months and are on track to open between 24 and 27 new stores in fiscal 2012 and 28 to 32 new stores in fiscal 2013. From a cash and infrastructure perspective, we remain well positioned to internally fund and execute this acceleration in our new store growth.

Given our Q4 results were in line with our expectations and we are just five weeks into fiscal year 2012, we are maintaining our outlook which reflects consistent comparable store sales growth, a record number of new store openings, EBITDA of close to $1 billion, and significant operating margin improvement. We do not expect a meaningful impact on our earnings growth from our acceleration in new store openings, as we estimate new stores will account for only five percent of our total sales.

As I mentioned earlier, fiscal 2011 has been a great year. Our sales topped $10 billion, and total sales growth is now accelerating. We improved operating margin 55 basis points to 5.4 percent and substantially exceeded our initial EPS guidance of $1.59 to $1.64, growing EPS 35 percent year over year to $1.93. We opened 18 new stores that are off to an excellent start and signed 32 new leases, including two in Canada and three in the UK. We created close to 6,000 new jobs, and Team member morale is very high. While our relative value positioning remained a top priority, we continued to raise the bar with our 5-Step™ Animal Welfare Rating and Eco-Scale™ Rating systems, in addition to launching our Whole Kids Foundation™ and Wellness Clubs.

Our pleasurable store experience, outstanding service, high quality standards and differentiated product mix have been the primary drivers of our growth and success. We are committed to maintaining our unique positioning in these areas and now have the benefit of our more visible value efforts to gain additional customers. We also are in the early innings of becoming a more efficient retailer and have a lot of improvement opportunities ahead of us that should help drive higher levels of operating performance and returns on invested capital over time.

We consider 1,000 stores to be a reasonable indication of our market opportunity in the U.S. People are increasingly embracing healthier lifestyles to improve the quality of their life and minimize healthcare costs. As America's Healthiest Grocery Store, we are uniquely positioned to benefit from this major demographic evolution. We are not yet saturated in any major metro area, and our flexibility on new store size has opened up additional market opportunities. In addition, through acquisitions and our own store development, we have learned that select secondary markets are ready and waiting for Whole Foods Market to come to town. Looking beyond the U.S., we believe Canada and the United Kingdom hold great promise as well.

We will now take your questions. Please limit your questions to one at a time so that everyone has an opportunity to participate. Our call will end at 4:45 Central Time. Thank you.

Thank you for listening in. Please visit Whole Foods Market for everything you need to enjoy great meals over the holidays, and join us in February for our first quarter earnings call. A transcript of the scripted portion of this call along with a recording of the call is available on our website at www.wholefoodsmarket.com.

July 27 - 3rd Quarter Results

Good afternoon and thank you for joining us for the Whole Foods Market third quarter earnings conference call. On the call today are John Mackey and Walter Robb, co-chief executive officers; Glenda Flanagan, Executive Vice President and Chief Financial Officer; and Jim Sud, Executive Vice President of Growth & Development.

As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause the company's actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors that affect the company, including the risks specified in the company's most recently filed Forms 10-Q and 10-K.

Please note our press release and scripted remarks are available on our website. We assume you have read our press release, so we'll use this time to focus on highlights from the quarter and our initial outlook for next year.

I will now turn the call over to Walter Robb.

Thank you, Cindy. Good afternoon everyone. We are very proud of the consistency of our third quarter results which were once again near peak levels. We produced:

  • 8.4 percent comparable store sales growth

  • average weekly sales per store of $653,000 translating to $896 in sales per square foot;

  • 9.5 percent store contribution;

  • 5.9 percent operating margin, which we are proud to say is our ninth consecutive quarter of year-over-year operating margin improvement;

  • 8.6 percent EBITDA margin;

  • a 30 percent increase in diluted earnings per share to $0.50; and

  • 38 percent NOPAT ROIC for all stores.

Our solid execution combined with our capital discipline is generating strong, consistent cash flow. Over the last four quarters, we have produced $720 million in cash flow from operations and received $214 million in proceeds from stock option exercises. We have used our cash to invest $329 million in new and existing stores, pay off the remaining $490 million of our term loan, and, to date, return $53 million in quarterly dividends to our shareholders. We are pleased to be in a position where we can maintain a healthy cash balance and still have the capacity to internally fund our accelerated growth plans, increase our dividend, and repurchase stock. We expect we will be using all of these strategies over time.

Turning to sales, we are very pleased to be reporting 8.4 percent comps, or 7.8 percent excluding the positive impact of the Easter shift. This was our sixth consecutive quarter of comp growth of 7.8 percent or higher. We believe our efforts around value continue to be a significant contributor to our momentum, helping drive a five percent increase in our transaction counts. We have worked very hard over the last couple of years to successfully improve our price image, particularly in perishables, and we remain focused on maintaining our relative price positioning in the marketplace.

With the return of inflation, we are seeing our comp breakout move towards our historical pattern of 60 percent transaction count and 40 percent basket size. In Q3, our basket size increased three percent, slightly higher than our two percent increase in Q2. This was driven entirely by a higher average price per item, as we selectively passed through some product cost increases and customers continued trading up. Year over year, sales continued to shift toward branded and organic products, higher-priced tiers, and to several discretionary categories. We also saw strong increases in 50 dollar-plus sized baskets.

We are hopeful we can continue to strike the right balance between rising product costs and our retails based on our contracts, distribution, and tools to manage value. We anticipate incremental increases in inflation in Q4. Our pricing studies show that our competitors have been passing through product cost increases, and we don't have any reason to believe that is going to change.

Our comparable store sales increased 8.5 percent year to date through Q3, and 9.5 percent for the first three weeks of Q4. We are proud that we are continuing to gain market share at a faster rate than most public food retailers and attribute much of our success to our visible value efforts which have positively impacted our price image and to continuing to raise the bar in areas that matter to our customers particularly quality standards, and health and wellness.

For example, we recently announced our new Whole Kids Foundation, a charitable organization that will provide children with access to healthy food choices through partnerships with schools, educators and organizations. We believe our new foundation is a natural extension of our role as America's healthiest grocery store and hope that through collaborating with schools and parents, we can increase fruit and vegetable consumption both at schools and at home and make a significant contribution in the fight against childhood obesity. The Foundation's first major initiative is the Whole Kids Garden Grant Project, a program designed for schools to help build healthy relationships between children and food through the power of gardening.

Turning to new store growth, during the quarter we opened four new stores in Lafayette, California; Encinitas, California; Fairfield, Connecticut; and Houston, Texas and relocated three stores in Rockville, Maryland; Franklin, Tennessee; and Charlottesville, Virginia. In the fourth quarter to date, we have opened one new store in Marietta, Georgia, temporarily relocated our store in Upper Arlington, Ohio, and we expect to open three additional new stores, including one relocation, over the remainder of the fiscal year.

We encourage you to visit the "Beyond the Numbers" section of our Investor Relations webpage for more information about our newest Houston, Texas store, , our Whole Kids Foundation, Wellness Club website and more, including the now infamous Whole Foods Parking Lot Rap.

I will now give some additional color on our updated outlook for fiscal year 2011 and initial outlook for 2012. Please refer to our press release for more detailed information.

Based on our Q3 results, recent comp trends and updated assumptions for Q4, we have raised our diluted EPS range for fiscal 2011 to $1.91 to $1.92, which implies a range of $0.40 to $0.41 in diluted EPS for Q4. Please note that our fourth quarter is seasonally our weakest quarter of the year in terms of average weekly sales and store contribution.

For fiscal year 2012, which is a 53-week year, our initial outlook is for diluted EPS of $2.21 to $2.26, a year-over-year increase of 16 to 18 percent on 13 to 15 percent total sales growth. On a 52-week to 52-week basis, this translates to diluted EPS growth of 13 to 15 percent and total sales growth of 11 to 13 percent.

Since our second quarter earnings release, we have signed eight new leases averaging 30,000 square feet in size in Tucson, AZ; Fremont, CA; Newport Beach, CA; Basalt, CO; Detroit, MI; Columbia, SC; Virginia Beach, VA and Cheltenham, United Kingdom. We have now signed 31 new leases over the last 12 months and believe we are on track to open between 24 and 27 new stores in fiscal 2012 and 28 to 32 new stores in fiscal 2013.

As reflected in our outlook, even though we are projecting to open a record number of new stores, we are not expecting a meaningful impact on our earnings growth from this acceleration in new store openings. While new stores produce lower store contribution than mature stores, we estimate new stores will account for only five percent of our total sales in fiscal 2012 and thus should not have a material negative impact on our results. In addition, our new stores are performing well. On average, they are smaller, less expensive to build, and are expected to achieve higher returns on invested capital than the larger stores we opened in the recent past.

From a cash and infrastructure perspective, we are well positioned to internally fund and execute the acceleration in our new store growth. Our fiscal year 2012 guidance reflects strong comparable store sales growth, a record number of new store openings, EBITDA approaching $1 billion, significant operating margin improvement, and earnings growth in excess of sales growth. We are very pleased to be producing consistently strong results that are in line with our historical operating ranges and expect the lessons we learned during the great recession will drive even higher levels of both operating performance and returns on invested capital over time.

Our business has been highly successful, producing industry-leading comparable store sales growth, average weekly sales and sales per square foot. We see a new era of possibility for Whole Foods Market as customers increasingly embrace healthier lifestyles, and we look forward to accelerating our growth in the coming years. Over the longer term, we consider 1,000 stores to be a reasonable indication of our market opportunity in the U.S. Our brand continues to strengthen, consumer demand for natural and organic products continues to increase, America's healthcare crisis is creating a new frontier for health and wellness, and our flexibility on new store size has opened up additional market opportunities. We believe Canada and the United Kingdom hold great promise as well.

We will now take your questions. Please limit your questions to one at a time so that everyone has an opportunity to participate. Our call will be ending at 4:45 Central Time. Thank you.

Thank you for listening in. Join us in November for our fourth quarter earnings. A transcript of the scripted portion of this call along with a recording of the call is available on our website at www.wholefoodsmarket.com.

May 4 - 2nd Quarter Results

Good afternoon everyone. We assume you have read our press release, so we'll use this time to focus on highlights from the quarter and our updated guidance for the year. We are very proud of our results which were the strongest we have reported in the past five years. We produced:

  • average weekly sales per store of $644,000 translating to $888 in sales per square foot;

  • 9.7 percent store contribution;

  • 6 percent operating margin;

  • 8.9 percent EBITDA margin;

  • a 29 percent increase in diluted earnings per share to $0.51; and

  • 38 percent NOPAT ROIC for all stores.

Our solid execution and capital discipline is generating consistent cash flow. Over the last four quarters, we have produced $645 million in cash flow from operations and received $166 million in proceeds from stock option exercises. We have used our cash to invest $279 million in new and existing stores, pay off $700 million in long-term debt, and return $35 million in two quarterly dividends to our shareholders. With our long-term debt now fully repaid, we are considering other uses for our growing cash balance, including increasing the investment in our new and existing stores, raising our dividend and repurchasing stock.

While we are very proud of our results and healthy balance sheet, the biggest news of the quarter is that we were able to successfully "comp the comp." Despite a 520 basis point tougher year-ago comparison in Q2 compared to Q1, we are reporting our sixth consecutive quarter of accelerating two-year identical store sales growth. Identical store sales increased 8.3 percent in the second quarter, or 16 percent on a two-year stacked basis, excluding a negative 50 basis point impact from the Easter shift.

We believe our efforts around value and differentiation continue to gain traction as evidenced by the strong six percent increase in our transaction count in identical stores. We believe this slight decline from the seven percent increase we saw in Q1 was due to the much tougher year-ago comparison. On a two-year basis, the increase in transaction count accelerated to 10.9 percent in Q2 from 9.7 percent in Q1. We did see some product cost increases in the quarter, which we were able to selectively pass through at retail. This resulted in a two percent increase in our Q2 basket size driven by increases in both the average price per item and, to a lesser extent, items per basket.

We have worked very hard over the last couple of years to successfully improve our price image and remain focused on maintaining our relative price positioning in the marketplace. Costs have definitely moved up so we are appropriately cautious about the back half of the year. We are hopeful that we can again strike the right balance between rising product costs and our retails based on our contracts, distribution, and tools to manage value. We believe it is increasingly important to offer a range of prices in each category to allow people to make choices, and we are focused on continuing to develop new products that are a better value to our customers, particularly in the commodity areas.

While we can't say how our customers may react going forward, our quarterly results underscored signs that consumer confidence continued to improve even as gas prices rose. Year over year, sales continued to shift toward branded and organic products. We also saw a shift in purchases to higher-priced tiers, including shifts in several discretionary categories such as cheese, body care, and gift sets.

With 31-weeks now behind us, our identical store sales growth has averaged 8.6 percent year to date. We are proud that we are continuing to gain market share at a much faster rate than most public food retailers and attribute a lot of our success to the progress we have made in our relative price positioning and to continuing to raise the bar in areas that matter to our customers.

For example, similar to the rating systems we have implemented in other categories such as meat and seafood, we recently announced our new Eco-Scale™ Rating System for household cleaning products. This comprehensive, color-coded rating system will allow shoppers to easily identify a product's environmental impact and safety based on a red-orange-yellow-green color scale. We have committed to working with our vendors to evaluate and independently audit every product in our cleaning category, and all products will be required to meet the baseline orange standard by Earth Day 2012.

Turning to new store growth, during the quarter we opened two new stores in San Francisco, California and Raleigh, North Carolina and relocated one store in Salt Lake City, Utah. In the third quarter to date, we have relocated our store in Rockville, Maryland, and we expect to open six additional new stores, including two more relocations, over the remainder of the quarter. For additional information about our new EcoScale rating system and videos from some of our new stores, please visit the "Beyond the Numbers" section of our Investor Relations webpage. We will be posting supplemental information there each quarter to highlight our "whole story" beyond just the financials.

I will now give some additional color on our raised EPS outlook for fiscal year 2011. Please refer to our press release for more detailed information.

Based on our Q2 results, we have raised our earnings outlook for the year.

Our identical store sales growth guidance for the year implies a range of seven to nine percent growth for the second half of the year. We believe these ranges appropriately reflect that our comparisons get marginally tougher from here, while also allowing for the possibility that our 8.6 percent year-to-date idents could be sustained, especially given the likelihood of some positive impact from higher inflation.

We are very proud of our results this quarter which in many respects are back to peak levels. Based on these results and our updated assumptions, we have raised our diluted EPS range for fiscal 2011 to $1.87 to $1.90. This is a 31 to 33 percent year-over-year increase in EPS on a 12 to 13 percent increase in total sales, reflecting steady sales growth on tougher comparisons as well as our commitment to delivering incremental operating margin improvement and earnings growth in excess of sales growth.

Our business has been highly successful, producing industry-leading comparable store sales growth, average weekly sales and sales per square foot, and we look forward to accelerating our growth in the coming years. There is plenty of runway left in the United States; and Canada and the United Kingdom hold great promise. In fact, we are happy to report that our Kensington store in London is now producing positive EBITDA. We consider 1,000 stores to be a reasonable indication of our market opportunity as our brand continues to strengthen, consumer demand for natural and organic products continues to increase, and our flexibility on new store size opens up additional market opportunities.

Our new stores are performing well, and we are positioned to internally fund the acceleration in our new store growth. Since our first quarter earnings release, we have signed nine new leases in Markham, Ontario; Fulham, England; Tampa, Florida; Des Moines, Iowa; Chicago, Illinois; Riverdale, Maryland; Wilmington, North Carolina; Nashua, New Hampshire; and Knoxville, Tennessee. We have now signed 30 new leases over the last 12 months and, for the first time since 2007, our square footage in development has increased year over year. For the last several quarters, we have been talking about accelerating our new store openings, and this is a very positive sign that we are on the way to seeing that acceleration materialize. We expect to update our new store opening schedule for 2012 and beyond next quarter.

We will now take your questions but will limit participants to one question at a time so that everyone has an opportunity to participate. Our call will be ending at 4:45 Central Time. Thank you.

Thank you for listening in. Join us in July for our third quarter earnings. A transcript of the scripted portion of this call along with a recording of the call is available on our website at www.wholefoodsmarket.com.

February 9 - 1st Quarter Results

Good afternoon and thank you for joining us for the Whole Foods Market first quarter earnings conference call. On the call today are John Mackey and Walter Robb, co-chief executive officers; A.C. Gallo, President and Chief Operating Officer; Glenda Flanagan, Executive Vice President and Chief Financial Officer; and Jim Sud, Executive Vice President of Growth & Development.

I'd like to remind you that the discussion we are having today will include forward-looking statements within the context of federal securities laws. These statements involve risks and uncertainties that may cause actual events, results, and/or performance to differ materially from those indicated by such statements. We undertake no obligation to update forward-looking statements. These risks and uncertainties include those outlined in today's call, as well as any other risks identified from time to time in the company's public statements and reports filed with the SEC.

Please note our press release and scripted remarks are available on our website. I will now turn the call over to Walter Robb.

Thank you, Cindy. Good afternoon everyone. We assume you have read our press release and will use this time to focus on highlights from the quarter. We are very proud of our results which once again showed strong top- and bottom-line increases. On a 14 percent increase in sales, we produced:

  • a 15 percent increase in gross profit;

  • a 26 percent increase in EBITDA to $234 million;

  • a 59 percent increase in earnings per share to $0.51;

  • cash flow from operations of $253 million; and

  • free cash flow of $162 million.

Our solid execution is generating consistent free cash flow which we are using to pay off debt, invest in new and existing stores, and return cash to shareholders. During the quarter, we repaid $100 million of our term loan and invested $91 million in capital expenditures. Subsequent to the end of the quarter, we repaid another $200 million and paid $17 million to shareholders after reinstating our dividend last December.

The biggest news of the quarter is, despite increasingly tougher comparisons, we maintained our sales momentum and are reporting our fifth consecutive quarter of accelerating identical store sales growth on both a one- and two-year basis. Identical store sales increased 9.1 percent, our highest result in four years, and an acceleration of 518 basis points to 11.6 percent on a two-year stacked basis. Average weekly sales per store for all stores increased nine percent to $621,000, translating to sales per square foot of approximately $856.

We believe our value efforts and differentiation are continuing to gain traction as evidenced by our strong seven percent increase in transaction count in identical stores. A two percent increase in basket size was driven primarily by customers putting more items in their baskets. While there has been a lot of discussion about inflationary pressures on product costs, our average price per item showed only a slight increase year over year. This is a reversal from the slight decreases we had been seeing. We attribute this net overall result to our strategic price investments offsetting the selective pass-through of some higher product costs.

