Conference Call Scripts

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.

2007

November 20 - 4rd 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 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 24, 2006. 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. We recognize that this quarter is a bit confusing given the 13-week rather than 12-week quarter and that our results include Wild Oats for the last five weeks of the quarter. We have adjusted percentage increases to exclude the extra week to allow for proper year-over-year comparisons, and for several key metrics, we have broken out the estimated impact of the Wild Oats stores to highlight the results of our existing stores.
  
  I think I speak for everyone when I say words cannot fully express how excited we all are to have finally completed our merger with Wild Oats. We believe the synergies gained from this combination will create long-term value for our customers, vendors and shareholders, as well as exciting opportunities for our team members.
  
  All of our 11 operating regions gained stores, three of our smallest regions gained critical mass, and we gained immediate entry into 15 new markets and five new states. Over time, we expect to recognize significant synergies through G&A cost reductions, greater purchasing power and increased utilization of our facilities. Tremendous strides have already been made operationally and culturally thanks to the hard work and dedication of our team members, both existing and new.
  
  We are happy to say we were able to retain approximately 90 percent of the Wild Oats store team members and are in the process of transitioning these team members to our pay guidelines and progressive benefits package. An incredible amount of positive energy has been generated through Town Hall meetings, vision days, and training at the regions and in Austin.
  
  Customers in the Wild Oats stores are already experiencing an improved shopping experience thanks to the expanded product offerings, particularly on the fresh food side, as well as price cuts on over one thousand items. We are already directly sourcing and distributing produce, seafood, bakery and prepared food items to the stores, which has raised the quality of the perishable offerings significantly. We think customers will also respond positively to our in-store programs for the upcoming holidays.
  
  We sold the 35 Henry's and Sun Harvest stores on September 30th and have since closed nine of the Wild Oats stores, including one store that was closed in conjunction with the opening of a new Whole Foods Market store in the same area. We also temporarily closed two stores for major renovations, one of which is scheduled to re-open later this fiscal year. Of the 63 stores that currently remain, we plan to close one additional store in the first quarter and then close seven more stores over the next few years as we open nearby Whole Foods Market stores that are currently in development.
  
  We have started to make changes inside the stores including new packaging, equipment, signage, displays and team member aprons. We plan to invest $40 million to $50 million this year in Wild Oats remodels, and our regional presidents are working on plans for the renovations that will take place later this fiscal year after which we expect to re-brand the stores as Whole Foods Market stores. Some stores are planning to rebrand as soon as early 2008.
  
  For the five-week period, excluding the Henry's and Sun Harvest stores, sales from the 74 Wild Oats stores were $82 million. These stores, averaging 24,400 square feet in size and nine years of age, had average weekly sales of $214,000 per store and sales per square foot of $457 in the quarter. Of the 63 stores that currently remain open, averaging 24,400 square feet and nine years of age, average weekly sales were $224,000 per store and sales per square foot were $478.
  
  While the Wild Oats stores are older and smaller than our stores, we do believe that over time we will raise their sales productivity to levels in line with our stores. We have two historical examples of where we opened stores in Wild Oats locations that had closed due to poor performance, and subsequently significantly improved their sales. At one location, we saw a greater than six-fold increase in average weekly sales over a period of about five years, and at the other store, we saw an increase of just under five-fold over a period of about six years. While these results aren’t necessarily predictive of all the Wild Oats stores we acquired, they do help demonstrate the potential value we can produce over the long term.
  
  In a short time, 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. The Wild Oats stores open longer than a year, excluding the divested stores and the stores we closed in the first quarter, have shown a healthy increase in sales growth from 3.9 percent over the last five weeks of Q4 to 6.6 percent over the first seven weeks of Q1, and we expect these stores to drive strong sales this year and higher comparable store sales growth in fiscal 2009 and beyond.
  
  I will now turn to our results for the quarter, excluding the Wild Oats stores.
  
  Our sales increased 16 percent to $1.6 billion driven by 18 percent ending square footage growth and 8.2 percent comparable stores sales growth, which was on top of an 8.6 percent increase in the prior year. Identical store sales, which exclude six relocated stores and two major expansions, increased six percent. The spread between comps and idents increased 95 basis points in Q4 compared to Q3, primarily reflecting the inclusion of the Kensington relocation in London for the entire fourth quarter versus only three weeks in the third quarter, and the two additional relocations that opened in Q4. Year over year, average transactions per week increased approximately 5.5 percent to 3.5 million, and our average basket size increased approximately 2.5 percent to $33. Note the Wild Oats stores will not be included in the comp base until the 53rd week following the acquisition.
  
  Average weekly sales were $628,000 per store, excluding the Wild Oats stores, in the quarter, a 7.5 percent increase year over year, translating to sales per square foot of $892.
  
  We opened a record eight new stores during the quarter and a record 21 new stores during the fiscal year, a significant increase from the 13 new stores we opened in fiscal year 2006. We relocated five stores, entered three new markets and completely revitalized our brand image in the Chicago area with the addition of four new stores. Our new stores include a number of innovations that not only help us continue to redefine the marketplace but also create an incredible amount of excitement and positive momentum within our company.
  
  For the quarter, our new stores averaged 57,000 square feet in size and were just over six months old. They produced average weekly sales of $630,000 translating to sales per square foot of $573. Our new 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.
  