Our results underscored signs that consumer confidence continues to improve. Year-over-year branded product sales growth outpaced our exclusive-brand growth, and customers continued to shift toward organic products. We also saw an increase in the percentage of sales and transactions for baskets over $50.

Our identical store sales growth averaged 8.5 percent over the last four quarters and 8.6 percent for the first three weeks of Q2. With over a third of the year behind us, our idents have averaged nine percent year to date. We are proud that we are continuing to gain market share at a much faster rate than most public food retailers and attribute a lot of our success to the progress we have made in our relative price positioning and to continuing to raise the bar in areas that matter to our customers.

Just last week, we announced our deeper commitment to improve the lives of farm animals with the adoption of a 5-Step Animal Welfare Rating system. This is big news for our producers, for our shoppers and, most importantly, for the farm animals! The rating system is the signature program of the non-profit Global Animal Partnership and recognizes producers for their efforts in improving the welfare of animals. For our shoppers, the rating system offers a new level of transparency about the beef, pork and chicken we sell. Some step-rated options are now available at all of our stores in the U.S., and by May 9th, all the beef, pork and chicken we carry in our fresh and pre-packaged cases will be rated.

In other news, we were extremely pleased to be ranked #24 on Fortune's list of the "100 Best Companies to Work For." To be one of only 13 companies ranked consecutively for 14 years validates our commitment to our core value of 'Supporting Team Member Happiness and Excellence.'

For additional information about our new Animal Welfare rating system, Fortune ranking, and more, please visit the newly expanded investor relations area of our website titled "Beyond the Numbers." We plan to post supplemental information here each quarter to highlight our "whole story" beyond just the financials.

Turning to new store growth, during the quarter we opened three new stores in Fairview, Texas, Huntington Beach, California and San Jose, California and are pleased to announce the signing of six new leases in Danbury, Connecticut; Jamaica Plain, Massachusetts; Lynnfield, Massachusetts; Marlboro, New Jersey; San Antonio, Texas; and Ottawa, Canada. We are very excited about our growth opportunities in Canada where we currently have six stores and another three now in development. Over the next ten years, we believe our business in Canada has the potential to grow and expand to over $1 billion in sales.

I will now give some additional color on our raised outlook for fiscal year 2011. Please refer to our press release for more detailed information.

Based on our consistently strong top- and bottom-line results, along with ongoing signs of increasing consumer confidence, we have raised our sales and earnings outlook for the year.

We raised our outlook for identical sales growth in fiscal year 2011 to seven to nine percent from a previous range of five to seven percent. As we have frequently said, we do not have a crystal ball when it comes to sales. We can only look at our historical performance and current trends and try to make reasonable assumptions. We have reported five consecutive quarters of accelerating two-year identical store sales growth, a trend that has continued thus far in the second quarter. For the first three weeks of the second quarter, identical store sales increased 8.6%, or 15.0% on a two-year basis.

To put our new identical store sales guidance for the year into context, the low end of seven percent reflects a slight deceleration in growth on a two-year basis to approximately 14 percent from the 15 percent two-year idents we produced in the first three weeks of Q2. The high end of nine percent assumes some continued acceleration in two-year idents to approximately 17 percent, albeit at a more moderate rate of around 200 basis points versus the 518 and 341 increases we saw in Q1 and Q2 to date, respectively. We believe these ranges appropriately reflect that we have yet to cycle over our toughest comparisons, while also allowing for the possibility that our nine percent year-to-date identical store sales growth could be sustainable especially given the likelihood of some positive impact from inflation.

Based on our strong first quarter results and updated assumptions, we have raised our diluted EPS range for fiscal 2011 to $1.76 to $1.80, or $1.25 to $1.29 for the remaining three quarters of the year. We had very high year-over-year EPS growth in Q1 driven in large part by lower pre-opening, relocation and net interest expense. While the benefit of lower net interest expense will continue, for the remainder of the year pre-opening and relocation expenses are expected to increase approximately $14 to $17 million versus 2010; we expect a larger negative swing in LIFO of approximately $10 to $11 million; and we expect to produce lower total sales growth on tougher comparisons, which could make it difficult to leverage costs to the extent we did in the first quarter. In addition, while G&A is still expected to average three percent for the year, we expect costs to be higher in Q2 due mainly to increases in wages and investments in other initiatives.

Our guidance represents a 23 to 26 percent year-over-year increase in EPS on an 11 to 13 percent increase in total sales growth, reflecting steady sales growth on tougher comparisons as well as our commitment to delivering incremental operating margin improvement and earnings growth in excess of sales growth.

Our business has been highly successful, producing industry-leading comparable store sales growth, average weekly sales and sales per square foot. We have an expanded sense of our ultimate growth potential as our brand has continued to strengthen, consumer demand for natural and organic products continues to increase, and our flexibility on new store size has opened up additional market opportunities. While it is difficult to put a number on how many stores we eventually can have, we consider 1,000 stores to be a reasonable indication of the market opportunity. There is plenty of runway left in the United States; Canada and the United Kingdom hold great promise.

From a financial perspective, we are well-positioned to reaccelerate our new store growth. Our new stores are performing well. Our strong top- and bottom-line performance, along with our capital expense discipline, has resulted in consistent cash flow, lower debt and a very healthy balance sheet. We have signed 23 new leases over the last 12 months and expect to open a greater number of new stores beginning in 2012.

We will now take your questions but will limit participants to one question at a time so that everyone has an opportunity to participate. Thank you.

Thank you for listening in. Join us in May for our second quarter earnings. A transcript of the scripted portion of this call along with a recording of the call is available on our website at www.wholefoodsmarket.com.

2010

November 3 - 4th Quarter Results

Good afternoon and thank you for joining us for the Whole Foods Market fourth quarter earnings conference call. On the call today are John Mackey and Walter Robb, co-chief executive officers; A.C. Gallo, President and Chief Operating Officer; Glenda Flanagan, Executive Vice President and Chief Financial Officer; and Jim Sud, Executive Vice President of Growth & Development.

I'd like to remind you that the discussion we are having today will include forward-looking statements within the context of federal securities laws. These statements involve risks and uncertainties that may cause actual events, results, and/or performance to differ materially from those indicated by such statements. We undertake no obligation to update forward-looking statements. These risks and uncertainties include those outlined in today's call, as well as any other risks identified from time to time in the company's public statements and reports filed with the SEC.

Please note our press release and scripted remarks are available on our website. I will now turn the call over to John Mackey.

Thank you, Cindy. Good afternoon everyone. We are very pleased to report our fourth quarter results, which once again showed strong top- and bottom-line increases. On a 15 percent increase in sales, we produced:

  • a 17 percent increase in gross profit, excluding LIFO;

  • a 26 percent increase in EBITDA to $165 million;

  • a 63 percent increase in earnings to $0.33 per diluted share;

  • cash flow from operations of $124 million; and

  • free cash flow of $67 million.

Our solid financial performance and capital expense discipline have resulted in a consistent generation of free cash flow and a healthy balance sheet. For the fiscal year, we produced $585 million in cash flow from operations and invested $257 million in capital expenditures, resulting in free cash flow of $328 million. We ended the year with approximately $645 million in total cash, including cash equivalents, restricted cash, and investments, with an additional $343 million available on our credit line.

With our excess cash, we paid off $210 million of our term loan in the third quarter and an additional $100 million subsequent to the end of the fourth quarter, bringing our remaining balance to $390 million. Going forward, our priority is to pay off the remainder of our term loan prior to its maturity in August of 2012. We also plan to step up the investment in our business. We expect capital expenditures to increase by approximately $90 to $140 million this fiscal year, and to increase again in 2012 as new store openings begin to accelerate. All in all, we are very pleased to be consistently producing free cash flow and in such a favorable cash position where we can consider various options, including the possibility of reinstating our dividend.

Turning back to our Q4 results, average weekly sales per store for all stores increased approximately nine percent to $583,000, translating to sales per square foot of approximately $810. Identical store sales increased 8.7 percent, accelerating to 6.4 percent on a two-year stacked basis. Our ability to continue to perform against increasingly tougher comparisons has surpassed our expectations, translating to results that were significantly higher than our guidance range of 6.5 to 7.5 percent. Our sales momentum increased throughout much of the quarter and was broad-based across most regions and departments.

The drivers behind our identical store sales growth in Q4 were similar to Q3. Year over year, transaction count increased approximately seven percent, and basket size increased approximately two percent, with the increase in basket size driven entirely by customers putting more items in their baskets. Average price per item decreased slightly, as our strategic price investments more than offset the pass-through of some higher product costs.

Customer behavior was also fairly consistent with what we saw in Q3. Customers were still seeking value as demonstrated by strong sales growth year-over-year in promotional and exclusive-branded items. At the same time, signs of customer confidence also continued, as year-over-year branded product sales growth continued to outpace exclusive-brand growth, and customers selectively traded up to higher-priced items in certain discretionary areas such as seafood, cheese and housewares. Customers have also continued to shift toward organic products with sales growth in organic products outpacing sales growth in natural products year over year.

Our identical store sales growth has averaged 8.3 percent for the last three quarters and was 8.9 percent for the first five weeks of Q1. We are proud that we are continuing to gain market share at a much faster rate than most public food retailers and attribute a lot of our success to the progress we have made in our relative price positioning and to continuing to raise the bar in areas that matter to our customers.

A recent example is our announcement in September to become the first national grocer to partner with the Blue Ocean Institute and Monterey Bay Aquarium and provide our customers with an easy-to-understand, science-based sustainability rating system for wild-caught seafood. The system's green, yellow and red ratings make it easy for shoppers to make informed choices, with green or "best choice" ratings indicating a species is relatively abundant and is caught in environmentally-friendly ways. We believe initiatives like this are aligned with our core customer base and reinforce our position as the authentic retailer of natural and organic foods, further differentiating the Whole Foods Market shopping experience and making us the preferred choice for customers aspiring to a healthier lifestyle.

On the value side, our competitive price index continued to improve in Q4, resulting in our narrowest gap over the past year. We have maintained our commitment to offering highly competitive prices on known value items in addition to implementing targeted pricing and promotional strategies. We have balanced our value investments by taking advantage of buying opportunities, and improved our distribution, shrink control and inventory management to produce higher gross margin throughout the year. We are hopeful we will continue to successfully strike the right balance between driving sales, improving our value offerings, and maintaining margin going forward.

Turning to our new store growth, during the quarter we opened one new store in Santa Rosa, California, bringing our total new stores to 16 for the year. These locations included expansions into four new market areas. Our new store performance continued to show strong year-over-year improvement, with this year's new store class producing 151 basis points higher store contribution as a percentage of sales versus last year's class. New stores this year were approximately 15 percent smaller in size, averaging 45,000 square feet, and produced average weekly sales per store of $549,000, translating to 11 percent higher sales per square foot of $642.

We also have seen a substantial decrease in our average development costs for stores opened in fiscal 2010 versus fiscal 2009 on both a per-store and per-square-foot basis of 35 percent and 18 percent, respectively. Our efforts in this area are driving meaningful improvements in EVA and return on invested capital.

We are pleased today to announce nine new leases averaging 33,000 square feet in size in Laguna Niguel, CA; Miami, FL; Minnetonka, MN; Charlotte, NC; Greensboro, NC; Concordville, PA; Lynnwood, WA; and two locations in the U.K. in Glasgow, Scotland and London, England. We have been talking for some time about expansion opportunities in the U.K. and are especially excited about these two sites which we believe to be the right size for their markets at around 21,000 square feet each.

Our business has been highly successful, producing industry-leading comparable store sales growth, average weekly sales and sales per square foot. With just 301 stores today, we remain incredibly bullish about our future growth opportunities as consumer demand for natural and organic foods continues to increase.

From a financial perspective, we are well-positioned to reaccelerate our new store growth. Our strong top- and bottom-line performance, along with our renewed capital expense discipline, have resulted in consistent cash flow, lower debt and a very healthy balance sheet. We have signed 20 new leases over the last 12 months and expect to open a higher number of new stores beginning in 2012.

I will now turn to our updated outlook for fiscal year 2011. Please refer to our press release for more detailed information.

With our store-level planning process now complete, and with more visibility into the timing of our new store openings, we have fine-tuned our outlook for fiscal 2011. We have tightened our sales growth range to 10 to 12 percent. We expect weighted average square footage growth of approximately five percent and, based on our Q4 and Q1 to date results, identical stores sales growth of five to seven percent, which is 11.5 to 13.5 percent on a two-year stacked basis.

Despite increasingly tougher comparisons, our identical store sales growth for Q3, Q4, and the first five weeks of Q1 has been 8.4 percent, 8.7 percent and 8.9 percent respectively. Idents improved approximately 290 basis points from the first five weeks of Q1 to the last eleven weeks of Q1, so it is reasonable to expect idents to moderate as we move through the quarter and then moderate even further in Q2 when we begin to cycle over 8 percent-plus identical store sales growth. This tougher comparison is reflected in our five to seven percent guidance range for the year.

For fiscal year 2010, our operating margin was 4.9 percent. Based on this better-than-expected result, along with our lowered estimate for pre-opening and relocation expense in 2011, we have raised our operating margin guidance to 5.0 percent.

We are lowering our net interest expense expectations to $1 to $3 million based on lower interest rates resulting from S&P's upgrade of our credit rating, along with the recent $100 million decrease in our debt.

Based on our better-than-expected FY10 results and these updated assumptions, we have increased our diluted EPS guidance range for the year by seven cents to $1.66 to $1.71, which is 16 to 20 percent growth year-over-year. The current consensus estimate is $1.62. In terms of quarterly results, please keep in mind that our first quarter is a 16-week quarter and that we typically produce sequentially higher sales and earnings on a weekly basis compared to the fourth quarter.

Our guidance reflects steady sales growth on tougher comparisons as well as our commitment to delivering incremental operating margin improvement and earnings growth in excess of sales growth. We are proud of our results for the quarter and pleased with the continued momentum in our sales trends first quarter to date; at the same time, we are mindful of the challenges we face as we start to compare against difficult eight percent-plus comps, beginning in the second quarter, in an economy that is still struggling to show clear signs of momentum.

The economy aside, we are very enthusiastic about our future. We have struck the right balance between increasing our value offerings and maintaining margin. We are improving our price positioning relative to our competition; our efforts are helping to drive sales momentum, and we are gaining market share. On the expense and capital side of the business, we are showing continued improvements in gross margin and direct store expenses, and our new store performance has greatly improved driven in large part by our renewed cost discipline in this area as well as smaller average store size. Our strong top- and bottom-line results are driving consistent cash flow, allowing us to decrease debt and build a healthy balance sheet once again. We also are re-energized about our new store growth potential with the rebuilding of our real estate pipeline starting to materialize. We believe the best is yet to come for Whole Foods Market and look forward to working together to see our collective vision realized.

We will now take your questions but ask that you limit your questions so that everyone has an opportunity to participate. Thank you.

Thank you for listening in. Please visit Whole Foods Market for everything you need to enjoy great meals over the holidays, and join us in February for our first quarter earnings. A transcript of the scripted portion of this call along with a recording of the call is available on our website at www.wholefoodsmarket.com.

August 3 - 3rd Quarter Results

Good afternoon. Joining me today are John Mackey, co-CEO, A.C. Gallo, President and COO, Glenda Chamberlain, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Development, and Cindy McCann, Vice President of Investor Relations.

Now for the legalities: the discussion we are having will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and these statements involve risks and uncertainties that may cause actual events, results, and/or performance to differ materially from those indicated by such statements. These risks and uncertainties include those outlined in today's call, as well as any other risks identified from time to time in the company's public statements and reports filed with the SEC.

Please note our press release is now available on our website along with the scripted portion of this call.

We are very pleased to report our third quarter results, which once again showed strong top- and bottom-line increases. On a 15 percent increase in sales, we produced:

  • a 52 basis point improvement in store contribution to 8.8 percent, excluding LIFO;

  • a 19 percent increase in operating income before pre-opening to $121 million, excluding LIFO;

  • diluted earnings per share of $0.38 versus $0.25 last year;

  • cash flow from operations of $118 million; and

  • free cash flow of $65 million.

Our balance sheet continues to improve, driven in large part by our improved expense and capital disciplines. After paying down $210 million of our $700 million term loan, we ended the quarter with $514 million in total debt, $575 million in cash and investments, and $341 million available on our credit line. The interest rate swap agreement on the $490 million balance of our term loan expires October 1, 2010. We expect to be in a position to repay the term loan prior to it coming due in August 2012, but our timing will depend on the economic outlook and our continued generation of free cash flow.

We are improving our price positioning relative to our competition, our efforts are helping to drive our sales momentum, and we are gaining market share. Our identical store sales increased 8.4 percent in the third quarter, accelerating from the 7.7 percent we reported in Q2 and our highest increase since 2006. Our two-year stacked identical store sales also sequentially increased by 272 basis points to 4.6 percent. We are pleased with these results which compare very favorably to most other food retailers.

Given the volatility in the stock market and recent dip in reported consumer confidence, we know everyone is focused on trends during the quarter, so let me break things down a bit further. Identical store sales growth for the first four weeks and last eight weeks of Q3 was 8.6 percent and 8.3 percent, respectively. Given that IDs improved 180 basis points from the first four to the last eight weeks of Q3 last year, we attribute the expected and slight moderation in results this year to the tougher year-ago comparison rather than to any changes in consumer sentiment or the economy.

Our 8.4 percent identical store sales growth for the quarter was driven primarily by transaction count along with a one percent increase in basket size. We believe our transaction count increases are being driven by a combination of our loyal customers shopping with us more frequently, prior customers returning to shop with us, and an increasing number of new customers entering our doors. Our increase in basket size was driven entirely by customers putting more items in their baskets. We have worked hard to improve our value image and believe our success in this regard has played a large role in the sales momentum we are seeing. The pass-through of select product cost increases was more than offset by our continued strategic price investments. Net net, our average price per item in the basket was down less than one percent year over year, not a big change from being flat year over year in Q2.

Customers are still seeking value as demonstrated by continued strong sales growth in promotional and private label items; however, branded product sales growth is outpacing private label growth, and customers are selectively trading up to higher-priced items in certain areas.

Our internal benchmarking research indicates continued improvement in our price competitiveness during the quarter relative to our regional and national competitors. Whole Foods Market is being looked at differently in this area according to our Nielsen study which shows improving trends in consumer sentiment around our value efforts and, even more importantly, as reflected in our continued strong sales growth relative to most other food retailers.

Excluding LIFO, gross margin increased 13 basis points due to an improvement in occupancy costs which helped offset slightly higher cost of goods sold as a percentage of sales. As expected, now that we have fully cycled over the shift in our pricing strategy that occurred in the first half of 2009, we are no longer generating the same level of year-over-year improvement in gross margin. In addition, we made strategic pricing decisions on select teams during the quarter to position ourselves competitively in the marketplace.

Direct store expenses decreased 39 basis points driven by significant leverage in depreciation and in salaries and benefits. For the second quarter in a row, our health care costs decreased as a percentage of sales.

Store contribution improved 38 basis points driven by our higher average weekly sales, continued profitability gains at the former Wild Oats stores and improved performance from new stores.

Compared to the class of 23 new stores in the third quarter last year, our class of 19 new stores this year was approximately 18 percent smaller in size, averaging 44,000 square feet. These stores produced average weekly sales per store of $561,000, a 17 percent increase in sales per square foot to $663, and a 74 basis point higher store contribution as a percentage of sales due primarily to lower direct store expenses and occupancy costs as a percentage of sales.

During the quarter, we opened six stores in Novato, CA; Mill Valley, CA; Tarzana, CA; Darien, CT; Chevy Chase, MD; and Schaumburg, IL; and acquired two stores in Chattanooga, TN and Asheville, NC.

As we mentioned last quarter, we are focused on rebuilding our pipeline and are excited today to announce six new leases averaging 34,000 square feet in size in San Francisco, CA; Boise, ID; Minneapolis, MN; Washington, D.C.; and two sites in Austin, TX.

We currently have eight leases in negotiation and anticipate an accelerated pace of lease signings in the future. Given the typical 18- to 24-month average lag between signing and opening, we expect this will translate into a higher number of new store openings starting in 2012.

I will now turn to our expectations going forward. Please refer to our press release for more detailed information.

For the first four weeks of Q4, identical store sales grew 7.7 percent, or 5.0 percent on a two-year stacked basis. Please note that in the prior year, idents improved 50 basis points from the last 8 weeks of Q3 to the first four weeks of Q4 and another 65 basis points from the first four weeks of Q4 to the last eight weeks of Q4. For the full quarter, we expect IDs in the range of 6.5 to 7.5 percent. The low end of the range implies a deceleration in the last 8 weeks from the 5.0 percent we produced in the first four weeks, while the high end implies a slight acceleration.

Based on our year-to-date results and estimates for Q4, we are tightening our identical store sales growth range for the fiscal year to 6.0 to 6.2 percent from our prior 5.5 to 6.5 percent range, and raising our diluted EPS range to $1.37 to $1.39 from our prior $1.33 to $1.37 range.

We have not yet completed our budgeting process for fiscal year 2011, and various economic indicators suggest it is reasonable to be cautious and conservative about the future. With that in mind, we are sharing our preliminary expectations for next year, which we expect to update when we announce our Q4 and fiscal year results in early November.

Our sales growth range of 10 to 13 percent is based on identical store sales growth of 4.5 to 6.5 percent. Please note this is 10.6 to 12.7 percent ID growth on a two-year stacked basis. We expect to open 17 new stores, including six relocations.

We are committed to producing operating margin of 4.8 percent, or an incremental improvement of approximately 10 basis points.

Assuming no significant change in interest rates, we expect interest expense to decrease by approximately $21 million next year due to the combination of the $210 million pay down of our term loan this past quarter and the expiration on October 1st of our interest rate swap on the remaining $490 million of our term loan.

Based on these assumptions, we expect preliminary diluted earnings per share in the range of $1.59 to $1.64. This range represents a year-over-year increase of 16 to 19 percent over the $1.38 midpoint of our fiscal year 2010 EPS guidance range. Excluding the estimated $0.06 positive impact from the swap expiration, the $1.56 midpoint of our EPS range is in line with the current First Call consensus of $1.57, which does not appear to reflect the expiration of the swap.

It is worth noting the wide range in analyst estimates of $1.43 to $1.70 for next year. In addition, the $1.57 appears to assume nine percent sales growth, five percent identical sales growth, and a 4.9 percent operating margin. This level of operating margin seems out of line with the sales growth assumptions, particularly given the competitive and economic environment.

Our preliminary guidance projects steady sales growth for next year and reflects our commitment to delivering incremental operating margin improvement as well as earnings growth in excess of sales growth. We believe it appropriately reflects a tempering of our enthusiasm over current sales growth trends with conservatism based on the competitive environment and uncertainty over the economy.

The economy aside, it is hard not to be enthusiastic about our future. We believe we have struck the right balance between increasing our value offerings and maintaining margin. We are improving our price positioning relative to our competition; our efforts are helping to drive sales momentum, and we are gaining market share. On the expense and capital side of the business, we are showing strong year-over-year leverage in our direct store expenses, and our new store performance has greatly improved driven in large part by our renewed cost discipline in this area as well as smaller average store size. Our strong top- and bottom-line results are driving strong cash flow, which is resulting in a very healthy balance sheet. We also are excited about once again rebuilding our real estate pipeline and believe there are many reasons to be optimistic about our future growth potential. We believe the best is yet to come for Whole Foods Market and look forward to working together to see our collective vision realized.

We will now take your questions but ask that you limit your questions so that everyone has an opportunity to participate. Thank you. At close of call:

Thank you for listening in. Please join us in November for our fourth quarter earnings. A transcript of the scripted portion of this call along with a recording of the call is available on our website at www.wholefoodsmarket.com.

May 12 - 2nd Quarter Results

Good afternoon. Joining me today are Walter Robb, co-CEO, A.C. Gallo, President and COO, Glenda Chamberlain, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Development, and Cindy McCann, Vice President of Investor Relations. Let me start off by congratulating Walter and A.C. on their well-deserved promotions.

Now for the legalities: the discussion we are having will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and these statements involve risks and uncertainties that may cause actual events, results, and/or performance to differ materially from those indicated by such statements. These risks and uncertainties include those outlined in today's call, as well as any other risks identified from time to time in the company's public statements and reports filed with the SEC.

Please note our press release is now available on our website along with the scripted portion of this call.

We are very pleased to report our second quarter results, which exceeded our expectations on the top and bottom line and are the best we have reported in several years. Average weekly sales per store for all stores increased nine percent to $600,000, translating to sales per square foot of $838. Our strong sales are driving stronger bottom-line results, allowing us to better leverage certain fixed costs such as occupancy and depreciation while maintaining our expense and inventory disciplines. On a 13 percent increase in sales, we produced:

  • a 191 basis point improvement in operating margin to 5.7 percent of sales;

  • a 40 percent increase in EBITDA to $182 million;

  • a 102 percent increase in diluted earnings per share to $0.39;

  • cash flow from operations of $182 million; and

  • free cash flow of $117 million.

These results included a $3.2 million gain on the sale of a non-operating property in the current year and asset impairment charges of $13.1 million last year.

We have successfully emerged from this recession with better capital disciplines and a healthier balance sheet. Given our total cash and investments of $726 million at the end of the quarter, we subsequently repaid the floating $210 million portion of our $700 million term loan.

As the economy and consumer confidence improves, we are gaining back customers at a faster rate than our competitors. Our two-year stacked identical store sales increased 1.9 percent, our first positive two-year result since Q1 of 2009. Our strong sales results were broad-based across most regions, age of stores, and store teams. Our value work in perishables clearly has resonated with our customers as evidenced by our perishable comps showing strong rebounds year over year and outpacing our store average.

Our 7.7 percent identical store sales growth was driven by healthy increases in both transaction count and basket size, with about two-thirds of the increase coming from higher transaction counts. With the average price per item remaining flat, our first increase in basket size since Q4 of 2008 was driven entirely by our customers putting more items into their basket.

Excluding LIFO, gross profit increased 37 basis points to 35.1 percent of sales due to an improvement in both cost of goods sold and occupancy costs as a percentage of sales. We are continuing to see lower cost of goods sold driven by better purchasing and distribution disciplines as well as improved store-level execution, particularly in terms of shrink control and inventory management. For the third quarter in a row, year-over-year declines in inventory levels are driving improvements in inventory turns.

Customers are still seeking value as demonstrated by continued strong sales growth in promotional and private label items; however, branded product sales growth has now outpaced private label growth for the last two quarters, and we are seeing some indications of customers starting to selectively trade up to higher-priced items in certain areas.

We remain focused on continuing to strike the right balance between driving sales, improving our value offerings, and maintaining margin. While many of our competitors have gone back and forth on their pricing strategies, we are sticking with our goal of offering competitive prices on known value items, day in and day out, along with robust promotional programs. Based on our strong sales growth alone, it appears we are getting credit for our hard work and that people are beginning to look at us differently in this area. This is backed up by our latest Nielsen study, which tracks consumer sentiment around our value efforts, and shows positive sentiment on our pricing continuing to increase. And, while it hasn't disappeared, we are chipping away at the negative. Lastly, based on our internal benchmarking, we believe we improved our price competitiveness relative to our regional and national competitors during the quarter.

The improvements we are seeing in store contribution as a percentage of sales are being driven by our higher average weekly sales, continued profitability gains at the former Wild Oats stores, and our new stores having less of a drag on our overall results.

Customers have clearly welcomed the changes we have made in the former Wild Oats stores over the past two and a half years. Comparable store sales growth is in double digits, and sales per square foot have increased 20% to $639 over the past two years. Strong sales growth and improved in-store execution have driven healthy increases in store profitability to 7.4 percent of sales.

The percent of sales from new stores declined to 6.1 percent of total sales in the quarter from 6.6 percent of sales last year. This, combined with their improved performance, resulted in less of a drag on our overall results. Compared to the class of 21 new stores in the second quarter last year, our class of 19 new stores this year was approximately nine percent smaller in size, averaging 47,000 square feet. These stores produced 25 percent higher average weekly sales per store of $662,000, or a 39 percent increase in sales per square foot to $736, and a 375 basis point higher store contribution as a percentage of sales due primarily to lower occupancy costs and direct store expenses as a percentage of sales. We also are seeing significant reductions in certain areas of our development costs which are driving healthy improvements in EVA as well.

During the quarter, we opened three stores in Maui, Dallas and Long Island. Today, we announced two new leases in Wellesley, Massachusetts and Oklahoma City, and we announced plans to purchase two stores in Chattanooga and Asheville, both of which are new markets for us. Given our strong new store performance and the favorable rents we are seeing, we are focused on rebuilding our pipeline and expect the signing of new leases to accelerate over the coming year.

I will now turn to our raised outlook for the fiscal year. Please refer to our press release for more detailed information.

Our new fiscal year range for identical store sales growth implies 6.5 percent to 8.5 percent growth for the second half of the year. The low end assumes identical store sales growth on a two-year basis remains in line with the 3.6 percent two-year idents we have produced in the third quarter to date. The high end assumes some level of momentum in two-year identical store sales growth continues throughout the remainder of the fiscal year, moderating in the fourth quarter as we cycle over more difficult year-ago comparisons.

Our new diluted earnings per share guidance of $1.33 to $1.37 implies $0.61 to $0.65 per diluted share for the second half of the year, which, at the midpoint, is four cents above the Street's current $0.59 consensus. We typically see higher average weekly sales in the third quarter which drive stronger bottom-line results, and then sales tend to drop in the fourth quarter which is seasonally our weakest quarter.

In closing, I would like to elaborate on the other announcement we made today, the promotions of Walter and A.C. Glenda, Jim, Walter, A.C. and I have worked together leading the company since 2001. During this time, our total sales, profits, and stock price have increased tremendously. My goal in proposing these promotions was to keep this executive team together for what I hope is many more years to come.

Walter and A.C.'s contributions to our company's success are numerous and immeasurable. One of their most important joint accomplishments, however, is the high level of voluntary collaboration they have fostered between our 12 regional leadership teams. I believe this was instrumental in our successfully managing through 2009, which was the most difficult time in our company's 30-plus year history.

There are many reasons to be optimistic about Whole Foods Market's future growth potential. Our business model clearly has been highly successful, with our company recently moving up to #284 on the Fortune 500 list of largest U.S. public corporations. Our new stores are performing very well, and we are in the process of rebuilding our store development pipeline in anticipation of reaccelerating our square footage growth in the future. We believe the best is yet to come for Whole Foods Market and look forward to working together to see our collective vision realized.

We will now take your questions but ask that you limit your questions so that everyone has an opportunity to participate. Thank you. At close of call:

Thank you for listening in. Please join us in August for our third quarter earnings, at which time Walter, as co-CEO, will be reading our scripted comments. A transcript of the scripted portion of this call along with a recording of the call is available on our website at www.wholefoodsmarket.com.

February 16 - 1st Quarter Results

Good afternoon. Joining me today are Walter Robb and AC Gallo, Co-Presidents and Chief Operating Officers, Glenda Chamberlain, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Development, and Cindy McCann, Vice President of Investor Relations.

First the legalities: the discussion we are having will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and these statements involve risks and uncertainties that may cause actual events, results, and/or performance to differ materially from those indicated by such statements. These risks and uncertainties include those outlined in today's call, as well as any other risks identified from time to time in the company's public statements and reports filed with the SEC.

I hope you have had a chance to read our press release which is available on our website along with the scripted portion of this call.

We are very pleased with our first quarter results. On a seven percent increase in sales, we produced:

  • a 116 basis point improvement in operating margin to 3.9 percent of sales;

  • a 26 percent increase in EBITDA to $186 million;

  • a 62 percent increase in diluted earnings per share to $0.32;

  • a 14 percent increase in cash flow from operations to $161 million; and

  • free cash flow of $79 million.

Average weekly sales per store for all stores increased approximately four percent to $572,000, translating to sales per square foot of approximately $800. We are seeing much better results in our new stores due in part to the overall rebound in our sales but also reflecting the positive impact of smaller, less expensive stores. Compared to the class of 21 new stores in the first quarter last year, our class of 17 new stores this year was approximately nine percent smaller in size, averaging 47,000 square feet. These smaller new stores produced 27 percent higher average weekly sales per store of $650,000, or a 37 percent increase in sales per square foot to approximately $707, and produced a 418 basis point higher store contribution as a percentage of sales due primarily to lower occupancy costs and direct store expenses as a percentage of sales. We also are seeing significant reductions in certain areas of our development costs which are driving healthy improvements in EVA as well.

The percent of sales from new stores declined year over year and sequentially to six percent of total sales in the quarter. This, combined with their improved performance, resulted in less of a drag on our overall results. As we hold our square footage growth relatively steady over the next few years, we expect the average age of our store base to increase which should help drive improved store contribution as a percentage of sales. If and when we accelerate our square footage growth, the growth paradox will likely resurface once again.

Our comparable store and identical store sales trends improved for the third quarter in a row and both are now back in positive territory. Comparable store sales increased 3.5 percent, identical store sales increased 2.5 percent, and for the first time since 2005, our comparable and identical store sales on a two-year stacked basis improved sequentially. The recovery we have seen is fairly broad-based, with every region and almost every department producing positive identical store sales growth and sequential improvements. We are particularly pleased with the double-digit comps we are generating at the former Wild Oats stores and at our Kensington store in London.

The improvement in comparable and identical store sales continues to be driven by increases in transaction count. Our average basket size was down only slightly year over year, a significant improvement from the two percent decrease we saw in Q4. The improvement in basket size trends was driven by an increase in the number of items per transaction, with the average price per item down slightly.

In general, we are seeing customers celebrate holidays and special events, such as the recent Super Bowl, in a bigger way than they did in 2009. We also are seeing a shift in buying patterns around bad weather. Last year, customers didn't "stock up" as they had historically. This year, not only are customers stocking up, they are restocking afterwards as well. In comparing Q1 to Q4, we saw a slight shift in sales to higher price tiers which we attribute in part to the holidays, and to a lesser degree, to customers trading down less. We are still seeing strong redemption rates for coupons featured in our Whole Deal newsletter.

Excluding LIFO, gross profit for the quarter increased 84 basis points to 34.3 percent of sales. We are continuing to see lower cost of goods sold driven by better purchasing and distribution disciplines as well as improved store-level execution, particularly in terms of shrink control and inventory management. For the second quarter in a row, we saw year-over-year declines in inventory levels of approximately five percent which drove improvements in inventory turns. Year over year, the margin improvements more than offset slightly higher occupancy costs as a percentage of sales.

Early last year, we made the shift from being fairly reactionary on pricing to being much more strategic. We have seen this strategy successfully play out over the last several quarters, as we have produced strong year-over-year improvement in gross margin and comps. While many of our competitors have gone back and forth on their pricing strategies, we are sticking with our goal of offering competitive prices on known value items, day in and day out. Our internal benchmarking shows that we maintained our price competitiveness relative to our national competitors during the quarter. We remain focused on continuing to strike the right balance between driving sales, improving our value offerings, and maintaining margin.

We produced diluted earnings per share of $0.32. We beat our own internal forecast due primarily to higher-than-expected sales driving better gross margin results and leverage of G&A expenses. There was still some conservatism in our spending in Q1 resulting in some new G&A expenses being pushed to Q2. Our results included $10.1 million, or $0.04 per diluted share, in store closure reserve adjustments.

During the quarter, we opened six stores in San Francisco, California; Santa Barbara, California; Milford, Connecticut; Portland, OR; Plymouth Meeting, Pennsylvania; and Seattle, WA, ranging in size from 25,000 to 50,000 square feet and closed one former Wild Oats store. Since the fourth quarter, we terminated two leases for stores in development and today announced three new leases averaging 40,000 square feet in size. We are committed to producing positive free cash flow on an annual basis, including sufficient cash flow to fund the 51 stores in our current development pipeline.

In other news, we were extremely pleased to move up four spots to number 18 on Fortune's list of the "100 Best Companies to Work For." To be one of only 13 companies ranked thirteen years in a row validates our commitment to our core value of 'Supporting Team Member Happiness and Excellence.' We are very happy about this achievement and want to commend our regional and store leadership teams for the great job they did in staying focused on Team Member morale in what was a very challenging year last year.

We also want to take a moment to thank our customers and Team Members for their generosity in the wake of the tragedy in Haiti. Our customers donated $1.7 million toward the relief and rebuilding efforts in Haiti, and our Team Members contributed more than $93,000 to support our Haitian Team Members whose friends and family have been affected by the earthquake. Through the Whole Planet Foundation, Whole Foods Market has provided $1 million to a microcredit organization that is providing banking services to people in Haiti following the earthquake. While not surprised by the outpouring of cash donations, we are humbled and grateful that our customers and Team Members contributed to help so many others in need right now.