  We are actively continuing to further differentiate our product offering in ways that speak to our authenticity and leadership role within natural and organic products. These initiatives include the continued expansion of our private label products which saw a 13 percent increase in SKU count year over year and currently represent 19 percent of our total grocery and Whole Body sales, our expanded "Buying Local" efforts and local product selection, our Whole Trade Program, and our new Five-Step Animal Welfare Rating Program which allows shoppers to easily understand how the animals from which the meat and poultry products they are buying were raised and treated.
  
  We were pleased to recently announce that we have now administered over $1 million in low-interest loans under our new Local Producer Loan Program. Loan recipients include small-scale food producers and growers from 12 states. Among their products are fresh produce, body care products, and artisan foods including nut butters, ice cream, granolas and cheeses.
  
  Our fourth quarter was very positive for the many reasons we have outlined, but we did see some expenses increase as a percentage of sales to levels higher than our historical averages. Excluding the Wild Oats stores, gross profit improved eight basis points; however, this improvement was offset by a 65 basis point increase in direct store expenses resulting in a 57 basis point decline in store contribution. For stores in the comparable store base, gross margin improved 27 basis points, and direct store expenses increased 23 basis points as a percentage of sales resulting in a four basis point improvement in store contribution as a percentage of sales. The $2.6 million LIFO charge in Q4 compared to the $0.6 million credit in Q4 last year negatively impacted gross margin by approximately 20 basis points.
  
  It is helpful to point out that in Q4 we had 25 new stores that averaged six months of age compared to the prior year, when we had only 15 new stores that averaged eight months of age. For stores in the comp base, the 23 basis point increase in direct store expenses in Q4 was in line with the year-over-year increase we saw in Q3 and was once again driven primarily by an increase in health care costs as a percentage of sales.
  
  Rising health care costs continue to be an issue for most businesses, and while our annual increases and our health care costs per team member are still well below industry norms, we are seeing health care costs continuing to grow. Our goal is to continue to educate our team members on how to best use the medical resources available, to avoid emergency room visits for less urgent care, and to encourage wellness programs and overall good health steps.
  
  Including Wild Oats, G&Amp;A expenses increased to 3.9 percent of sales primarily due to approximately $13 million, or $0.06 per diluted share, in costs related to legal matters, integration efforts and the addition of Wild Oats' G&Amp;A expenses. We continue to expect significant synergies through G&Amp;A cost reductions over time, but there will be some temporary costs associated with integrating the Wild Oats acquisition, along with the cost of fully staffing our three smallest regions which gained the greatest number of stores relative to their existing base in the merger.
  
  Now to turn to a summary of our guidance for fiscal year 2008:
  
  Our sales guidance is for higher-than-average sales growth of 25 to 30 percent, of which approximately 10 percent is expected to come from the Wild Oats stores, and comparable store sales growth of 7.5 percent to 9.5 percent.
  
  We expect to return to a more historical comp level, despite increasing competition, a greater degree of cannibalization, and the possible negative impact of any slowdown in consumer spending. This expectation is based on easier year-over-year comparisons, a higher number of new stores entering the comp base, the transfer of sales from some of the Wild Oats' store closures, and the 9.5 percent comps and 7.2 percent idents we have averaged quarter to date.
  
  In the first quarter, we have opened four new stores and plan to open two more stores. We have also permanently closed nine stores, temporarily closed two stores for major remodels, and plan to permanently close one additional store. We expect to end the first quarter with 270 stores. Fourteen of our tendered stores are scheduled to open this fiscal year, and we will announce additional stores tendered for openings this year with our Q1 earnings release in February. We expect to open approximately the same number of new stores this year as last 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&Amp;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, along with the cost of fully staffing our three smallest regions which gained the greatest number of stores in the merger. G&Amp;A as a percentage of sales should improve sequentially from the first half to the second half of the year.
  
  We expect pre-opening expenses in the range of $80 million to $90 million, half of which relates to stores scheduled to open this fiscal year. On an average weekly basis, we expect quarterly pre-opening and relocation expense to ramp up throughout the year.
  
  Due primarily to the financing of the acquisition, we expect net interest expense in the range of $35 million to $40 million in fiscal year 2008.
  
  Capital expenditures for the fiscal year are expected to be in the range of $575 million to $625 million. Of this amount, approximately 65 to 70 percent relates to new stores opening in fiscal year 2008 and beyond and approximately seven to eight percent relates to remodels at the Wild Oats stores.
  
  Our company is focused on EVA, and given our strong, consistent operating cash flow, we are comfortable with our current debt levels and the utilization of our credit line to fund capital expenditures as well as future dividends and any potential stock repurchases. In fact, today we are pleased to announce an 11% increase in our quarterly dividend to $0.20 per share, our fifth increase since we declared our first dividend in November 2003.
  
  We recently signed five new store leases averaging 47,000 square feet in size and now have 87 stores under development totaling 4.5 million square feet or 48 percent of our existing square footage. These stores average 51,000 square feet in size and include 22 relocations and 14 new markets.
  
  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 near 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 21 percent since going public, 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 ask questions. Thank you.
  
  — EVA® is a registered trademark of Stern Stewart & Co.
July 31 - 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, 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 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 24, 2006. 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. Please note it includes a reconciliation to adjusted diluted earnings per share of $0.35 for the third quarter of last year which excludes $3.7 million of credits related to Hurricane Katrina.
  
  Our sales for the third quarter increased 13 percent to $1.5 billion. Average weekly sales for all stores increased seven percent to $647,000, translating to sales per square foot of $933.
  
  Our 17 new stores, including four relocations and two new markets, averaged 58,000 square feet in size and produced average weekly sales of $637,000 in the quarter translating to sales per square foot of $575.
  
  Our new 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 hurdle rate of cumulatively positive EVA® within seven years or less.
  
  Our comparable store sales grew seven percent on top of a 9.9 percent increase in the prior year. This reflects a negative impact of approximately 76 basis points from Easter shifting from the third quarter last year to the second quarter this year. Our Kensington store was a relocation of a Fresh & Wild store, so it was included in the comp base for three weeks of the 12 week quarter but was excluded from identical store sales growth. Identical store sales, which exclude four relocated stores and two major expansions, increased 5.8 percent. The variance between comps and idents increased 30 basis points in Q3 compared to Q2. Year over year, average transactions per week increased approximately four percent to 3.5 million, and our average basket size increased approximately three percent to $34.
  
  We believe that third quarter results, combined with our current quarter-to-date comps of 7.6 percent, are an indication that our comps have stabilized.
  
  We are constantly experimenting, innovating and evolving. We are opening a record number of 18 to 20 stores this year, many of which are incredibly exciting stores that will help us continue to redefine the marketplace and further differentiate our shopping experience from other food retailers. We are actively continuing to further differentiate our product offering in ways that speak to our authenticity and leadership role within natural and organic products. These initiatives include the continued expansion of our private label products which saw a 14 percent increase in SKU count year over year and currently represent 18 percent of our total grocery and Whole Body sales, our expanded "Buying Local" efforts and local product selection, our Whole Trade Program, and the recent launch of our new Five-Step Animal Welfare Rating Program which allows shoppers to easily understand how the animals from which the meat and poultry products they are buying were raised and treated.
  
  While the Whole Foods Market brand is synonymous with the highest quality natural and organic products, we are also known for our emphasis on perishables, beautiful stores uniquely designed for their market, and exceptional customer service, all of which translate into a fun shopping experience that is very hard to replicate.
  
  Now, back to our results for the quarter...
  
  On an adjusted basis, taking into account certain operational changes that shifted some costs from cost of goods sold to direct store expenses, our comparable stores produced a very healthy 42 basis point improvement in gross margin which was partially offset by a 23 basis point increase in direct store expenses, resulting in a store contribution improvement of 19 basis points to 10.3 percent of sales.
  
  Historically our second and third quarters are our strongest quarters in terms of average weekly sales and gross margin, and we typically see flat to sequentially lower gross margin in the fourth quarter compared to the third.
  
  Direct store expenses for comparable stores increased primarily due to increases in health care and share-based compensation expense, which were partially offset by leverage in wages as a percentage of sales. Share-based compensation expense increased $1.8 million primarily due to an adjustment for the accelerated vesting of stock options. Excluding this charge, the year-over-year increase in our comparable store direct store expense would have been about in line with what we reported in the second quarter of this year.
  
  For the quarter, our pre-opening and relocation costs were $15 million, or $0.06 per share, nearly double our costs in the prior year of $7.9 million, or $0.03 per share.
  
  For the quarter, diluted earnings per share were $0.35, in line with our adjusted prior-year results.
  
  In the third quarter, we opened two new stores in El Segundo and Sonoma, California and relocated one of our Fresh & Wild stores to a new Whole Foods Market location in London, ending the quarter with 196 stores and approximately 7.1 million square feet in operation. Including the new Chicago store opened last week, we have opened 14 stores this fiscal year and 18 over the last twelve months. We expect to open four to six additional stores, including two relocations, in the fourth quarter bringing us to our goal of 18 to 20 new stores for the year.
  
  We are extremely excited to have opened our flagship UK store in Central London. Spread across three floors within the historic Barkers building on High Street Kensington, the landmark store offers a fresh and distinctive approach to the UK grocery shopping experience with excellent customer service, food sampling and prepared foods selections mingling with thousands of fresh, organic and all natural ingredients. A few highlights include:
  - a cheese room, where shoppers can taste and select the finest cheeses from Britain and around the world with cut-to-order service,
  - an extensive wine department offering over 1,000 different labels,
  - a meat department that offers an in-house dry aging case, fresh sausage made in-house daily and meat labeled with our new Five-Step Animal Welfare Rating Program which allows shoppers to easily understand how the meats they are buying were raised and treated, and
  - a vibrant food hall on the top floor. From the sit-down experiences of the tapas bar, the champagne and oyster bar, the pub, and the sushi and dim sum eatery to the open format of the other venues, the 13 dining venues offer plenty of choices along with seating for more than 350 diners.
  The store has been warmly received and is off to a great start, setting new opening day and first week sales records for the company and ranking among our top five stores in sales volume over the last eight weeks since opening. Our real estate team is working diligently in London, and we hope to have additional sites to announce in the near future.
  
  Our new store pipeline continues to increase with today's announcement of seven new store leases averaging 39,000 square feet in size with expected opening dates through 2010. We now have 94 stores under development totaling just over five million square feet or 70 percent of our existing square footage. These stores average 53,000 square feet in size and include 17 relocations and 21 new markets.
  
  Over the last five fiscal years, our average store size has increased 20 percent, while our average weekly sales per store have increased 68 percent, and our average contribution per store increase 69 percent, both more than triple the increase in store size.
  
  Our current average store size is just over 36,000 square feet, while our average store size for stores in development is currently 53,000. We have continued to sign and open smaller stores, typically in markets where it is hard to find larger boxes, while experimenting with opening some very large format stores. We currently operate 14 stores over 60,000 square feet. On average, we are pleased with the results from these stores and believe they will produce very strong EVA over the long term as they will take longer to reach capacity. We plan to continue to selectively sign sites for these larger format stores, which showcase extensive prepared foods and sit-down venues, but they will predominantly be in dense urban markets or relocations of some of our very successful existing stores.
  