Looking back on why we started this business over thirty years ago, one of the things we were most passionate about was the idea of providing customers with healthier alternatives to the heavily processed foods produced through industrial agriculture and sold in conventional supermarkets. While we fulfill a part of our mission every day through selling the highest quality natural and organic foods available, I believe we have the opportunity and obligation to do more in terms of educating our stakeholders about the benefits of healthy lifestyle choices. To underscore our renewed focus, we created a new Core Value last summer – Promot¬ing the health of our stakeholders through healthy eating education.

On January 20th, we announced the official company-wide launch of our "Health Starts Here" initiative created to support this new Core Value. As part of this initiative, our stores are now offering free information, recipes, in-store lectures, events and support groups, with a selection of educational books and cookbooks offered alongside materials from our two partner programs - Dr. Joel Fuhrman's Eat for Health program and Rip Esselstyn's Engine 2 Diet. In-store signage is focusing on education about nutrient-dense foods through Dr. Furhman's Aggregate Nutrient Density Index, or ANDI scores, including how to prepare and incorporate these foods into your everyday life. Our Prepared Foods teams are now offering a selection of specially branded "Health Starts Here" items in the self-serve food bars and chef cases which are generating considerable customer interest. For more information, visit any of our stores or check out the video on our website featured on the front page of our press room.

Our "Health Starts Here" initiative includes two internal programs as well: the Team Member Healthy Discount Incentive, where Team Members can earn a higher store discount for achieving certain biometric testing scores in the areas of nicotine, blood pressure, cholesterol and Body Mass Index, and the Total Health Immersion Program, a voluntary intensive health and wellness education program offered biannually at no cost to our higher health risk Team Members. So far we have had a tremendous response to these programs. We believe the upfront investments we are making now will deliver strong returns over time in terms of healthier Team Members and lower health care costs.

We have a loyal core customer base that is aligned with our mission and Core Values. We expect our "Health Starts Here" initiative will grow and evolve over time to become a key competitive advantage for us, and by offering an informed approach to food as a source for improved health and vitality, we will help change many more lives for the better. We believe our passionate support of causes and leadership in areas important to our customers reinforces our position as the authentic retailer of natural and organic foods, making us the preferred choice for customers aspiring to a healthier lifestyle.

I will now turn to the rationale behind our raised outlook for the fiscal year. Please refer to our press release for detailed guidance.

Last quarter, we guided to flat operating margins for fiscal year 2010, excluding unusual items last year. At that point, we had just reported 1.6 percent comps and 0.4 percent idents for the first five weeks of Q1. Our results for the last eleven weeks of Q1 were significantly better than this at 4.3 percent and 3.3 percent, respectively. We did not forecast this level of improvement, and our first quarter results exceeded our own expectations on both the top and bottom line.

For three quarters, we have produced sequential improvement in comparable and identical stores sales trends, driven by improving transaction count trends. We are now seeing increasing transaction counts year over year and sequential improvement in identical store sales growth on a two-year basis as well. Second quarter to date, our results are better still at 7.0 percent and 6.0 percent, respectively, with 0.6 percent two-year identical store sales growth. We are very pleased to see our comps moving closer to the ranges we produced prior to acquiring Wild Oats and the onset of the recession and believe there are many reasons to be bullish about our future results. It is relatively early in our recovery, however, and there is still a lot of uncertainty regarding where the economy, the consumer, and competition go from here. Our new ranges for comparable store sales growth of 3.5 percent to 5.5 percent and identical store sales growth of 2.9 percent to 4.9 percent encompass our cautiousness on the low end and our optimism on the high end. We also want to point out that our idents improved 224 basis points from the first half to the second half of 2009, so while we continue to face easier comparisons over the remainder of Q2, we face a significantly higher hurdle in the back half of the year.

Our operating margin guidance range of 4.3 percent to 4.5 percent for the year assumes lower year-over-year improvement in gross margin, excluding LIFO, than we have produced on average over the last three quarters. We do not expect to sustain those higher levels of improvement once we anniversary the shift in our pricing strategy that occurred in the first half of last year. Additionally, we have been taking advantage of buying opportunities to pass through values to our customers, but it is difficult to predict to what extent these opportunities will continue. We are committed to maintaining our relative price positioning, and this might mean a higher level of price investments going forward.

We also expect slightly higher G&A of 2.9 percent of sales for the fiscal year. Our expense discipline is continuing, and even with stronger comps, the lessons we've learned over the last two years are not going to be forgotten. That said, spending last year was limited to "must haves," and certain costs from 2009 were deferred, so we expect some increases in our cost structure now that we feel more confident about our sales momentum continuing.

In the first quarter, we beat Street estimates by six cents. Currently, the Street consensus for the remainder of the year is $0.84. Our new EPS range of $1.20 to $1.25 implies $0.88 to $0.93 for the remainder of the year which, at the midpoint, is seven cents above the Street's $0.84 consensus. As currently reflected in Street estimates, we typically see higher average weekly sales in our second and third quarters which drive stronger bottom-line results, and then sales tend to drop in the fourth quarter which is seasonally our weakest quarter.

Our business model clearly has been highly successful, with our company ranked #324 on the Fortune 500 list of largest U.S. public corporations. In 2009, we were one of the top 20 best performing stocks in the S&P 500 Index. As the world moves out of this recession, our positive sales momentum, combined with our continued expense and capital disciplines, should produce strong returns for our shareholders. With fewer than 300 stores, I remain incredibly excited about the future growth opportunities for Whole Foods Market. We are well positioned to take advantage of changing demographic trends, and I expect our renewed emphasis on healthy eating to help further differentiate us and solidify our unique position within the food retailing universe.

We will now take your questions but ask that you limit your questions so that everyone has an opportunity to participate. Thank you. At close of call:

Thank you for listening in. As we stated, we believe there are many reasons to be bullish about where our results go from here, but it is early in our recovery, we have tougher identical store sales growth comparisons as we move into the second half of the year, and there is still a lot of uncertainty regarding the economy. We look forward to updating you on our progress in May on our second quarter earnings call. A transcript of the scripted portion of this call along with a recording of the call is available on our website at www.wholefoodsmarket.com.

2009

November 4 - 4th Quarter Results

Good afternoon. Joining me today are Walter Robb and AC Gallo, Co-Presidents and Chief Operating Officers, Glenda Chamberlain, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Development, and Cindy McCann, Vice President of Investor Relations.

First the legalities: the discussion we are having will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and these statements involve risks and uncertainties that may cause actual events, results, and/or performance to differ materially from those indicated by such statements. These risks and uncertainties include those outlined in today's call, as well as any other risks identified from time to time in the company's public statements and reports filed with the SEC.

I hope you have had a chance to read our press release which is available on our website along with the scripted portion of this call.

We are very pleased with our fourth quarter and fiscal year results. We believe that our sales have now stabilized and officially turned the corner. Our comparable store and identical store sales trends have now improved for the second quarter in a row and, after five quarters of year-over-year declines, are in positive territory quarter-to-date at 1.6 percent and 0.4 percent, respectively. We believe we are continuing to strike the right balance between sales and gross margin while maintaining our cost control disciplines. On a 2.3 percent increase in sales for the quarter, we produced:

  • a 70 basis point improvement in operating margin to 3.6 percent of sales, excluding LIFO and the prior-year charges as outlined in our press release;

  • a 46 percent increase in adjusted EBITDA to $133.5 million;

  • cash flow from operations of $113 million; and

  • $51 million of positive free cash flow.

Comparable store sales decreased 0.9 percent, and identical store sales decreased 2.3 percent. This is an improvement from the 2.5 percent and 3.8 percent respective decreases we reported for the third quarter. Every department and almost every region showed sequential improvement in identical stores from the third quarter.

Transaction counts for comparable stores increased 1.4 percent, while transaction counts in identical stores were even year over year. A decline in average basket size was driven primarily by a decrease in the number of items per basket; however, the average price per item also declined for the first time this year which we attribute primarily to deflation in produce and other categories.

Average weekly sales per store for all stores were $537,000, translating to sales per square foot of $752. Our 20 new and relocated stores produced average weekly sales per store of $579,000 and averaged 52,000 square feet in size, translating to sales per square foot of $579.

Food inflation as measured by the CPI slowed significantly from 2.7 percent in Q3 to 0.4 percent in Q4 which likely is having some negative impact on our sales, basket size, and price per item.

Excluding LIFO and asset impairment charges in both years, store contribution improved 13 basis points to 7.2 percent of sales, in line with our guidance.

Excluding LIFO, gross profit for the quarter increased 46 basis points to 34 percent of sales. We are continuing to see lower cost of goods sold driven by better purchasing and distribution disciplines as well as improved store-level execution, particularly in terms of shrink control and inventory management. Year over year, these improvements more than offset higher occupancy costs as a percentage of sales.

We are using our new pricing data tracking and research abilities to consistently monitor the marketplace and help us make strategic and targeted price investments. Our internal benchmarking shows that we maintained our price competitiveness vis a vis our national competitors during the quarter. We have taken advantage of lower costs in certain areas, such as produce, to pass through great values to our customers. In other areas, for example in cheese and packaged nuts, we have rolled out some great national programs to drive better values for customers without sacrificing gross margin. The fact that our sales are moving in the right direction and we maintained healthy gross margins suggests we are continuing to strike the right balance between driving sales, improving our value offerings, and maintaining margin.

For our identical stores, excluding LIFO and asset impairment charges, store contribution improved 58 basis points to 7.6 percent of sales driven by improvements in both gross profit and direct store expenses.

G&A was lower than estimated at $51.7 million. Pre-opening and relocation costs also came in lower than our expectations at $13.8 million. As a result, we produced diluted EPS of $0.20, including a one cent positive impact from LIFO, slightly above our $0.16 to $0.18 guidance range which excluded LIFO.

During the quarter, we opened three stores in Santa Cruz County, California; New York City; and Dedham, Massachusetts. Our new Upper West Side store at 97th and Columbus is our sixth store in New York City. The New York and Dedham stores are both 60,000 square feet while our Capitola store in Santa Cruz County is on the other end of the size spectrum, at 25,000 square feet. Today we announced three new leases averaging 33,000 square feet in size, and the 53 stores in our pipeline average 45,000 square feet. We plan to continue to sign new store leases which we believe are "right sized" for their particular community, and expect that most of our new store leases will fall between 35,000 to 50,000 square feet going forward.

On another note, we want to extend thanks to our customers for donating over $660,000 to fund the development of "The Lunchbox Project," an online resource created by "Renegade Lunch Lady" Chef Ann Cooper's nonprofit, F3: Food Family Farming Foundation. F3 helps school lunch providers serve nutritious, affordable lunches to students. Inspired by our customers, we are deepening our own commitment beyond our $50,000 donation and asking each of our store locations to partner with a local school to work on making real progress in cafeterias in our communities' schools. We have a loyal core customer base that is aligned with our mission and our core values. We are passionate about supporting causes that are important to our shoppers and neighbors. We believe our leadership in projects like this reinforces our position as the authentic retailer of natural and organic foods, making us the preferred choice for customers aspiring to a healthier lifestyle.

I will now turn to our outlook for next fiscal year.

We are pleased with our sales trends for the first five weeks of the current quarter. Our total sales increased five percent, comparable store sales increased 1.6 percent, and identical store sales increased 0.4 percent. However, with no anticipated positive change in the economy over the short term, and with the likelihood of continued price investments, we believe it is reasonable to expect sales results for the fiscal year in line with or slightly better than our quarter-to-date results.

For the fiscal year, we expect sales growth of 5 percent to 8 percent, comparable store sales growth of 1 percent to 4 percent, and identical store sales growth of 0 percent to 3 percent. We expect to open 16 new stores, ten of which are expected to open in the first half of the year. These numbers include the three stores already opened this quarter.

While our sales comparisons will be easier in the first half of the year, we will have difficult expense comparisons due to the cost savings realized in 2009. In addition, with low comps, we don't expect to realize the same year-over-year operating margin improvement in our younger stores that we have been able to produce in the past. For these reasons, and given the likelihood of continued selective, strategic price investments, we expect operating margin in fiscal year 2010 to be in line with the 4.1 percent we produced in 2009, excluding non-cash asset impairment charges, FTC-related legal and settlement costs, and store closure reserve adjustments.

We estimate EBITDA in the range of $625 million to $650 million, EBITANCE in the range of $675 million to $700 million, and diluted earnings per share, based on approximately 170 million weighted average shares outstanding, in the range of $1.05 to $1.10, a slight increase over our FY09 results, excluding the FY09 charges I just mentioned.

While these certainly have been tough times for retailers, we are very pleased with what we have accomplished over the past year. We believe we have made strategic decisions that have allowed us to maximize our short-term results in this period of slower sales, while renewing our focus on our core customers and staying true to our longer-term mission. Some highlights from this year include:

  • We opened 15 new stores, increasing our ending square footage in operation by 7 percent year over year;

  • We worked hard to improve our value perception and now have sales moving in the right direction;

  • We refocused on the expense side of the business, delivering a 16 percent increase in adjusted EBITDA on a 1 percent increase in sales;

  • We made important progress at the 52 continuing Wild Oats stores. Despite the economy, store contribution improved 150 basis points on a 5 percent increase to $542 sales per square foot; and, on that note,

  • the FTC settlement is finally nearing an end with only eight of the original 32 stores granted extensions through March 8, 2010. The 24 remaining stores, seven of which are in operation, have been retained by us;

  • We took the opportunity presented by the real estate downturn to rebalance our store development portfolio, terminating five leases and reducing the size of five others, for a net reduction of approximately 340,000 square feet under development. We believe we now have a diverse group of stores "rightsized" for each respective community and geared to deliver strong EVA while creating a great shopping experience;

  • We also took a hard look at our capital expenditures and adopted a leaner and more disciplined approach to designing and building which ultimately will result in lower costs on a per store and per square foot basis.

Through these efforts, we generated strong free cash flow of $273 million in fiscal year 2009 and produced significant year-over-year improvements in our balance sheet. Our total cash increased $470 million, and our total debt decreased $190 million. From where we stand today, we believe we are well positioned to meet our long-term debt maturities in 2012.

Just last year, based on the uncertainty of the economy and its negative impact on our results, we felt compelled to raise $425 million of additional equity from the sale of Series A Preferred Stock to Leonard Green & Partners. We want to take this opportunity to thank all of our team members for their hard work and positive attitude during the most difficult year our company has ever faced. Together, we have produced excellent results which have driven the 240 percent year-to-date increase in our stock price and created this favorable opportunity for us to exercise our right to redeem the Preferred Stock. We fully expect LGP to convert their preferred stock into common, and this conversion will save us $34 million in annual preferred dividends. The net impact of the elimination of the dividend and the increase in our common shares of stock outstanding should not be material to our future diluted earnings per share.

What a difference one year can make!

Our business model has been highly successful since we began in 1980, and with fewer than 300 stores today, we remain very bullish on our long-term growth prospects, as demand for natural and organic products continues to grow and as our company continues to evolve. We are pleased our sales are now moving in the right direction, and combined with our continued expense and capital disciplines, we expect to produce strong returns for our shareholders over the long term once again.

Thank you for listening in. With the holidays just around the corner, we just wanted to give a quick reminder that we have a strong presence in all the major metro markets and would love to provide everything you need for your family gatherings and holiday celebrations. Whether you want to purchase the ingredients to create your own feast, or want us to do it for you, our stores will be offering all varieties of fresh natural organic and heirloom meat and poultry, as well as a full range of prepared meals for all family sizes. Happy Holidays everyone and, as always, we appreciate your support and look forward to speaking with you again in February on our first quarter earnings call. A transcript of the scripted portion of this call along with a recording of the call is available on our website at www.wholefoodsmarket.com.

August 4 - 3rd Quarter Results

Good afternoon. Joining me today are Walter Robb, Co-President and Chief Operating Officer, Glenda Chamberlain, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Development, and Cindy McCann, Vice President of Investor Relations.

First for the legalities: 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 successful integration of acquired businesses into our operations, changes in overall economic conditions that impact consumer spending, including fuel prices and housing market trends, the impact of competition, changes in the availability of capital, and other risks detailed from time to time in the SEC reports of Whole Foods Market, including Whole Foods Market's report on Form 10-K for the fiscal year ended September 28, 2008. The Company does not undertake any obligation to update forward-looking statements.

I hope you have had a chance to read our press release which is available on our website along with the scripted portion of this call.

We are very pleased with our third quarter results. We believe we are continuing to strike the right balance between sales and gross margin while exhibiting strong cost control. On a two percent increase in sales, we produced:

  • a 23 percent increase in income from operations;

  • a 22 percent increase in adjusted EBITDA;

  • strong cash flow from operations of $160 million;

  • $93 million of positive free cash flow for the quarter, $223 million year to date; and

  • an increase in our total cash to $448 million.

Average weekly sales per store for all stores were $555,000, translating to sales per square foot of $782. Our 23 new and relocated stores produced average weekly sales per store of $577,000 and averaged 54,000 square feet in size, translating to sales per square foot of $564. In the third quarter, these new stores showed an improvement in store contribution as a percentage of sales and NOPAT ROIC versus the class of 22 new stores last year.

Food inflation as measured by the CPI slowed significantly from 4.3 percent in Q2 to 2.7 percent in Q3, which, while difficult to accurately measure, is likely having some negative impact on our sales; however, we are seeing favorable trends with regard to comparable and identical store sales. Excluding the negative impact of foreign currency translation, comparable store sales decreased 2.0 percent, and identical store sales decreased 3.3 percent. This was our first sequential improvement in comparable store and identical store sales in six quarters and was driven by stabilizing sales in almost every region and team.

In Q2, we saw transaction counts stabilize and then start to recover, with a marked downward swing in average unit price and basket size. In Q3, the recovery in transaction count continued, with average unit price and basket size stabilizing and then improving toward the end of the quarter. We hope these trends are an indication that the level of "trading down" might be easing somewhat.

For the first four weeks of Q4 ended August 2, 2009, our comps, excluding the impact of foreign currency, declined 0.7 percent, and idents declined 2.4 percent, an improvement from the declines we saw in the third quarter. Transaction count and basket size both continued to show favorable trends. While our comps and idents are still slightly negative, we are encouraged by the continued sequential improvement we are seeing.

The marketplace continues to be very dynamic, and we are constantly searching for the right balance between driving sales and maintaining margin. Excluding LIFO in both years, gross profit for the quarter increased 33 basis points to 34.8 percent of sales, or 11 basis points higher than our 34.7 percent gross margin in Q2 on slightly higher sales. We are seeing lower cost of goods sold driven by better purchasing disciplines as well as improved store-level execution, particularly in terms of shrink control and inventory management. Year over year, these improvements more than offset higher occupancy costs as a percentage of sales. We are particularly proud of the improvements at the former Wild Oats stores. The fact that we are seeing healthy gross margin and a movement in the right direction on transaction counts suggests to us that we are striking the right balance between the two.