  We believe our "sweet spot" for most markets is a footprint between 45,000 and 60,000 square feet which allows us to create the exciting shopping experience we are known for while simultaneously maximizing our return on invested capital. We currently have 21 stores, including eight relocations, over 60,000 square feet in our 94-store pipeline. We are in the process of reviewing our entire pipeline and are selectively "rightsizing" the lease size or decreasing the selling square footage in the store design. We adjusted two leases and are in the process of adjusting another six leases representing an average reduction of 9,000 square feet per lease. We believe the average size of our stores in development will probably be around 50,000 to 55,000 square feet for the near future.
  
  Now I will turn to our thoughts for the remainder of the year.
  
  Please note that the fourth quarter will be thirteen weeks versus twelve weeks in the prior year. Our guidance is presented on an adjusted 12-week to 12-week basis and excludes any impact from the proposed Wild Oats merger, as it has not yet closed.
  
  For fiscal year 2007, we are maintaining our guidance of 13 percent to 17 percent sales growth, six percent to eight percent comparable sales growth, and 18 to 20 new store openings resulting in 16 percent ending square footage growth, and expect operating income before pre-opening and relocation costs as a percentage of sales will be in line with our 5.9 percent results year to date. We expect pre opening expense in the fourth quarter of $20 to $24 million.
  
  We are constantly experimenting, innovating and evolving and have a demonstrated track record of competing, executing and delivering strong results. As expected, fiscal year 2007 has been an investment year as we have accelerated our new store openings while comping against tough comparisons.
  
  Of our 25 stores currently tendered, 23 are scheduled to open between now and the end of fiscal year 2008, and we expect to announce additional stores over the next two quarters tendered for openings in fiscal year 2008. Therefore, we can expect this investment period will extend into next year, but to a lesser extent than we have experienced this year, as we do not expect to have the same level of year-over-year increase in our total pre opening expenses.
  
  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. Given our strong historical sales growth, record 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, and we encourage our shareholders to stay focused on the long term.
  
  Today is the first day of the U.S. District Court for the District of Columbia preliminary injunction hearing to decide whether to approve the FTC's application for an injunction to block our proposed merger with Wild Oats. The hearing is scheduled to conclude tomorrow, and we expect to receive a ruling by the middle of August.
  
  We are hopeful that the court will rule in our favor and that we will be allowed to move forward; however, we believe that merger or no merger, Whole Foods Market has a very bright future. We currently have 94 stores in our pipeline representing 70 percent of our existing square footage, and we believe we are on track to meet our goal of $12 billion in sales in 2010. If the merger is approved, just as we have done with our many previous acquisitions — we will improve the Wild Oats stores to make them more profitable and create an improved shopping experience for customers
  
  Before we take any questions, I ask that we devote this Q&A time to discussing our current results and future prospects. Thank you.
  
  — EVA® is a registered trademark of Stern Stewart & Co.
May 9 - 2nd Quarter Results
- Good afternoon. Joining me today are AC Gallo, Co-President and Chief Operating Officer, 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 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 24, 2006. 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. Please note it includes a reconciliation to non-GAAP diluted earnings per share of $0.34 for the second quarter of last year which excludes $3.6 million of credits related to Hurricane Katrina.
  
  Our sales for the second quarter increased 12 percent to $1.5 billion. Average weekly sales for all stores increased six percent to $635,000, translating to sales per square foot of $932.
  
  Our 17 new stores, including three relocations and four new markets, averaged 54,000 square feet in size and produced average weekly sales of $588,000 in the quarter translating to sales per square foot of $565.
  
  We believe the best indication of our new store productivity is to look at trends over a period of time long enough to smooth out the particular mix of new stores being compared. For example, over the last five fiscal years, while our average store size has increased 20 percent, our average weekly sales per store have increased 68 percent, and we have seen our average contribution per store increase 69 percent, both more than triple the increase in store size. In addition, our new stores open at least one year continue to run ahead of our ROIC targets for the first year and are on track to reach our overall hurdle rate of cumulative positive EVA® within seven years or less.
  
  Our comparable store sales grew six percent on top of a 12 percent increase in the prior year. Year over year, average transactions per week increased approximately three percent to 3.4 million, and our average basket size increased approximately three percent to $34.
  
  Last year Easter was April 16th, which fell into our third fiscal quarter. This year Easter was April 8th, which fell into our second fiscal quarter. This Easter shift resulted in a positive impact on our second quarter comparable store sales growth of approximately 87 basis points, and we estimate will result in a negative impact on third quarter comparable store sales growth of approximately 50 to 100 basis points. We saw sequential improvement each period of the second quarter, and for the last five weeks ended May 6, which includes the Easter holiday in both years, our comparable store sales growth was 7.5 percent. We are hopeful that our current trends are an indication that our comps bottomed out in the second quarter and that the pendulum is starting to swing back the other way.
  
  As we previously stated, while we cannot state conclusively why our comp trends have been running below our historical eight to 10 percent average, we continue to believe it is most likely the result of many factors including the tough comparisons we face due to our three consecutive years of extraordinary double-digit comps, as well as the heightened competitive food retailing environment, a higher degree of cannibalization, and our selective price investments.
  
  Compared to several years ago, many food retailers are making significant capital investments in their new stores, remodels, new formats, and expanded natural and organic product offerings, and, on the margin, we believe some of these investments are having an impact on our sales.
  