We have not experienced significant food deflation outside of produce, where we have been able to offer our customers some fantastic deals. We are seeing many competitors emphasizing value and deemphasizing organic. We have taken advantage of the increased supply and lower prices available in organic produce to offer great promotions particularly in organic berries, cherries and grapes. While we've seen a drop in average price per item in produce, we have seen a corresponding pick-up in overall tonnage, which is driving higher gross profit dollars overall.

While on a local level we watch our pricing against our major competitors in every market, we are also benchmarking our pricing versus key national and strong regional competitors in 11 metro areas on a comprehensive market basket representing perishable, branded and exclusive brand items across the store. Our studies show we are responding to the current rapidly changing pricing environment and are competitively priced on these items. By investing intelligently in pricing on the key items that our customers demand most, our value efforts continue to gain traction. Customer demand for our Whole Deal in-store value guide has grown over the last year from an initial 800,000 copies for a quarterly guide to 1.3 million for a new bi-monthly guide. Redemption rates for Whole Deal coupons continue to rise, approaching 4 percent. The Whole Deal value guide drives basket size and items per basket. The average basket containing a Whole Deal coupon totaled $65 and contained 23 items versus an average basket overall of $33 containing nine items. In addition, we have nearly 500,000 Whole Deal e-newsletter subscribers. In our most recent results from our third party bi-annual consumer insights study, we are seeing positive signs of growth and rebounds from previous declines, reinforcing increased shopping behaviors and value perception. Most notably, the percentage of customers citing "every day low prices" as a reason for shopping has grown eight percentage points since November of last year, and we've seen a 16 percent compound annual growth rate in the number of customers who believe Whole Foods Market provides good value for the money.

While some competitors appear to be pulling back on organic as they emphasize value more, we are refocusing on our core customers and expanding our organic offerings. Our sales growth in organic products is outpacing growth in natural products two to one. This is driven in part by organic private label products. We recently announced that each of our stores in the United States has been individually certified as in compliance with the new stricter federal organic retailer certification requirements. While some certified retailers may have just a few departments certified and focus on shrink-wrapped organic produce, in our stores, every department that handles organic food is certified. We believe continuing to raise the bar in areas that matter to our customers will reinforce our leadership position in natural and organic foods, resulting in greater customer loyalty for many years to come.

During the quarter, we opened four stores in Annapolis, Maryland; Denver, Colorado; Vancouver, British Columbia; and Chicago, Illinois. Our new 75,000 square foot store in Chicago was a relocation of our highly successful Lincoln Park store, the first store we opened in Chicago 16 years ago. We now have 16 stores in the greater Chicago metropolitan area. This is a perfect example of a market where a large store makes sense, a densely populated urban location where we have strong brand recognition. I think this is one of the finest stores we have ever opened—possibly the very finest! The store features:

  • a strong local flavor throughout including five Chicago-themed venues;

  • a sit-down bar that operates as a coffee bar in the a.m. and a beer/wine bar in the p.m., with a small stage for live music;

  • 400 seats, including outdoor seating so customers can enjoy their meal overlooking the Chicago River; and

  • 42 total cash registers, including express registers using the New York-style automated system.

Opening week sales were third only to our flagship stores in Austin and London. Store sales continue to be very strong, and cannibalization of our existing Chicago stores has been less than expected.

I will now turn to our assumptions for Q4 2009 and updated guidance for the fiscal year. For the first four weeks of the fourth quarter ended August 2, 2009, comparable store sales decreased 1.1 percent, and identical store sales decreased 2.7 percent. Excluding the impact of foreign currency, comparable stores decreased 0.7 percent, and identical store sales decreased 2.4 percent. We are pleased with the trends we are seeing but want to emphasize that we will have eight new stores, including two relocations and one very high-volume store, enter the identical store base in the fourth quarter, cycling over their strong opening sales last year. In addition, further deflation and or disinflation as well as increased price investments could negatively impact our sales. As it is difficult to get a clear read on the economy or where sales are going, we prefer to stay conservative in our outlook. If our comparable and identical store sales in Q4 are in line with our quarter-to-date results, our total sales growth would be approximately 2.9 percent for the quarter and approximately 1 percent for the year.

Year to date, sales have averaged approximately $154 million per week, a level at which we have demonstrated strong discipline around gross margin, direct store expenses and G&A, a discipline we hope to maintain. However, we have historically experienced lower average weekly sales in Q4, which typically results in lower gross profit, higher direct store expenses and lower store contribution as a percentage of sales. We have also implemented further price investments and are starting to compare against many of the cost disciplines we put into effect last year. For these reasons, we expect store contribution as a percentage of sales, excluding LIFO and asset impairment charges, to decrease approximately 100 basis points from Q3 to 7.2 percent in Q4, slightly greater than the 86 basis point sequential decrease we reported from the Q3 to Q4 last year.

Based on our better-than-expected year-to-date results, we are raising our guidance for EBITDA, EBITANCE and diluted EPS. We expect diluted EPS in the range of $0.16 to $0.18 in Q4 and $0.80 to $0.82 for the year, including $0.09 per share in asset impairment charges, $0.06 in FTC-related legal costs, and a negative $0.17 impact from the Preferred Stock.

The uncertain economic outlook continues to make it highly difficult to predict sales results over a longer period of time. Therefore, we will wait until our Q4 announcement to provide top- and bottom-line assumptions for fiscal year 2010. We would like to reiterate, however, that while our sales comparisons will be easier, we will have difficult expense comparisons due to the cost savings realized in 2009, excluding FTC-related legal costs and asset impairment charges.

Our business model has been highly successful since we began in 1980, and with fewer than 300 stores today, we remain very bullish on our long-term growth prospects, as demand for natural and organic products continues to grow and as our company continues to evolve. We have a loyal core customer base that is aligned with our mission and our core values. We are dedicated to maintaining our leadership position as the authentic retailer of natural and organic foods. We believe continuing to raise the bar reinforces our authority and authenticity, making us the choice for customers aspiring to a healthier lifestyle.

While these are certainly tough times for retailers, we are very pleased with our third quarter and year-to-date results. We believe we have made strategic decisions that have allowed us to maximize our short-term results in this period of slower sales, while renewing our focus on our core customers and staying true to our longer-term mission. We are hopeful that sales are starting to move in the right direction. We are producing very strong free cash flow and have seen significant year-over-year improvements in our balance sheet. We are well-positioned to take advantage of a rebound in the economy and look forward to getting past this recession and back on an upward growth trajectory.

We will now take your questions but ask that you limit your questions so that everyone has an opportunity to participate. Thank you. At close of call:

Thank you for listening in. We believe the strategic decisions we have made have allowed us to successfully manage through this period of slower sales growth and will create long-term value for all of our stakeholders. We are pleased with our results but want to reiterate that Q4 is historically a tough quarter for us for all the reasons we outlined, and we will face tougher expense comparisons in 2010. We appreciate your support and look forward to speaking with you again in November on our fourth quarter earnings call. A transcript of the scripted portion of this call along with a recording of the call is available on our website at www.wholefoodsmarket.com.

May 13 - 2nd Quarter Results

Good afternoon. Joining me today are Walter Robb and AC Gallo, Co-Presidents and Chief Operating Officers, Glenda Chamberlain, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Development, and Cindy McCann, Vice President of Investor Relations.

First for the legalities: 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 successful integration of acquired businesses into our operations, changes in overall economic conditions that impact consumer spending, including fuel prices and housing market trends, the impact of competition, changes in the availability of capital, the successful resolution of ongoing FTC matters, and other risks detailed from time to time in the SEC reports of Whole Foods Market, including Whole Foods Market's report on Form 10-K for the fiscal year ended September 28, 2008. The Company does not undertake any obligation to update forward-looking statements.

I hope you have had a chance to read our press release which is available on our website along with the scripted portion of this call.

We are pleased with our second quarter results. We believe we struck the right balance between sales and gross margin while exhibiting strong cost and expense controls, particularly in terms of wages and G&A. Despite flat sales, we produced:

  • a 10% increase in income from operations and a 9% increase in EBITDA, excluding non-cash asset impairment charges;

  • strong cash flow from operations of $173 million;

  • $98 million of positive free cash flow in Q2 and $130 million year to date; and

  • an increase in cash to $363 million.

In addition, the former Wild Oats stores continued to comp positively and showed strong sequential improvement in store contribution.

For the quarter, our sales were flat at $1.9 billion year over year. Our average weekly sales were $155 million, in line with the first quarter. Average weekly sales per store for all stores were $552,000, translating to sales per square foot of $786.

Year over year, our ending square footage increased nine percent to 10.3 million square feet. Our 21 new and relocated stores produced average weekly sales per store of $530,000, and averaged 52,000 square feet in size translating to sales per square foot of $531.

Excluding the negative impact of foreign currency translation, comparable store sales decreased 4.1 percent, and identical store sales decreased 5.1 percent. We are seeing some positive trends with regard to comps. The sequential decline in our comps narrowed from 440 basis points in Q1 to 80 basis points in Q2 driven by stabilizing sales in some regions and some teams.

In addition, in contrast to Q4 and Q1 when our comp declines were driven almost entirely by decreases in transaction count, in Q2, our comp breakout was roughly 50/50 split between transaction count and basket size, with some recovery in our transaction count. Whereas historically increases in average price per item drove increases in average basket size, we are now seeing a decline in basket size with little to no change in average price per item year over year.

Consistent with market reports that indicate consumers continue to be value driven in this economy, our customers are taking increasing advantage of our value offerings. We started pushing hard on our value programs last May, and while it hasn't been an overnight shift, we believe we are starting to change the dialogue about our prices and hopefully the perception as well. While this has a negative short-term impact on our comps, we believe we will be well positioned to drive future comp increases through increased basket size when the economy rebounds.

For the first four weeks of the third quarter ended May 10, 2009, our comps, excluding the impact of currency, declined 3.3 percent, an improvement from the 4.1 percent decline we saw in the second quarter. Our breakout in comps continues to be roughly evenly split between transaction count and basket size. While it is still too early to say our sales are stabilizing, we are encouraged by these improving trends.

While increasing our value image is a key focus for us right now, we are also continuing to differentiate our product selection in ways that speak to our core customers and to our authenticity and leadership role within natural and organic products. Our private label SKU count increased five percent year over year, accounting for 22 percent of our total grocery and Whole Body sales.

In addition, through joint efforts with our vendor partners, we now offer 300 exclusive branded products, with more in the pipeline. One example is our recently introduced Carolina Classics Catfish. This farm-raised channel catfish meets our strict farmed seafood standards, the highest standards in the U.S. The production process is managed by the same farmer, resulting in complete control over the production process and traceability "from pond to plate," and it's a great value as well.

We recently won a 2009 Green Choice Award from Natural Health magazine for our commitment to substantial, earth-friendly initiatives that inspire other companies and consumers to follow suit. For example, one year after becoming the first U.S. supermarket chain to eliminate disposable plastic grocery bags at all of our store checkouts, we have seen reusable bag use triple and estimate that we have kept 150 million plastic bags out of landfills. In addition, we were recently honored to receive Greenopia's highest rating as the country's greenest grocer. We believe that by continuing to raise the bar in areas that matter to our customers, we will retain our leadership position in natural and organic foods, resulting in greater customer loyalty for many years to come.

Over a year ago we decided to focus on our online presence, starting with our website but including other social media as well. Today we have over 70,000 fans on Facebook as well as over 600,000 followers on Twitter, which we believe is the highest of any retailer. Many of our stores are now setting up their own Twitter and Facebook accounts. Hop online to see great discussions around items like camembert cheese, catfish, and Mother's Day. We think this is a powerful new way to communicate with our customers that gives us insight at both a local and global level as to how we're viewed and what our customers want and expect from us.

During the quarter, we opened three stores in Paramus, New Jersey; Santa Cruz, California; and Dallas, Texas. The new 42,000 square foot Dallas store was a relocation of our 23-year old Greenville store, our oldest store in the company. While the store has only been open six weeks, customers have welcomed the upgrade, with average weekly sales increasing over 50%.

Our new Santa Cruz store at 32,000 square feet is a great example of our focus on opening smaller stores with simpler décor designed with smaller, less-labor intensive perishable departments. The store takes full advantage of its location with close to 100 direct farm-to-store deliveries, and that is just in produce alone! Other highlights include Kombucha on tap from Kombucha Botanica, one of our local loan recipients. The store's lower-priced prepared foods, with no item in the case over $10 per pound or $10 each, has gone over extremely well with customers as has the expanded bulk with returnable containers and the return of dried fruit to produce.

As previously announced, we are awaiting final approval of the settlement agreement we reached with the FTC resolving their antitrust challenge to our acquisition of Wild Oats Markets, Inc. Under the terms of the agreement, a third-party divestiture trustee will market for sale: leases and related assets for 19 non-operating former Wild Oats stores, 10 of which were closed by Wild Oats prior to the merger and nine of which were closed by Whole Foods Market; leases and related fixed assets (excluding inventory) for 12 operating acquired Wild Oats stores and one operating Whole Foods Market store; and Wild Oats® trademarks and other intellectual property associated with the Wild Oats stores.

A third-party divestiture trustee has until September 6, 2009 to market the assets to be divested. For any good faith offers not finalized by that date, an extension of up to six months may be granted. The only other obligations imposed by the settlement agreement are in support of the divestiture trustee process. We are not obligated to close any stores.

After receiving final approval by the FTC, we expect to record a non-cash charge of up to approximately $5.5 million relating to the potential sale of the 13 operating stores. This is lower than our original estimate primarily due to the non-cash asset impairment charges we recorded during the second quarter to adjust four of the 13 operating stores to estimated fair value, as determined based on long-term discounted cash flow projections.

Turning to our assumptions for 2009, as you know, we did not give guidance for the year due to the uncertain economic environment. Instead, we estimated various line items based on a flat comparable stores sales growth scenario.

For the first four weeks of the third quarter, our comps declined 3.9 percent, including the negative impact of currency. Now that we have 32 weeks of sales behind us, we believe it makes sense to update our sales assumptions for the fiscal year. If our comparable and identical store sales results in the second half of the year are in line with our first-half results of negative 4.4% and 5.3%, respectively, we estimate total sales in fiscal year 2009 of just under $8.0 billion, including the opening of seven new stores in the second half of the year, three of which are relocations.

While there is an opportunity for our comps to improve in the second half of the year due to much easier year-over-year comparisons and continued improvement in the Wild Oats stores, and a lower number of cannibalized stores due to fewer new store openings, we are not there yet, and barring any significant economic changes, we believe a stabilization in comps driven by these factors, as opposed to further deceleration, is a more reasonable assumption at this time.

Year to date, our sales have averaged approximately $154 million per week, a level at which we have demonstrated strong discipline around gross margin, direct store expenses and G&A, a discipline we hope to maintain for the remainder of the year. However, we expect new store sales to increase as a percentage of total sales, and we may choose to increase our value offerings to drive sales, both of which could negatively impact store contribution as a percentage of sales. In addition, we historically experience lower average weekly sales beginning in the summer months through September, and this typically results in lower gross margins and higher direct store expenses as a percentage of sales, particularly in the fourth quarter. For these reasons, we expect store contribution as a percentage of sales in the second half of the year to be approximately in line with the 6.9% we produced in the first quarter.

We are maintaining our prior fiscal year ranges for estimated EBITDA, EBITANCE and diluted earnings per share, assuming just under $8.0 billion in sales, based on our strong year-to-date results excluding asset impairment charges.

We continue to make progress on our development pipeline, terminating three additional leases and reducing the size of three others this past quarter. We are committed to producing free cash flow on an annual basis and believe we will produce operating cash flow in excess of the capital expenditures needed to open the 60 stores in our store development pipeline over the next five years. We believe the investments we are making in our new, acquired and existing stores will result in substantial earnings growth in the near future.

In other news, we are pleased to announce that we moved up 45 spots to #324 on the Fortune 500 list of the largest U.S. corporations in terms of annual revenues. Our business model has been highly successful since we began in 1980, and with fewer than 300 stores today, we remain very bullish on our long-term growth prospects, as demand for natural and organic products continues to grow and as our company continues to evolve. We have a loyal core customer base that is aligned with our mission and our core values. We are dedicated to maintaining our leadership position as the authentic retailer of natural and organic foods. We believe continuing to raise the bar reinforces our authority and authenticity and makes us the choice for customers aspiring to a healthier lifestyle.

While these are certainly tough times for retailers, we are pleased with our second quarter results. We believe we have made strategic decisions that have allowed us to maximize our short-term results in this period of slower sales growth, while remaining focused and staying true to our longer-term mission. We are well-positioned to take advantage of a rebound in the economy and look forward to getting past this recession and back on an upward growth trajectory.

We will now take your questions but ask that you limit your questions so that everyone has an opportunity to participate. Thank you. At close of call:

Thank you for listening in. We believe the strategic decisions we have made have allowed us to successfully manage through this period of slower sales growth and will create long-term value for all of our stakeholders. We appreciate your support and look forward to speaking with you again in August on our third quarter earnings call. A transcript of the scripted portion of this call along with a recording of the call is available on our website at www.wholefoodsmarket.com.

February 18 - 1st Quarter Results

Good afternoon. Joining me today are Walter Robb and AC Gallo, Co-Presidents and Chief Operating Officers, Jim Sud, Executive Vice President of Growth & Development, and Cindy McCann, Vice President of Investor Relations. Glenda Chamberlain, our Executive Vice President and Chief Financial Officer, will not be joining us today due to a family illness.

First for the legalities: 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 successful integration of acquired businesses into our operations, changes in overall economic conditions that impact consumer spending, including fuel prices and housing market trends, the impact of competition, changes in the availability of capital, the successful resolution of ongoing FTC matters, and other risks detailed from time to time in the SEC reports of Whole Foods Market, including Whole Foods Market's report on Form 10-K for the fiscal year ended September 28, 2008. The Company does not undertake any obligation to update forward-looking statements.

I hope you have had a chance to read our press release which is available on our website along with the scripted portion of this call. Please note that the Wild Oats stores were included in our comparable and identical store base for the entire quarter of the current and prior year. Our historical results include the Wild Oats stores as of the last four weeks of the fourth quarter fiscal year 2007. We will no longer be breaking out the estimated impact of the Wild Oats stores on our results.

For the first quarter, sales were flat at $2.5 billion, or up one percent excluding $16 million of sales in the prior year from 13 subsequently closed Wild Oats stores. Average weekly sales per store for all stores were $551,000 in the quarter, translating to sales per square foot of $786. These stores averaged 36,400 square feet in size and had an average age of approximately seven years.