  Regarding cannibalization, our experience has typically been that our new stores average positive comps in their first quarter in the comp base and by then the cannibalized store is back to positive comps as well, reflecting our increased market share and making it the right growth strategy over the longer term. However, as we accelerate the opening of new stores, we may see a higher number of stores being cannibalized year over year creating a larger negative impact on our comps. For example, in the second quarter, 24 of our existing stores were experiencing cannibalization, up from 14 stores in Q2 last year and up sequentially from 18 stores in the first quarter.
  
  We are continuing to make selective price investments which, although hard to quantify, are having some negative short-term impact on our comps as well. We believe strengthening our price image on commodity-type branded products to broaden our appeal is still the right long-term strategy, and 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.
  
  We believe that competition makes us better, and we aren't standing still. We are constantly experimenting, innovating and evolving. We are opening a record number of stores this year, many of which are incredibly exciting stores that will allow us to redefine the marketplace and further differentiate our shopping experience from other food retailers. We have many global buying initiatives in place that are benefiting our customers. We are actively continuing to further differentiate our product offering in ways that speak to our authenticity and leadership role within natural and organic products. Some elements of this strategy include:
  - Private Label. In the quarter, our private label SKU count increased 16 percent year over year to over 1,900 SKUs, and our private label sales increased to 18 percent of our total grocery and Whole Body sales. We expect private label to grow to a much higher percentage of our sales over time.
    - exceptional product quality,
    - more money for producers,
    - better wages and working conditions for workers, and
    - sound environmental production practices that promote biodiversity.
    - The program will also support eliminating poverty through a donation of one percent of sales to our Whole Planet Foundation™.
    One of our first products is our EARTH University™ bananas which are high quality and are grown using low-impact earth-friendly agriculture techniques in Costa Rica. Other Whole Trade products include tea, cocoa, mangoes, rice, sugar, vanilla and coffee. Within the next ten years, our goal is to have over 50 percent of our imported products from the developing world fall under our Whole Trade Guarantee program, and, over the longer term, 100 percent.
  - Buying Local. An opportunity to differentiate our product selection while fulfilling several of our Core Values is to highlight the locally grown products in our stores, and we hope to have close to 20 percent of our produce purchases sourced locally this year. We have further empowered our individual store and regional buyers to seek out locally grown produce in addition to creating a Local Producer Loan Program through which we are offering up to $10 million in annual financial assistance. In February, South Florida beekeeper David Rukin of Buzzn Bee became the first recipient of a low interest rate, long-term loan, and we have since announced additional loans to five local producers in Colorado and New Mexico.
  We expect to make further announcements in the upcoming months about other programs that differentiate our products. In addition, while the Whole Foods Market brand is synonymous with the highest quality natural and organic products, we are also known for our emphasis on perishables, beautiful stores uniquely designed for their market, and exceptional customer service, all of which translate into a fun shopping experience that is very hard to replicate.
  
  Now, back to our results for the quarter...
  
  For the quarter, gross profit decreased 18 basis points to 35.2 percent of sales. Year to date, our gross profit at 34.7 percent of sales was in line with our five-year fiscal-year average.
  
  Excluding Hurricane Katrina credits in the prior year, direct store expenses for the second quarter increased 49 basis points to 25.9 percent of sales, higher than our five-year average and range. For stores in the comparable store base, direct store expenses increased eight basis points to 25.5 percent of sales due primarily to higher health care and workers' compensation costs as a percentage of sales, which were partially offset by leverage in wages.
  
  Year to date, our higher-than-expected direct store expenses have led to lower-than-expected store contribution and growth in operating income before pre-opening and relocation expenses.
  
  As we guided, our materially higher pre-opening and relocation costs resulting primarily from our acceleration in leases tendered and square footage opening this year and next year is having a significant negative impact on our diluted earnings per share growth. For the quarter, our pre-opening and relocation costs were $15.6 million, or $0.07 per share, more than double our costs in the prior year of $7.3 million, or $0.03 per share.
  
  For the quarter, operating cash flow was $0.47 per share. The decrease year over year was due primarily to timing differences relating to taxes paid during the quarter.
  
  In the second quarter, we opened a record six new stores in Fairfax, Virginia; Chicago, Illinois; Birmingham, Alabama; Manhattan, New York; Cleveland, Ohio; and Portland, Maine, ending the quarter with 194 stores and approximately 6.9 million square feet in operation.
  
  Our Bowery and Houston store located on Manhattan's Lower East Side is our fourth and largest New York City location at 71,000 square feet and has opened with sales above our projections. The two-story store includes three eateries; one of the nation's only genuine Fromageries featuring 80 exclusive aged cheeses; homemade pies baked fresh throughout the day; as well as foods from a variety of top-tier local artisans and growers. Innovations include mini French and Japanese-inspired bouquets in the floral department, an expanded selection of handmade sausages, and a huge selection of meats and seafood smoked in-house. Also located on the second floor is the Culinary Center, which will offer dozens of hands-on classes and demonstrations with some of the best New York and Whole Foods Market chefs, artisans and growers.
  
  So far in the third quarter, we have opened one store in El Segundo, California, closed one Fresh & Wild store in London that will be relocated to our new 80,000 square foot Whole Foods Market location opening in early June, and we expect to open one store in Sonoma, California. As of today, we have opened 15 new stores over the last 12 months.
  