Year over year, our ending square footage increased nine percent to 10.2 million square feet. Our 21 new and relocated stores produced average weekly sales per store of $510,000, translating to sales per square foot of $511. These stores averaged 52,000 square feet in size and on average had been open for approximately six months.

Excluding the negative impact of foreign currency translation, comparable store sales decreased 3.4 percent, and identical store sales decreased 4.2 percent. Transaction counts drove the year-over-year decline, but average basket size was down slightly as well, with a decrease in the number of items per transaction more than offsetting a small increase in average price per item.

Idents in almost every region decelerated from Q4; however, markets with higher foreclosure and jobless rates experienced a greater negative impact. Competition continues to be a factor as retailers fight over fewer food dollars being spent. Cannibalization also remains a factor but to a continuingly lesser degree. While hard to quantify, it is also reasonable to assume some of the decline was due to lower food costs which are being passed on in the form of lower retail prices.

December was a tough month for us as it was for most retailers. According to government reports, U.S. real consumer spending fell for the sixth time in seven months. Overall from the third to the fourth quarter of 2008, consumer spending on food fell at an inflation-adjusted 3.7 percent, the steepest decline in 62 years. Any gains from falling energy prices were saved, rather than spent, as the jobless rate rose and consumers remained extremely nervous about the economy.

As other companies are reporting, we also are pleased to say our sales trends improved in January, and for the first four weeks of the second quarter ended February 15, 2009, our comps, excluding the currency impact, were negative 3.8 percent, in line with our average over the last 11 weeks of the first quarter. While both transaction count and basket size are still down, the decline in transaction count has improved slightly. While it is obviously still too early to say our sales are stabilizing, we are encouraged by these trends.

We have worked hard to increase the value choices throughout our stores, particularly in our perishable areas, while still maintaining our quality standards, and, over the past year, we have done a much better job of highlighting our commitment to value with signage, placement, and price. In this environment, all retailers prefer customers trade down within their store rather than trade out of their store, and we are proactively and creatively communicating to our team members and customers how well we stack up.

Examples within the store include value tours, displays comparing receipts with competitors on a comparable basket of products, and even contests where the customer who comes closest to guessing the total cost of a cart full of 365 products wins the basket, reinforcing that our customers can get a lot without spending a lot. Externally, regions are marketing their programs through radio, billboards, print, Internet marketing, etc., and are also working to change the focus of the media. Where our "foodie" offerings used to be the story, we are now seeing more stories positively focused on our value. While it is not going to be an overnight shift, we believe we are starting to change the dialogue about our prices, and hopefully the perception as well.

At the same time, we are making positive strides in differentiating our product selection in ways that speak to our core customers and to our authenticity and leadership role within natural and organic products. Our private label SKU count increased 11 percent year over year, accounting for 22 percent of our total grocery and Whole Body sales. In addition, through joint efforts with our vendor partners, we now offer 300 exclusive branded products, with more in the pipeline.

We have more than doubled the offerings under our Whole Trade product line to over 1,000 products—ranging from bananas and chocolate to cleaning products and body care items. For Valentine's Day, we featured Whole Trade Roses which are grown by eight small farms in the Ecuadorian Andes and certified by TransFair USA. A percentage on each case of flowers sold will go directly to fund community development for farm workers.

We are committed to helping create alternatives to the "factory farm" methods of raising livestock. We have encouraged innovative animal production practices to improve the quality and safety of the meat and poultry sold in our stores, while also supporting humane living conditions for the animals. Our goal is to make it easy for our shoppers to make informed choices, and we plan to roll out a 5-Step Animal Welfare Rating system beginning in our U.S. stores later this year.

We are being recognized for our efforts in this and other areas. Health magazine named us the healthiest grocery company in the U.S., and for the second year in a row, we made Fortune's list of "America's Most Admired Companies." Our Food and Drug store peers gave us #1 rankings in innovation, social responsibility, and quality of products. Greenpeace cited our enhanced farmed-seafood standards as one of the reasons we were once again named the nation's #1 retailer in seafood sustainability. We believe that by continuing to raise the bar on quality standards, we will retain our leadership position in natural and organic foods resulting in greater customer loyalty for many years to come. On another positive note, we were extremely pleased to earn the number 22 spot on Fortune's list of the "100 Best Companies to Work For." To be recognized a dozen years in a row validates our commitment to our core value of 'Supporting Team Member Happiness and Excellence.' We want to commend our regional and store leadership teams for the great job they are doing in terms of keeping the lines of communication open and staying focused on team member morale in these challenging times. Many retailers are announcing massive layoffs, store closures, and even bankruptcy. While we are disappointed to report the first negative comparable store sales figure in our company's 29-year history, the difficult strategic decisions we made last August to contain costs and cut capital spending are helping us successfully manage through this period of slower sales growth.

  • We implemented certain cost-containment measures at the global, regional and store levels, including the elimination of 306 positions, saving an estimated $16 million in labor and benefits annually;

  • We reduced our planned new store openings by 50% for fiscal year 2009 to 15 from a prior range of 25 to 30;

  • We terminated 11 leases in development totaling approximately 570,000 square feet and downsized nine leases by an average of 10,000 square feet each;

  • We cut all discretionary capital expenditure budgets not related to new stores by 50%;

  • We suspended our cash dividend, and

  • We received $413 million of additional capital.

As a result of these proactive measures, despite flat sales in the first quarter:

  • Our EBITDA was approximately equal to last year;

  • We produced strong cash flow from operations of $142 million;

  • We generated $32 million of positive free cash flow;

  • Our cash and cash equivalents increased to $273 million, and

  • Our total debt decreased to $748 million after we paid down our credit line with the net proceeds from our preferred stock offering.

We believe our results demonstrate we can operationally adjust to lower sales volumes and believe that this flexibility, combined with our improved balance sheet, will allow us to successfully manage through these difficult economic times and emerge a stronger company over the long run.

While we have slowed our new store openings and the rate of new lease signings substantially, we plan to continue to prudently invest in our growth. We opened five new stores during the quarter which averaged 53,600 square feet in size, including two relocations. One positive result of the real estate downturn is that it is producing some great opportunities, so we plan to continue adding select stores to our pipeline. To get approved, however, stores must now meet a tougher EVA hurdle rate on lower comp sales growth expectations. We are also tracking landlord-related deadlines for each of our leases, and if a landlord defaults, we are revisiting the lease using new operating assumptions to determine whether to move forward or negotiate for a smaller store, a delayed opening, lower rent, etc. or whether to abandon the site completely. We expect some additional lease terminations and square footage reductions over the next few quarters.

Regarding our growth strategy for the U.K, when we made the decision over five years ago to enter the UK through the acquisition of our Fresh & Wild stores, it was made with the knowledge that the investment might lose money initially, as we did in Canada. We believe the long-term growth and return potential in the U.K. is much greater than in Canada, and we are taking some proactive steps to improve our operations there.

We have split our U.K. operations off from our North Atlantic region, forming a new region. Jeff Turnas, former president of the North Atlantic region, has been selected as president of the U.K. region. Additional headcount will be minimal as there is already a team in place, and as with other regions we have split, certain functions will continue to be shared until the new region can fully take them on. In September, we closed one Fresh & Wild store and have since rebranded the other four to Whole Foods Market.

Now in its second year, our Kensington store is showing a significant improvement in operating cash flow, and overall our operating cash flow in the U.K., on a currency-adjusted basis, improved to negative $1.7 million in the first quarter from negative $3.3 million in the prior year. We believe that dedicated and focused executive leadership will drive further improvements in sales, cost disciplines and financial performance and, as with our investment in Canada, will produce strong returns over the longer term.

Turning to our assumptions for 2009, as you know we did not give guidance for the year. Instead, we estimated various line items based on a flat comp scenario. We remain hopeful that during the fiscal year our comps will stabilize and grow driven by easier year-over-year comparisons, continued improvement in the Wild Oats stores, fewer self-cannibalized stores, continued execution of our differentiation strategy, and increased awareness of our values and competitive prices.

We believe that over the last several quarters we have demonstrated that we have disciplines in place for managing our cost of goods sold, direct store expenses, and G&A in this challenging sales environment. Our cost-saving initiatives are broad-based, focusing on everything from better sales forecasting, purchasing, merchandising, inventory levels, to reduction of waste and supplies expense. Labor is, of course, a primary focus, and we are utilizing tools on a daily basis to monitor and adjust scheduling based on sales. We also continue to have a hiring and salary freeze in place, and are seeing additional savings through normal attrition. We have engaged our team members at all levels of the company to collectively find solutions and new approaches to running our business in a more frugal way during these unsettling economic times.

We have cut our new store growth plans and discretionary cap ex budgets by 50 percent. As you see in the press release, the average size of our stores in development is decreasing. Since Q3 of fiscal year 2007, when we selectively began "rightsizing" lease sizes or decreasing the build-out space for stores in our development pipeline, we have signed 27 stores averaging 44,400 square feet in size. Our construction and development teams are actively working to drive down our average development cost per square foot through smaller stores with simpler décor designed with smaller, less-labor intensive perishable departments.

Based on our Q1 spend, we now expect our capital expenditures for the year to be in the range of $350 million to $400 million, or $50 million lower than our prior range.

We are committed to producing free cash flow and believe we will produce operating cash flow in excess of the capital expenditures needed to open the 68 stores in our store development pipeline over the next five years. We believe the investments we are making in our new, acquired and existing stores will result in substantial earnings growth in the near future.

As was previously announced, the FTC has agreed to suspend its antitrust review regarding the Wild Oats merger through March 6, 2009. We are currently engaged in constructive dialogue with the FTC to find a mutually agreeable resolution, and while we are hopeful that we will reach a resolution, we cannot make any further comments at this time.

We recently increased the size of our board of directors from six to ten. The four new outside directors bring unique expertise, and we are excited to have this fresh addition of intellectual capital, particularly in these are challenging times.

Our business model has been highly successful since we began in 1980, and with fewer than 300 stores today, we remain very bullish on our long-term growth prospects, as demand for natural and organic products continues to grow and as our company continues to evolve. We have a loyal core customer base that is aligned with our mission and our core values. We are dedicated to maintaining our leadership position as the authentic retailer of natural and organic foods. We believe continuing to raise the bar reinforces our authority and authenticity and makes us the choice for customers aspiring to a healthier lifestyle.

We are reexamining all aspects of our business and refocusing our efforts on what really makes us great and sets us apart in the marketplace. We believe we are making the right strategic decisions that will create long-term value for all of our stakeholders. We greatly appreciate your support and look forward to getting past this recession and back on an upward growth trajectory.

We will now take your questions but ask that you limit your questions so that everyone has an opportunity to participate. Thank you.

2008

November 5 - 4th Quarter Results

Good afternoon. Joining me today are Walter Robb and AC Gallo, Co-Presidents and Chief Operating Officers, Glenda Chamberlain, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Development, and Cindy McCann, Vice President of Investor Relations.

First for the legalities: 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 successful integration of acquired businesses into our operations, changes in overall economic conditions that impact consumer spending, including fuel prices and housing market trends, the impact of competition, changes in the availability of capital, the successful resolution of ongoing FTC matters, and other risks detailed from time to time in the SEC reports of Whole Foods Market, including Whole Foods Market's report on Form 10-K for the fiscal year ended September 30, 2007. The Company does not undertake any obligation to update forward-looking statements.

Our press release is now available on our website at www.wholefoodsmarket.com along with the scripted portion of this call and additional supplemental financial data. Please note that the fourth quarter this year was 12 weeks versus 13-weeks last year, and that our earnings results include Wild Oats for the entire quarter versus the last five weeks of the quarter last year. We have adjusted percentage increases to exclude the extra week to allow for proper year-over-year comparisons.

I hope you have had a chance to read our press release. We recognize that this quarter is a bit confusing given the higher than ordinary effective tax rates for the quarter and the year as well as various unusual charges. We have broken out these charges in dollar and per share amounts, and have broken out the estimated impact of the Wild Oats stores to highlight the results of our existing stores.

I will first recap our results then turn to our announcement of $425 million in new equity financing and our updated outlook for fiscal year 2009.

For the fiscal year, sales grew a healthy 24 percent, driven by comparable store sales growth of 5 percent.

For the fourth quarter, sales increased 16 percent to $1.8 billion, excluding $49 million in sales from the 35 subsequently divested Henry's and Sun Harvest stores and 13 of the subsequently closed Wild Oats stores in the fourth quarter last year. Comparable store sales grew 0.4 percent versus an 8.2 percent increase in the prior year, and identical store sales declined 0.5 percent, versus a six percent increase in the prior year.

These are challenging economic times and Whole Foods Market is not immune to the country's economic issues. U.S. retail sales declined in September, the third consecutive monthly decline and the first such consecutive three-month decline in more than a decade. We believe our core customers remain committed to Whole Foods; however, the unrelenting negative economic news appears to be shifting buying behavior to making fewer trips and to making more value conscious decisions. For comparable stores, our transaction count declined approximately 1.5 percent and average basket size increased approximately two percent in the quarter.

While some regions still performed relatively well, with idents in the low-to-mid single digits, idents in every region decelerated from Q3. Cannibalization continues to negatively impact our comps, although to a lesser degree than in Q3. And, as you would expect, markets that have seen the sharpest real estate downturns, such as Southern California, Las Vegas, Phoenix and Florida, have seen the greatest negative impact.

The Whole Foods Market brand stands for the highest quality, and over the last several years we have worked hard to increase the value choices within our grocery and Whole Body departments without sacrificing our standards. We believe our efforts have been successful since these departments are continuing to produce positive comps. While we saw a decline in average transactions in grocery, our average basket size was up, which we believe is a reflection that customers are making fewer trips but stocking up with more on each trip.

Our Whole Deal program, launched in July, has helped to highlight the values we offer within perishables. The program includes a quarterly in-store guide providing specially priced product discounts, money-saving coupons and tips, as well as budget recipes. For the July through September period, we saw a lift on all items included in the Whole Deal program with perishables driving a significant majority of the sales lift.

There are some signs of customers trading down within the store as evidenced by sales in our own brands growing three to four times that of branded product.

While we realize we are not going to change perceptions overnight, our efforts are gaining some traction in the media, which we hope will help positively reinforce to our existing customers that we are offering great values in terms of high quality at a competitive price, as well as helping to educate and entice prospective new customers as well.

At the same time we are trying to help meet our customers' needs by increasing our value offerings, we also are fighting rising food costs, which is having some negative impact on our gross margin. For stores in the identical store base excluding Wild Oats stores, our gross profit in Q4 decreased 106 basis points primarily due to higher occupancy costs driven by an increase in utilities and property taxes as a percentage of sales, and, to a lesser degree, increases in cost of goods sold as a percent of sales. We believe that strengthening our value image throughout the store is the right strategy over the short and long term, and we are making positive strides in differentiating our product selection, with a major emphasis on expanding offerings under our own label, our control brands and exclusive branded products. Our SKU count for offerings under our own label increased 27 percent year over year to just under 2,600, with sales at 21 percent of our total grocery and Whole Body sales, and we now have close to 300 exclusive branded products with another 20 percent in the pipeline

We are pleased to announce that Michael Besancon, former president of our Southern Pacific region, has accepted the newly created position of Senior GVP of Purchasing, Distribution and Marketing, reporting to our co-Presidents, Walter and AC. Our goal with this new position is to create a collaborative vision for our purchasing, marketing and distribution teams at the regional and global levels. With over 30 years of experience in purchasing, Michael has created a regional program that has produced strong margins primarily through offering differentiated products and effectively telling the story behind the products within the store. We are excited about Michael spreading his vision and best practices throughout the company.

Our identical stores continue to deliver healthy improvement, despite decelerating sales, in direct stores expenses, which decreased 43 basis points in the quarter primarily driven by leverage in wages.

We opened eight new stores, including two relocations in the fourth quarter. These stores averaged 52,000 square feet and included three new markets – Venice, California, Honolulu, Hawaii, and Richmond Virginia. Our Venice Beach store is off to a very strong start, ranking as the highest volume store in our Southern Pacific region. We also opened our first of four stores in Hawaii. Our Honolulu store, located in Kahala Mall, opened with over 20 percent of its inventory in local product which has been a key factor in differentiating our store from the competition and has been a big hit with customers. At just under 30,000 square feet, the store is producing excellent sales per square foot.

For the quarter, our 26 new and relocated stores averaged 54,000 square feet in size and were approximately seven months old. They produced average weekly sales of $582,000, translating to sales per square foot of $553. As a class, our new stores during the quarter produced a higher store contribution as a percentage of sales than our class of new stores in Q4 last year, and accounted for approximately nine percent of our core sales versus 10 percent last year.

We are now one year into our merger with Wild Oats, and as with many of our past mergers, we have made many of the up-front investments in product quality, labor, pricing and repairs and maintenance to raise the overall shopping experience in the Wild Oats stores up to our standards. Sales at the 55 continuing Wild Oats stores for the quarter were $159.3 million, and comparable store sales growth for the last four weeks of the quarter was 4.6 percent. Continuing stores produced a 54 basis point improvement in store contribution from the third quarter. To date, 45 Wild Oats stores have been re-branded. The estimated dilutive impact from Oats was approximately $0.09 per share in the quarter. The higher dilution run rate is primarily due to non-operating charges of approximately $0.06 per share relating to idle Wild Oats properties and asset impairments at two continuing Wild Oats locations.

For the quarter, our effective tax rate was 90.3 percent, net income was $1.5 million, and diluted earnings per share were $0.01. These results include approximately charges of $0.15 per share that were not part of our guidance as follows:

  1. Idle Wild Oats Properties. We increased our store closure reserve for 40 closed Wild Oats stores by $14.7 million, or 27 percent, to $64 million. These increases in the reserves for estimated higher net lease obligations were required due to the downturn in the real estate market and economy in general. Because these adjustments are reflective of current market conditions, rather than conditions existing at the date of acquisition, this $14.7 million, or $0.05 per share, was expensed rather than allocated to goodwill.

  2. Tax rate. Our higher rate for the quarter was primarily due to the repatriation of $60 million in cash from our Canadian subsidiary and a catch-up adjustment to bring our effective rate for the year to 41.6 percent which impacted earnings by $0.05 per share.

  3. Lease terminations. We recorded approximately $5.5 million, or $0.02 per share, in non-cash charges related to 13 lease terminations of Whole Foods stores that were in development.

  4. Asset impairments. We recorded approximately $1.5 million, or $0.01 per share, in non-cash charges to write down assets for two Wild Oats locations based on current expectations of future cash flows for these locations, which were not sufficient to support our recorded asset balances.

  5. Closure costs. Relocation, store closure and lease termination expense included $2.6 million, or $0.01 per share, related to the closure of two regional bake houses and one Fresh & Wild store in Bristol, England.

  6. Legal costs. G&A expenses include $2.5 million, or $0.01 per share, in legal costs related to the FTC lawsuit.

Approximately $75 million relating to depreciation and amortization, share-based payments, LIFO and deferred rent was expensed for accounting purposes but was non-cash. We produced approximately $82 million in EBITDA and $97 million in earnings interest, taxes, depreciation and amortization and other non-cash expenses, or EBITANCE.

While we are still producing strong cash flow, the challenging economic environment is negatively impacting our sales and bottom line. The uncertain environment, combined with our commitment to maintaining financial flexibility and investing prudently in our long-term growth, has led us to announce that we have raised $425 million of additional equity from the sale of Series A Preferred Stock to Green Equity Investors V, L.P., an affiliate of Leonard Green & Partners, L.P.

We are pleased that Leonard Green & Partners, one of the most experienced and successful investors in the retail industry, has decided to make such a significant investment in Whole Foods Market. We view it as a strong vote of confidence in our business model and our long-term growth prospects, despite the tough current economic environment.

This equity infusion, combined with our strong cash flow from operations, gives us the financial flexibility to manage through these difficult economic times while continuing to prudently invest in our long-term growth. From both an operational and capital expenditures standpoint, we have confidence that our current store development pipeline of 66 stores is very manageable over the next four years.

Now, I will turn to our updated outlook for fiscal year 2009.

For the first five weeks of the first quarter ended November 2, 2008, comparable store sales decreased 2.1 percent versus a 9.0 percent increase in the prior year, and identical store sales decreased 3.3 percent versus a 6.7 percent increase in the prior year.

The uncertain and rapidly changing makes it very difficult to forecast future results; therefore, we are not providing comparable store sales growth guidance at this time. However, flat comparable store sales assumptions, combined with the expectation of eight net new store openings, would translate to total sales in the range of $8.3 billion for fiscal year 2009.

While year-over-year comp comparisons are very difficult in the first half of the year, at 9.3 percent in the first quarter, they become less difficult on a quarterly basis throughout the year.

Based on these sales assumptions, along with the more detailed guidance provided in our press release, we estimate EBITDA in the range of $525 million to $545 million and EBITANCE in the range of $580 million to $605 million. Diluted earnings per share are estimated to fall in the range of $0.95 to $1.00, excluding approximately $0.06 to $0.08 per share in estimated dilution from FTC-related legal costs and an estimate $0.19 per share impact from the Preferred Series A stock.

To conclude, these are certainly challenging economic times. We are hopeful that our sales trends will stabilize and improve as we continue to execute on our differentiation strategy while gaining increasing credit for the value that we offer. And, while we cannot completely control the impact of the economy on our sales, we can control many of our costs. We have the financial flexibility to manage through these difficult economic times while continuing to prudently invest in our growth. From both an operational and capital expenditure standpoint, we consider our current store development pipeline of 66 stores to be very manageable over the next four years. We are an adaptive and resilient company that will continue to adapt in a prudent manner to these uncertain economic times.

We will now take your questions but ask that you limit your questions so that everyone has an opportunity to participate. Thank you.

August 5 - 3rd Quarter Results

Good afternoon. Joining me today are Walter Robb and AC Gallo, Co-Presidents and Chief Operating Officers, Glenda Chamberlain, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Development, and Cindy McCann, Vice President of Investor Relations.

First for the legalities: 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 successful integration of acquired businesses into our operations, changes in overall economic conditions that impact consumer spending, the impact of competition, changes in the availability of capital, the successful resolution of ongoing FTC matters, and other risks detailed from time to time in the SEC reports of Whole Foods Market, including Whole Foods Market's report on Form 10-K for the fiscal year ended September 30, 2007. The Company does not undertake any obligation to update forward-looking statements.

Our press release is now available on our website at www.wholefoodsmarket.com along with the scripted portion of this call and additional supplemental financial data.

Whole Foods has experienced tremendous success over our twenty-eight year history. We have a strong customer base that is aligned with our mission and our core values. We are dedicated to maintaining our leadership position as the authentic retailer of natural and organic foods. We recently announced our newly enhanced farmed seafood standards, becoming the first food retailer to require that our vendor partners successfully pass an independent, third-party audit to ensure compliance with our standards. These enhanced standards were created to minimize environmental impacts and are the end result of two years of hard work by our quality standards team. We believe it is this commitment to continuing to raise the bar that reinforces our authenticity and makes us the choice for customers aspiring to a healthier lifestyle. Our business model has been highly successful, and with fewer than 300 stores today, we remain very bullish on our long-term growth prospects, as the market for natural and organic products continues to grow and as our company continues to evolve.

Today's economic environment, however, is the most challenging I have experienced in my thirty years in retail. Consumer confidence for June hit its lowest level in more than a decade. American consumers are spending less as they are feeling the squeeze from more expensive fuel and food on one side, to lower home values and less available credit on the other.

Our sales grew 22 percent in the third quarter. We reported sales growth in comparable stores and identical stores of 2.6 percent and 1.9 percent, respectively. Our comp increase was almost entirely driven by increased average basket size with only a slight increase year over year in our transaction count.

Cannibalization continues to negatively impact our comps, but the estimated negative impact in the quarter was not significantly different than in Q2. While some regions still performed well, with idents in the mid-to-high single digits, idents in every region decelerated from Q2. We believe that the economic hardships consumers are facing are impacting their behavior in various ways, from making fewer trips to making more conscious value decisions.

The Whole Foods Market brand stands for the highest quality, and over the last several years we have worked hard to increase the value choices within our grocery and Whole Body departments without sacrificing our standards. Last quarter, we announced our intent to do the same in our perishable departments.

We have been doing a much better job of communicating both internally and externally the values that we offer. In July, we launched a new, national program called the "Whole Deal" which includes an in-store guide providing specially priced product discounts, money-saving coupons and tips, as well as budget recipes. In addition, several stores now have "value gurus" who lead customer tours highlighting our values as well as educating customers on how to stretch their food dollars by choosing our 365 private label brand, buying bulk, purchasing by the caseload, etc.

We continue to make positive strides in differentiating our product selection, with a major emphasis on expanding our exclusive offerings in private label, control brands and branded products. Our SKU count increased 21 percent year over year to just over 2,300. Our private label sales continue to increase, currently representing 21 percent of our total grocery and Whole Body sales, up from 15 percent three years ago.

At the same time we are trying to help meet our customers' needs by increasing our value offerings, we are fighting rising food costs, which is having some negative impact on our gross margin. However, for identical stores, our gross profit in Q3 was still a healthy 35.2 percent of sales versus near record gross margin of 35.6 percent last year. We attribute the 48 basis point decrease to some delays in passing on higher commodity costs, higher utility costs, and increased promotional activity year over year. We believe that strengthening our value image throughout the store is the right strategy over the short and long term, and we are fortunate that we continue to find many opportunities to lower our cost of goods sold to help minimize the gross margin impact.

We were pleased to see our identical stores deliver a 36 basis point improvement in direct stores expenses driven primarily by leverage in wages.

We are very pleased with the early sales in our five new stores opened over the last six weeks. Our Tribeca store, which is our fifth store in New York City, is off to an especially great start, setting a New York City record for opening day sales.

For the quarter, our 22 new and relocated stores averaged 56,000 square feet in size and were 7.5 months old. They produced average weekly sales of $604,000, translating to sales per square foot of $560. As a class, our new stores during the quarter produced a higher store contribution as a percentage of sales than our class of new stores in Q3 last year, and accounted for approximately eight percent of our sales in both years. On the whole, our new and relocated stores continue to run ahead of our sales projections for the first year and are on track to reach our real estate investment hurdle rate of cumulatively positive EVA within seven years or less.

Wild Oats' sales trends continue to improve, with comparable store sales growth of 5.4 percent for Q3 and 7 percent Q4 to date. We are seeing improvements in gross margin despite lowering prices throughout the store; however, the margin improvements are being offset by increased salaries and benefits which are continuing to have a negative impact on store contribution. We are still less than a year into this merger, and as with many of our past mergers, we are making up-front investments in product quality, labor, pricing and repairs and maintenance to raise the overall shopping experience in the Wild Oats stores up to our standards, and these costs are in advance of what we expect to be a significant long-term improvement in sales. In the 38 stores we have re-branded thus far, we have seen sales growth double from six percent before re-branding to 12 percent after. We expect these stores to continue to show improving sales this year and higher comparable store sales growth in fiscal 2009. The dilutive impact from Oats was approximately $0.03 in the quarter.

We are disappointed in our results in the U.K. Over the last four quarters, our UK operations lost approximately $18.4 million before tax, or $0.09 per share. Results have shown some improvement, and our annual run rate during the last two quarters was approximately $16 million. We are carefully evaluating all aspects of our operations in the U.K., and expect steady year-over-year sales growth at our Kensington store to help drive further improvement. Our goal is to reduce our operating losses to $13 million in fiscal year 2009, $7 million in fiscal year 2010, and to approach break even in fiscal year 2011.

To put the U.K. results into context, we thought it might help to relate it to our experience in Canada, which was our first experiment outside of the U.S. We initially lost money in Canada; however, our stores there continue to grow and improve each year and are now very profitable. Our Canadian operations contributed $14.6 million, or $0.07 per share, over the last four quarters, almost offsetting our losses in the U.K. We believe the long-term growth potential in the U.K. is much greater than in Canada and expect our investment to deliver strong returns over the long term.

In Q3, we produced approximately $122 million in EBITDA and $135 million in earnings interest, taxes, depreciation and amortization and other non-cash expenses, or EBITANCE.

While we are still producing strong cash flow, the challenging economic environment appears to be negatively impacting our sales and bottom line. This, combined with our commitment to maintaining financial flexibility and investing prudently in our long-term growth, has led us to announce the following proactive strategy:

We are lowering our expected new store openings in fiscal year 2009 to 15 from our prior range of 25 to 30. While we were ready to execute on the acceleration in our store openings, we now wish to take a more conservative approach to our growth and business strategy over the short term.

We have cut all discretionary capital expenditure budgets not related to new stores by 50 percent. We believe our existing store base is in very good shape based on our philosophy of continual investment and do not expect this decision to have any negative consequences over the short term in terms of our customers' in-store shopping experience.

We are focused on the right size store for each market and, since announcing in Q3 of 2007 our intent to decrease the size of several leases in development, we have downsized eight leases by an average of 9,000 square feet each. Throughout our history, we have continued to push the envelope on store size. When we opened our enormously successful 80,000 square foot store in Austin, it had a ripple effect on store size and format throughout the company. With hindsight, reflection, and some data points in front of us, we see that the really large stores are very powerful in limited markets and circumstances, and that smaller stores can also produce great returns for us. We believe that a store size of 35,000 to 50,000 square feet is more appropriate in most circumstances to maximize return on investment and EVA, and we expect the majority of our stores to fall within that range going forward. We are also actively working to drive down the average development cost per square foot.

G&A was 3.3 percent of sales in Q3, reflecting certain cost containment measures that have already been implemented. For fiscal year 2009, we expect G&A to return to our historical levels of approximately 3.2 percent of sales.

We are also announcing the suspension of our cash dividend. At this time, we no longer have excess cash available to distribute to our shareholders, as that cash is needed to fund our growth going forward.

We believe that through these decisions, which we have not undertaken lightly, our company will emerge stronger and better positioned to realize our growth potential and fulfill our long-term mission and core values.

Now, I will turn to our guidance for the remainder of fiscal year 2008, and to our early assumptions for fiscal year 2009. We believe these are unusual times and that in order to set appropriate expectations, we are giving more guidance than we typically do.

If our comparable store sales growth for the fourth quarter is in line with or slightly below our quarter-to-date results of 1.5 percent, this would result in comparable store sales growth for fiscal year 2008 of approximately five percent.

Total sales growth, on a 52-week to 52-week basis, would be approximately 12 percent for the fourth quarter and approximately 23 percent for the fiscal year. Please note that the prior year included five weeks of sales from the subsequently closed Wild Oats and divested Henry's and Sun Harvest stores.

Based on these sales assumptions and the expense guidance outlined in our press release, we expect EBITDA in the range of $98 million to $102 million for the fourth quarter, resulting in a range of $501 million to $505 million for the full fiscal year. EBITANCE is expected to be in the range of $113 million to $117 million in the fourth quarter, resulting in a range of $559 million to $563 million for the full fiscal year. We expect diluted earnings per share in the range of $0.13 to $0.15 for the fourth quarter, bringing the full year to $0.93 to $0.95 per share.

We are providing the following preliminary assumptions and expectations for fiscal year 2009, which we expect to update with our fourth quarter earnings announcement in early November.

Assuming no dramatic change in economic trends, we are planning for total sales growth in fiscal year 2009 of 6 percent to 10 percent. We expect comparable store sales growth of 1 percent to 5 percent and identical store sales growth of zero percent to 4 percent. Year-over-year square footage growth is expected to be approximately 7 percent, based on 15 new store openings, of which approximately six will be relocations.

Based on these sales assumptions along with the more detailed guidance provided in our press release, we expect EBITDA in the range of $560 million to $580 million and EBITANCE in the range of $625 million to $650 million. We expect diluted earnings per share in the range of $1.08 to $1.14, a 15 percent to 20 percent increase year over year. This includes an estimated $0.07 to $0.09 per share in dilution from Wild Oats and approximately $0.06 per share in dilution from our U.K. operations.

We are hopeful that sales trends will stabilize and then improve as we continue to execute on our differentiation strategy while gaining increasing credit for the value that we offer. We cannot completely control the impact of the economy on our sales, but we can control our costs. With our renewed focus on expense control, the reduction in our store openings and discretionary capital expenditures, and the reinvestment in our balance sheet through a suspension of our dividend, we are committed and focused on delivering strong EBITANCE and earnings growth in fiscal year 2009 and beyond. We are an adaptive and resilient company that will adapt in a prudent manner to these uncertain economic times.

We will now take your questions but ask that you limit your questions so that everyone has an opportunity to participate. Thank you.

May 13 - 2nd Quarter Results

Good afternoon. Joining me today are Walter Robb and AC Gallo, Co-Presidents and Chief Operating Officers, Glenda Chamberlain, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Development, Lee Valkenaar, Executive Vice President of Global Support, and Cindy McCann, Vice President of Investor Relations.

First for the legalities: 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 successful integration of acquired businesses into our operations, 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 reports on Form 10K for the fiscal year ended September 30, 2007. The Company does not undertake any obligation to update forward-looking statements.

Our press release is now available on our website at www.wholefoodsmarket.com along with the scripted portion of this call and additional supplemental financial data.

I am hoping you have all had a chance to read our press release which is quite comprehensive. On today's call, I will highlight the results of our core stores, discuss the estimated impact of the Wild Oats stores, and give you a progress report on the integration. I will then speak to current trends and what we expect going forward.

Our total sales increased 28 percent to $1.9 billion. Sales, excluding Wild Oats, increased 16 percent to $1.7 billion driven by 15 percent ending square footage growth and 6.7 percent comparable stores sales growth. Identical store sales, which exclude four relocated stores and two major expansions, increased 5.1 percent. We continue to see healthy increases in both transaction count and basket size. Our comp breakout was split roughly 50 / 50, with an average basket in Q2 of $35 and average transactions per week of 3.7 million. Our average weekly sales per store, excluding Wild Oats, increased 5.7 percent to $671,000, translating to sales per square foot of $922.

We are continuing to gain market share at a much faster rate than our competition as evidenced by our comps and sales per square foot which continue to run well above that of average U.S. food retailers. Given these unusual economic times, however, we offer some general observations on our comps during the quarter.

We reported a 6.7 percent comp for Q2 after reporting an 8.9 percent comp for the first four weeks of the quarter. During the quarter, our weekly comps varied dramatically from week to week, and we faced tougher comparisons throughout the quarter. Mid-way through the quarter, we also cycled over the opening of our relocated Portland, Maine store, previously our second biggest contributor to comps behind Kensington, so our change in comparable store sales growth from Q1 to Q2 was greater than our change in identical store sales growth.

As is always the case, some regions comped below the chain average and some comped as high as the low double-digits. Results varied based on many factors, including differing degrees of cannibalization from new stores, competition, and changes in the economy, making it hard to attribute our performance to one factor over another.

We do believe we have experienced a greater amount of cannibalization this year related to the acceleration in our new store openings. Despite the short-term negative impact however, our experience has typically been that our new stores average positive comps in their first full quarter in the comp base after opening, and by then our cannibalized stores are back to positive comps as well, reflecting our increased market share and making this the right growth strategy for us.

We are continuing to make selective price investments. We believe that strengthening our price image on commodity-type branded products to broaden our appeal is not only the right long-term strategy, but the right short-term strategy particularly in today's market. We are fortunate that we continue to find many opportunities to lower our cost of goods sold to help offset these price investments and minimize the gross margin impact.

In addition, we continue to expand our private label offerings, with SKU count increasing 15 percent year over year to just over 2,200. Our private label sales continue to increase, currently representing 22 percent of our total grocery and Whole Body sales, up from 15 percent three years ago.

For all stores, excluding Wild Oats, our gross profit in Q2 increased 36 basis points to 35.5 percent of sales, slightly above our five-year range for the second quarter of 35.3 percent. We are very pleased to be producing such strong results, and given the current environment, we plan to be more aggressive in expanding the availability of our value items, particularly in the perishable areas.

We continue to have a market-based pricing strategy. We are generally priced in line on like items to many supermarket peers and at a premium when the quality or uniqueness of an item allow for that. Food inflation is running upwards of four percent in the U.S., and we are impacted by rising food costs as all food retailers are. We tend to follow the market in terms of passing on or absorbing these higher costs, but our retail price increases in the second quarter were below the U.S. average.

The impact of the acceleration in our new store openings as well as continuing increases in health care costs as a percentage of sales in our existing stores is continuing to show up in our direct stores expenses, which increased 49 basis points to 26.4 percent of sales.

For the quarter, our 22 new and relocated stores averaged 57,000 square feet in size and were 7.4 months old. They produced average weekly sales of $661,000, translating to sales per square foot of $604. As a class, our new stores during the quarter produced a higher store contribution as a percentage of sales than our class of new stores in Q2 last year, but they accounted for 10 percent of our sales, up from seven percent last year. On the whole, our new and relocated stores continue to run ahead of our sales projections for the first year and are on track to reach our real estate investment hurdle rate of cumulatively positive EVA within seven years or less.