  On April 24, 2007, we announced that we extended the expiration date for our tender offer to purchase outstanding shares of Wild Oats Markets, through May 22, 2007. We are working diligently with the FTC regarding their Hart-Scott-Rodino review. Although the FTC has not yet decided whether to challenge the Wild Oats transaction, members of the FTC staff have voiced concerns regarding perceived anticompetitive effects resulting from the proposed tender offer and merger. Any further updates regarding the Wild Oats transaction will be made through public filings.
  
  Now I will turn to our thoughts for the remainder of the year.
  
  Our guidance for fiscal year 2007 excludes any impact from the proposed merger, as it has not yet closed. We are maintaining our guidance of 13 percent to 17 percent sales growth, 6 percent to 8 percent comparable sales growth, and 18 to 20 new store openings resulting in 16 percent ending square footage growth, but we now expect operating income before pre-opening and relocation costs as a percentage of sales to be in line with our performance year to date.
  
  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. Given our strong historical sales growth, record 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.
  
  Our company is constantly experimenting, innovating and evolving and has a demonstrated track record of competing, executing and delivering strong results. Based on our 19 percent sales growth last year, we were pleased to learn that we moved up 38 spots to No. 411 on the Fortune 500 list of the largest public companies in the U.S. As expected, we are going through an investment period as we accelerate our new store openings while comping against tough comparisons. We have grown our stock price at an average compound annual rate of 22 percent since going public, and we encourage our shareholders to stay focused on the long term.
  
  — EVA® is a registered trademark of Stern Stewart & Co.
February 21 - 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 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 24, 2006. The Company does not undertake any obligation to update forward-looking statements.
  
  The tender offer we will discuss today has not commenced. We have agreed in the merger agreement to commence a tender offer on February 27, 2007. Our description of the tender offer today is neither an offer to purchase nor a solicitation of an offer to sell shares of Wild Oats Markets. At the time the tender offer is commenced, we will file with the SEC a Tender Offer Statement on Schedule TO containing an offer to purchase and related materials. These documents will contain important information about the tender offer that should be read carefully before any decision is made with respect to the tender offer.
  
  We have made two announcements today. Both press releases are 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 releases. I will briefly recap our first quarter results, and then turn to our announcement of a proposed acquisition of Wild Oats.
  
  Our sales for the first quarter increased 12 percent to $1.9 billion. Average weekly sales for all stores increased 6% to $620,000, translating to sales per square foot of $926. We had 174 stores, or 92 percent of all stores, set new weekly sales records during the holidays.
  
  Our comparable store sales grew seven percent on top of a 13 percent increase in the prior year. Our year-over-year average transactions per week increased approximately 5 percent to 3.2 million and our average basket size increased approximately 2 percent to $34.43.
  
  Our 13 new stores, including three relocations and two new markets, averaged 53,000 square feet in size, produced average weekly sales of $571,000 in the quarter and had sales per square foot of $559.
  
  Due to seasonality, our gross margin is typically lower in the first quarter than for the remainder of the year, averaging 34.3 in Q1 over the past five years. For the quarter, our gross profit was inline with this average, decreasing 24 basis points year over year to 34.3 percent of sales. For stores in the comparable store base, gross profit improved two basis points to 34.5 percent of sales.
  
  The Whole Foods Market brand is synonymous with beautiful stores, exceptional customer service, the highest quality natural and organic products and a fun shopping experience. What we are not as well known for are the low prices that we currently offer our customers. While our core customers are not primarily focused on price, our price image is important in terms of appealing to a broader customer base, especially as select natural and organic products are becoming more available through various retail formats.
  
  Our strategy has been to approach pricing on a market-by-market basis, and to be competitive on the same or similar items in grocery and Whole Body. Our perishable areas such as meat, seafood, produce, prepared foods and bakery, have typically been priced at a premium, reflecting the higher quality of our offering.
  
  Going forward, we expect to further differentiate our product offering throughout our stores, and where differentiation is not possible, continue to selectively invest in lower prices on branded products to help enhance our value perception and broaden our appeal.
  
  The good news is that being a young and relatively small company, we have many opportunities to lower our cost of goods sold. We can use these savings to help offset our price investments. Therefore, we believe our historical annual gross margin range of 34 to 35 percent continues to be the best indicator of our future results.
  
  In the quarter, our private label SKU count increased 21 percent year over year to just over 1,900 SKUs, and our private label sales increased to 17 percent of our total grocery and Whole Body sales. We have committed additional resources to our private label team, including creating a new Global Vice President of Private Label position. We expect private label to play a key role in our product differentiation strategy and to grow to a much higher percentage of our sales over time.
  
  Direct store expenses increased 35 basis points to 25.8 percent of sales which is higher than our five-year average and above our five-year range. The increase was primarily due to higher share-based compensation expense and health care costs as a percentage of sales. For stores in the comparable store base, direct store expenses improved six basis points to 25.4 percent of sales.
  
  For the quarter, operating cash flow per share increased a very healthy 30 percent to $0.79 from $0.61 in the prior year. This takes into account approximately $10.2 million, or $0.07 per share, of share-based compensation, pre-opening rent and accelerated depreciation was expensed for accounting purposes but was non-cash, compared to $4.4 million, or $0.03 per share, in the prior year.
  
  In other news, we were extremely pleased to learn last month that for the tenth consecutive year we made FORTUNE's list of the "100 Best Companies to Work For." We ranked number five, our highest ranking ever, and we are one of only 18 companies to be named every year since the list's inception.
  
  I will now turn to our announcement of our planned merger with Wild Oats.
  
  Wild Oats and Whole Foods Market have both had a large and positive impact on the natural and organic foods movement throughout the United States, helping lead the industry to nationwide acceptance and to becoming one of the fastest growing segments in food retailing today. The growth opportunity in the category has led to increased competition from many players, most of whom are not dedicated natural and organic foods supermarkets, but are considerably larger than we are.
  
  Our companies have similar missions and core values, and we believe the synergies gained from this combination will create long term value for our customers, vendors and shareholders as well as exciting opportunities for our new and existing team members by making us better positioned to compete in this rapidly changing food retailing environment.
  
  In our history, we have made 18 retail acquisitions, many of which we have considered to be platform acquisitions from which we have been able to accelerate our growth geographically. This will be the largest acquisition in our history. Wild Oats is a great geographical fit as all of our 11 operating regions will gain stores and three of our smallest regions - our Pacific Northwest, Rocky Mountain and Florida regions — will gain critical mass. We will also gain immediate access into a significant number of new markets.
  
  It has been our experience that most acquisitions take up to two years to transition to our decentralized operations and implement our incentive programs. We expect this acquisition to be similar and that over time we will recognize significant synergies through G&Amp;A cost reductions, greater purchasing power and increased utilization of support facilities. We are particularly excited to gain many talented team members who will provide valuable support in reaching our growth goal of $12 billion in sales in 2010.
  
  We will be carefully evaluating each banner as well as each store to see how it fits in to our overall brand and real estate strategy. Wild Oats has been rationalizing its store base over the last several years, but we expect we will close some additional stores as well as relocate others to stores we currently have in development. We would also expect to make significant investments in remodeling stores before eventually re-branding them as Whole Foods Market stores.
  
  Our company continues to evolve at a rapid pace. We have always learned from past acquisitions and look forward to building on our combined strengths, cultures and historical roots. We approached this acquisition from a strategic as well as EVA® perspective and believe we will become a much stronger and better-positioned company that will produce strong returns for our shareholders in the future.
  
  As stated in our press release, our tender offer is conditioned upon at least a majority, or 50.1 percent, of the outstanding Wild Oats' shares being tendered, as well as customary regulatory and other closing conditions. Wild Oats' Board of Directors has unanimously recommended that their shareholders tender shares in this offer. The Yucaipa Companies, Wild Oats' largest shareholder with approximately 18 percent ownership, has committed to tendering its shares. Approval of the transaction by our shareholders is not required. If all goes as according to plan, we hope to close this transaction in April.
  
  We believe we are well positioned to finance this transaction as well as fund our capital expenditures, ongoing cash dividend program and any future stock repurchases. We have committed financing of $700 million in place at closing, and we also intend to upsize our revolving credit facility to $250 million from $100 million. With $222 million in total cash and investments, only $3 million of current long-term debt, and very strong, consistent cash flow from operations, we are very comfortable taking on this additional debt and hope to maintain our investment grade credit rating.
  
  Our guidance for fiscal year 2007 excludes any impact from the pending merger, as the transaction has not closed.
  
  Our business model is very successful and continues to benefit all of our stakeholders. We are executing at a high level, continuing to produce much higher sales, comps and sales per square foot than our public competitors. Given our strong historical sales growth, record store development pipeline, continued anticipated acceleration in store openings, and this merger, 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 23 percent since going public, and we encourage our shareholders to stay focused on the long term. We are constantly evolving, innovating and maturing and have a demonstrated track record of competing, executing and delivering strong results.
  
  — EVA® is a registered trademark of Stern Stewart & Co.

2006

November 2 - 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, 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 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 25, 2005. 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 very comprehensive. Please note our income statement includes our reported numbers under GAAP as well as a reconciliation to adjusted non-GAAP numbers for the quarter and the year for 2005 and 2006. These adjusted results exclude the share-based compensation charges related to the accelerated vesting as well as the Katrina credits this year and the Katrina charges last year. As our adjusted EPS results were in line with expectations, we will not repeat all of the information included in our release.
  
  Our sales for the fourth quarter increased 16 percent to $1.3 billion. Average weekly sales for all stores were $584,000 translating to sales per square foot of $880. We opened four stores, including one relocation. As expected, three stores opened late in the quarter. Our comparable store sales grew 8.6 percent on top of a 13.4 percent increase in the prior year. Year over year, our average transactions per week increased 4 percent to 3.1 million and our average basket size increased 4 percent to $32.50, in line with our comp breakout last quarter.
  
  We are very proud of our 19 percent sales growth and 11 percent comps for the fiscal year. While we have always produced strong comps, the last three years of consecutive double-digit comps averaging 12.9 percent have been well above our historical 9.5 percent average.
  
  Last quarter, we reported 9.9 percent comps, our first comp below double digits in 10 quarters. This was on top of a 15.2 percent comparison in the prior year, so our 25.1 percent two-year comp was actually higher than it had been in the first and second quarters.
  
  In the fourth quarter, we produced an 8.6 percent comp on top of a 13.4 percent comparison in the prior year. This was a 310 basis point sequential decline in our two-year comp to 22 percent, which was our lowest two-year comp in nine quarters.
  
  We have seen a further decline in comps so far in the current fiscal year - our comps for the last five weeks have averaged 6.8 percent on top of a 13.6 percent increase in the prior year. It is hard to draw a lot of conclusions from such a short time frame particularly given certain holiday shifts which have caused wide fluctuations in our weekly comp; however, because this is a continuation of the downward trend we have been experiencing, we wanted to give you some additional insight to help explain our comp guidance for the fiscal year of 6 to 8 percent.
  