For stores in the identical base, which averaged 7.7 years of age and 36,000 square feet in size, Q2 gross margin improved 65 basis points and direct store expenses improved 10 basis points, resulting in a 75 basis point increase in store contribution.

G&A expenses increased to 3.7 percent of sales. This was largely due to the costs of integrating and supporting the Wild Oats stores, as well as front-loaded G&A expenditures to support our 2008 and 2009 growth. We expect G&A costs in fiscal year 2009 to return to historical levels.

Income before pre-opening and interest was down from last year as a percentage of sales due primarily to the increase in G&A offsetting strong results in identical stores; however, we had a solid 87 basis point sequential improvement to 5.4 percent of sales in the second quarter from 4.6 percent in the first quarter.

I will now turn to the estimated impact of Wild Oats on our results.

We closed four stores subsequent to the end of the quarter. Sales for the 58 continuing Wild Oats stores for the quarter were $169 million, and identical store sales growth was 5.9 percent. The continuing stores, averaging 24,000 square feet in size and 9.3 years of age, had average weekly sales per store of $243,000, sales per square foot of $523 and store contribution of $3.8 million, or 2.3 percent of sales. This was down from 3.5 percent in the first quarter due primarily to a 179 basis point increase in salaries and benefits as a percentage of sales which was partially offset by a 72 basis point improvement in gross margin.

Regarding margins, we completed the conversion of all Wild Oats stores to our purchasing and information systems during the second quarter, but at the start of the quarter, less than 40 percent of the stores had been converted. These conversions were critical to managing our store-level inventory, pricing and merchandising programs, and should be a driver of stronger margin gains in the future. Regarding the increase in salaries and benefits, the Wild Oats team members transitioned to our payroll and benefits plan on January 1, so the stores had a full-quarter impact of our higher payroll and benefits load in the second quarter versus only a three-week impact in Q1.

As with many of our past mergers, we are making up-front investments in labor, pricing and repairs and maintenance to raise the Wild Oats stores up to our standards, and these costs are in advance of what we expect to be a significant long-term improvement in sales. We continue to expect store contribution in the Wild Oats stores to improve in the second half of the fiscal year.

We made substantial progress reducing G&A expenses at the Wild Oats home office during the second quarter. The number of corporate positions in Boulder dropped to 27 at the end of Q2 from 87 at the end of Q1, and as of today, only five corporate positions remain. We continue to expect G&A expenses to be substantially eliminated by the end of the fiscal year, with the exception of $2 to $3 million per quarter of rent and other expenses that will transfer to become part of our global and regional office G&A starting in June.

Integrating acquisitions is generally a two-year process. In addition to completing the conversion of the Wild Oats stores to our purchasing and information systems in the second quarter, we have so far re-branded 27 Wild Oats stores – five stores in the first quarter, 13 in the second quarter and nine so far in the third quarter. These stores are now selling a full selection of WFM product in perishables and non-perishables, and we are excited about the notable improvements we are seeing in the year-over-year sales increases following re-branding. Sales growth at the re-branded stores has accelerated from six percent on average before re-branding to 12 percent after. We expect to have most all of the Wild Oats stores re-branded by the end of the fiscal year, and we expect these stores to continue to show improving sales this year and higher comparable store sales growth in fiscal 2009 and beyond.

Now I will turn to a summary of our guidance for fiscal year 2008.

Our guidance for fiscal 2008 is for sales growth of 25 to 30 percent and comparable store sales growth of 7.5 to 9.5 percent. We expect the spread between comparable store sales growth and identical store sales growth to decline over the remainder of the year, as the number of relocations and major expansions drops to two by the end of fiscal 2008 from seven at the end of fiscal 2007. Excluding the Wild Oats stores, we expect sales growth of 15 to 20 percent for the fiscal year.

For the first four weeks of Q3, comparable store sales growth was 5.7 percent, a deceleration from the second quarter that was due in large part to the relocated Portland, Maine cycling over its opening and the Kensington store being removed from the comparable store base for the first several weeks in the third quarter. Identical store sales growth was 5.0 percent for the first four weeks of Q3, and comparable sales at the 58 continuing Wild Oats stores increased 5.6 percent.

Based on our 8.2 percent year-to-date comparable store sales growth, we are maintaining our comp guidance of 7.5 percent to 9.5 percent for the fiscal year.

We have opened eight stores through the second quarter and one store so far in the third quarter. We expect to open four more stores in the third quarter and up to eight stores in the fourth quarter.

We do not expect to produce operating leverage for the year due primarily to a decrease in store contribution as a percentage of sales driven by a higher percentage of sales from new and acquired stores, investments in labor and benefits at the Wild Oats stores, and continued, though more moderate, increases in health care costs as a percentage of sales.

In addition, we now expect G&A as a percent of sales for fiscal year 2008 to be slightly below our 3.6 percent average in the first half of the year. We expect G&A expenses as a percentage of sales in fiscal year 2009 to return to historical levels.

Including the impact of Wild Oats, we expect to see a moderation in the year-over-year declines in income before pre-opening and interest as a percentage of sales during the second half of the fiscal year compared to the first half.

Our company is focused on EVA, and we are comfortable with our current debt levels. We produce strong, consistent operating cash flow, and our credit line is available to fund our cash needs in excess of our cash flow from operations. We recently secured additional commitments totaling $100 million, and we expect to complete the increase of our credit line to $350 million in the third quarter. Currently, we have $88 million drawn on the line.

Our business model is very successful and continues to benefit all of our stakeholders. We are continuing to produce higher sales, comps and sales per square foot than our public competitors, and the results in our core stores remain strong.

Our goal is to produce sales of $12 billion in the year 2010. Over the longer term, however, we believe the sales potential for Whole Foods Market is much greater than $12 billion as the market continues to grow and as our company continues to improve. We encourage our shareholders to stay focused on the long term.

We will now take your questions but ask that you limit your questions so that everyone has an opportunity to participate. Thank you.

February 19 - 1st Quarter Results

Good afternoon. Joining me today are Walter Robb and AC Gallo, Co-Presidents and Chief Operating Officers, Glenda Chamberlain, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Development, Lee Valkenaar, Executive Vice President of Global Support, and Cindy McCann, Vice President of Investor Relations.

First for the legalities: 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 successful integration of acquired businesses into our operations, 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 reports on Form 10K for the fiscal year ended September 30, 2007. The Company does not undertake any obligation to update forward-looking statements.

On today's call we will also speak to certain non-GAAP financial measures which are defined and reconciled in our earnings press release which is available on our website.

Our press release is now available on our website at www.wholefoodsmarket.com along with the scripted portion of this call and additional supplemental financial data.

I am hoping you have all had a chance to read our press release which is quite comprehensive. On today's call, I will highlight the results of our core stores, discuss the estimated impact of the Wild Oats' stores, and give you a progress report on the integration. I will then speak to current trends and what we expect going forward.

Our total sales increased 31 percent to $2.5 billion. Sales, excluding Wild Oats, increased 18.6 percent to $2.2 billion driven by 19 percent ending square footage growth and 9.3 percent comparable stores sales growth, which was on top of a seven percent increase in the prior year. Identical store sales, which exclude five relocated stores and three major expansions, increased 7.1 percent on top of a 6.2 percent increase last year. We are continuing to see a sequential decline in our two-year comps and idents, as we are still cycling over the double-digit comps we produced in the first half of fiscal year 2006.

Our comp breakout is roughly in line with our historical 60 / 40 percent split between the increases in transaction count and basket size. Our average transactions per week increased approximately five percent to 3.5 million, and our average basket size increased approximately four percent to $36. The increase in basket size was due to an increase in the average price per item as has been the case over the last six quarters. Our average weekly sales per store, excluding Wild Oats, increased 8.4 percent to $672,000, translating to sales per square foot of $930.

We continue to expand our private label offerings. SKU counts increased 15 percent year over year to just over 2,200 SKUs and currently represent 19 percent of our total grocery and Whole Body sales.

We opened six new stores during the first quarter, including a 49,000 square foot store in Napa next door to a Trader Joe's. We have successfully implemented a very aggressive and well-communicated competitive strategy, with price matching and value at every turn. The Napa store has only been open for one month but is producing very strong sales per square foot and gross margin, and we believe it is a great example of our ability to remain true to our core values and quality standards while delivering compelling values within our product offering.

For the quarter, our new and relocated stores averaged 57,000 square feet in size and were just over six months old. They produced average weekly sales of $694,000 translating to sales per square foot of $630. Our new and relocated stores open at least one year continue to run ahead of our sales projections for the first year and are on track to reach our real estate investment hurdle rate of cumulatively positive EVA® within seven years or less.

For all stores, excluding Wild Oats, our gross profit, direct store expenses and store contribution were outside of our five-year ranges and averages; however, we attribute this to the acceleration in our new store openings last fiscal year of which we are seeing the full impact this year. In the first quarter this year, we had 24 new and relocated stores that accounted for 11 percent of our sales compared to the prior year, when we had 13 new and relocated stores that accounted for seven percent of our sales.

As you know, we typically report gross margin, direct store expenses and store contribution for all stores and then break out stores in the comp base separately to highlight both the performance of our existing stores and the negative impact of our new stores, which tend to initially have lower gross margin and higher direct store expenses as a percentage of sales. Given that relocations are "new stores" but are included in comps and given that the number of relocations we have opened has increased, we believe that breaking out identical stores is a better indicator. For stores in the ident base, which averaged 7.9 years of age and 35,400 square feet in size, gross profit improved 42 basis points and direct store expenses improved 45 basis points, resulting in an 88 basis point increase in store contribution.

G&A expenses increased 41 basis points to 3.4% of sales primarily due to an increase in legal and professional fees, along with an increase in wages at the regional and global offices.

Excluding the estimated impact of the Wild Oats acquisition, adjusted net income was $51.0 million, and adjusted diluted earnings per share were $0.36.

I will now turn to the estimated impact of Wild Oats on our results.

Sales at Wild Oats were $239 million in the first quarter, or 9.7 percent of total sales. We closed 12 stores during the quarter, including a remodel that will re-open later this year, ending the quarter with 62 stores. Sales for the 62 continuing Wild Oats stores were $228 million, and identical store sales growth was 8.6 percent. The continuing stores, averaging 24,000 square feet in size and 9.4 years of age, had average weekly sales per store of $230,000, sales per square foot of $495 and store contribution of $7.9 million, or 3.5 percent of sales.

We estimate the negative impact of Wild Oats on our total results was approximately $20 million pre-tax, of which $12.7 million related to interest expense and amortization of intangibles, $2.8 million related to losses at the closed locations, $2.4 million related to accretion of the store closure reserve and other store closure costs, and $9.9 million related to the Wild Oats home office in Boulder. This translates to a negative impact of $12 million on net income, or $0.08 per share. Our estimate excludes certain unquantifiable synergies and costs.

The interest expense, amortization expense and accretion of the store closure reserve will continue throughout the year. We also expect some additional store losses related to the closing of up to three additional Wild Oats stores in connection with nearby Whole Foods Market store openings in the second half of fiscal year 2008; however, the headcount at the Boulder home office has already decreased from 87 at the end of Q1 to 56 currently, and we expect to see the Wild Oats G&A expenses decline substantially in the second and third quarters and be essentially eliminated by the end of the fiscal year. Note that a small portion of this expense will transfer to the Rocky Mountain and other regional offices.

The point I want to underscore is that, as with many of our past mergers, we are making upfront investments to raise the Wild Oats stores up to our high standards, including investments in repairs and maintenance of the stores, lower prices, an expanded perishables offering, and increased labor, and these costs are in advance of what we expect to be a significant long-term improvement in sales. We are encouraged that the remaining stores are producing positive store contribution, and we expect to see continuous improvement as we move further along in our integration process.

Wild Oats was a highly centralized company, thus we have taken a cautious approach to "unplugging" the stores from Boulder. We commented during our last call about starting with the culture. I think our regional leadership has done a great job of establishing trust and creating a connection with the Wild Oats team members. This has resulted in very high morale within the stores, to a degree above what we have experienced relative to any of our past mergers.

During the first quarter, we began the transition in human resources and information technology. At the beginning of the calendar year, we transitioned all of the Wild Oats team members to our payroll and benefits plans, and as of the end of the quarter, we had converted 23 of the 62 Wild Oats stores to our purchasing and information systems. Since then, another 23 stores have converted, and we expect the remaining stores to convert by the end of the second quarter. The systems conversion is critical to managing inventory, pricing and merchandising programs in the stores. Once converted, store leadership is empowered and can work together to improve the financial performance of the stores. It will take some time for the new processes to be fully internalized, but we expect continuous improvement during the fiscal year.

We have already touched on some of the low hanging fruit in terms of adding our product into the stores, upgrading perishables, and lowering prices, but we expect the real sales payoff to occur once we remodel, upgrade and rebrand the stores. Toward the end of the first quarter, we re-branded five stores in Raintree, Arizona; Long Beach, California; West Hartford, Connecticut; Westport, Connecticut; and Andover, Massachusetts. So far in the second quarter, we have re-branded four additional stores in Glendale, CO; Superior, Colorado; Hinsdale, IL; and Park City, UT. These stores are selling a full selection of WFM product in perishables and non-perishables, and we are excited about the notable improvements we are seeing in the year-over-year sales increases following the rebranding. We expect to have almost all of the Wild Oats stores re-branded by the end of the year.

In just 25 weeks, our integration has gone faster, further, and deeper than in any of our prior mergers, and we feel very positive about the results we have seen so far. We continue to expect these stores to drive strong sales this year and higher comparable store sales growth in fiscal 2009 and beyond.

In our earnings release we have introduced an updated version of EBITDA that we are calling "EBITANCE" or earnings before interest, taxes and non-cash expenses. For the quarter, EBITANCE was $167.5 million or $1.19 per diluted share, compared to $147.9 million or $1.03 per diluted share in the prior year. We believe this measure better reflects the current accounting reality of significant non-cash expenses beyond depreciation and amortization such as share based compensation, deferred rent and LIFO.

Now I will turn to a summary of our guidance for fiscal year 2008.

Our guidance is for higher-than-average sales growth of 25 to 30 percent and comparable store sales growth of 7.5 percent to 9.5 percent. Excluding the Wild Oats stores, we expect sales growth of 15 to 20 percent for the fiscal year.

For the first four weeks of the second quarter, comparable store sales growth was 8.9 percent, and identical store sales growth was 6.9 percent. Sales at the 62 continuing Wild Oats stores increased 6.2 percent. The Wild Oats stores had a substantial increase in one week's sales last year resulting from a company-wide promotion, making the comparison this year very difficult for that week. We estimate the negative impact on quarter-to-date Wild Oats sales growth from this, combined with the Naples store cycling over a strong opening last year, was approximately 2.5 percentage points.

We realize there are a lot of questions out there about how a slowing economy might impact our sales. Historically, our sales have been highly resilient during economic downturns. We attribute our strong sales to many factors including our loyal core customers and their dedication to a natural and organic lifestyle, our high percentage of perishable product sales, and our extensive selection of high quality prepared foods that attracts customers trading down from restaurants. In addition, we sell a high percentage of relatively small-ticket items, and we are better positioned today than we ever have been from a value perspective. Given our prior experience, strong year-to-date comps, easier year-over-year comparisons, and the increased number of new stores entering the comp base, we are confident in reaffirming our comp guidance of 7.5 percent to 9.5 percent for the fiscal year.

As for our ability to pass on higher food costs, we continue to have a market-based pricing strategy and historically have tended to follow the market in terms of passing on or absorbing these higher costs. To date, we haven't experienced anything different in this regard.

We have opened six stores year to date. Of our 26 currently tendered stores, we expect to open two stores in the second quarter and up to 13 stores in the second half of the year.

We do not expect to produce operating leverage for the year due primarily to a decrease in store contribution as a percentage of sales driven by a higher percentage of sales from new and acquired stores, which have a lower contribution than our existing stores, investments in labor and benefits at the Wild Oats stores, and continued, though more moderate, increases in health care costs as a percentage of sales.

In addition, we expect G&A as a percent of sales to be in line with the 3.3 percent we reported in fiscal year 2007, due mainly to the temporary costs associated with integrating the acquisition; the cost of fully staffing our three smallest regions which gained the greatest number of stores in the merger as a percentage of their existing store base; and higher legal and professional fees. G&A as a percentage of sales should improve sequentially from the first half to the second half of the year.

Our company is focused on EVA, and we are comfortable with our current debt levels. We produce strong, consistent operating cash flow, and our credit line is available to fund our cash needs in excess of our cash flow from operations. Currently we have $50 million drawn on our $250 million credit line. In the second quarter, we expect to expand our credit line to $350 million, as allowed under the accordion feature in our credit agreement, in anticipation of additional borrowings throughout the remainder of the year. These borrowings are contemplated in our interest expense guidance, net of investment and other income, of $35 to $40 million for the fiscal year.

We recently signed six new store leases averaging 50,500 square feet in size and now have 89 stores under development totaling 4.6 million square feet, or 49 percent of our existing square footage. These stores average 51,500 square feet in size and include 22 relocations and 15 new markets. A large portion of our growth for the next few years is already "on the books," and I feel highly confident in our ability to deliver results.

In other news, we were extremely pleased to learn last month that for the eleventh consecutive year we made FORTUNE's list of the "100 Best Companies to Work For." We are one of only 14 companies to be named every year since the list's inception.

We also received an unprecedented amount of favorable publicity following our recent announcement to end the use of disposable plastic grocery bags at the checkouts in all of our 270 stores in the U.S., Canada and the U.K. with the goal of being plastic bag-free by Earth Day, April 22, 2008. Our effort was clearly aligned with our customers' values as evidenced by the sale to date of over 700,000 of our Better Bags which are made from recycled plastic bottles.

Our business model is very successful and continues to benefit all of our stakeholders. We are executing at a high level, continuing to produce higher sales, comps and sales per square foot than our public competitors. We believe the investments we are making today in our new, acquired and existing stores will result in strong earnings growth in the future.

Given our recent merger, strong historical sales growth, significant store development pipeline, and acceleration in store openings, we believe we are well positioned to achieve our goal of $12 billion in sales in the year 2010. Over the longer term, however, we believe the sales potential for Whole Foods Market is much greater than $12 billion as the market continues to grow and as our company continues to improve. We have grown our stock price at an average compound annual rate of 20 percent since going public in 1992, and we encourage our shareholders to stay focused on the long term.

We will now take your questions but ask that you limit your questions so that everyone has an opportunity to participate. Thank you.