  There is a long list of factors which affect our comps positively and negatively. Some that we believe have had a positive influence include health, demographic and wealth trends which have driven increased awareness and adoption of a natural and organic lifestyle, as well as an appreciation for higher quality and ethnic foods. The combination of the expanding market for natural and organic products as well as our success has led to increased media and PR attention which has certainly helped raise the awareness of the Whole Foods Market brand and has driven sales at both our new and existing stores. Other important positive factors affecting comps include our strong store-level execution, several blockbuster new stores and relocations, and our overall fiercely competitive nature.
  
  When we first started producing double-digit comps back in fiscal 2004 with the Southern California labor strike, we believed that once the strike ended, we would revert back to our historical mean. However, after we had produced our fifth consecutive quarter of double-digit growth, or double digits on top of double digits, and continued to see strong trends in both new and existing stores, it was harder to say when or why that reversion was going to happen.
  
  We now believe that reversion is occurring and that the pendulum may swing to the low side of or even below our historical mean for some period of time. While we cannot state conclusively why our comp trends have changed, we believe it is most likely the result of many factors including the simple math of so many quarters of compounding double-digit comps, heightened competition, fewer relocations in some quarters, a higher degree of cannibalization as well as the continuing impact of Hurricane Katrina. The bottom line is that we know we have a loyal base of core customers who consider shopping at our stores an essential part of their lifestyle, but it appears that through our outperformance over the last few years, we have raised the bar so high that we can't continue to jump over it at the same rate.
  
  We remain highly confident in our business model and our growth strategy. Our company is much stronger today than it was a year ago, and we believe it will be even stronger in the future. Here are some of the reasons why:
  1. Our new stores are producing strong sales from day one and the majority of them are profitable soon after opening.
  2. We have 88 stores in development and continue to sign leases for exciting new stores which will fuel our growth for many years to come. In fiscal year 2006, we opened 13 stores totaling 650,000 square feet and in fiscal year 2007 we expect to exceed that, and open more stores than we have ever opened in any 12-month period in our history.
  3. We will accelerate our sell-side innovation over the next two years as we continue to redefine the marketplace and further differentiate our stores and customer experience from the competition.
  4. We are better positioned from a value and price perspective than we have ever been. Our buy-side initiatives are continuing to deliver opportunities to make us more price competitive - we are leveraging our global buying power to the benefit of our customers
  5. Our private label SKU count increased 21 percent year over year to just under 1,800 SKUs, and our private label sales increased to 17 percent of our total grocery and Whole Body sales, or to 8 percent of all retail sales. We have doubled the resources on our private label team and expect private label to grow to a much higher percentage of our sales over time.
  For these reasons and many others, we remain highly confident and bullish about our future.
  
  Returning to a discussion of the fourth quarter, we opened three stores in Redmond, Washington; Los Altos, California; and Milwaukee, Wisconsin; and relocated one of our Harry's Farmers Market stores in Atlanta to a new location under the Whole Foods Market brand. We ended the quarter and year with 186 stores and approximately 6.4 million square feet in operation.
  
  Our new stores, including two relocations, were 33 weeks old at the end of Q4, averaged 52,000 square feet in size, produced average weekly sales of $550,000 in the quarter and had sales per square foot of $549. In fiscal year 2005 we opened 15 new stores, and this year we opened 13 new stores. We don't have a cookie-cutter store design or real estate strategy in terms of size or market type which is reflected in these new stores which ranged in size from 35,000 to 78,000 square feet and were in markets as diverse as Omaha, Nebraska to New York City.
  
  Our new store productivity metrics are going to vary quarter to quarter and year over year depending on the particular mix of new stores being compared. This isn't necessarily a signal of any improving or declining trends in sales productivity but rather just a reflection that due to the small sample size being compared in a particular quarter, any significant outliers on the positive or negative end can have a big impact on the average results. On average, our new stores continue to outperform our sales projections and are profitable on a four wall basis in their first year; in fact, many are actually profitable on day one.
  
  So far in the first quarter, we have opened two stores in West Orange, New Jersey and Tigard, Oregon and plan to open a store in Seattle, Washington next week and relocate a store in Dallas, Texas in early December. We are excited to see our new store openings start to accelerate. A few expected 2007 store openings that we would like to highlight include:
  - our first Whole Foods Market store in London opening in June, which will be our largest store across the company,
  - our fourth New York City location, a 66,000 square foot store at Bowery and Houston opening in the spring,
  - two large-format stores in the Los Angeles area: a 50,000 square foot store in Manhattan Beach and a 60,000 square foot relocation in Tustin,
  - a 66,000 square foot store in Fairfax, Virginia, and
  - a relocation of our 24,000 square foot Cupertino store to a much larger 63,000 square foot location, which will be our first large-format store in the San Francisco Bay area.
  Our new store pipeline continues to increase with today's announcement of eight new store leases with expected opening dates through 2010. We now have 88 stores under development totaling just under five million square feet or 76 percent of our existing square footage. These stores average 56,000 square feet in size and include 18 relocations and 21 new markets. We believe we have significant growth opportunities ahead of us. None of our current markets are saturated, the top markets allow for a dense concentration of stores and the majority are still underserved; the success we are seeing in some of our new markets indicates there are a lot of opportunities in secondary markets, and we are very excited about what lies ahead in terms of international expansion.
  
  We recently announced that we have extended our long-term relationship with United Natural Foods as our primary supplier of dry grocery and frozen food products. This seven-year agreement will allow us to concentrate our capital and resources on executing on our new store development pipeline, as well as focus our internal distribution efforts around key perishable departments including produce, prepared foods, bakery, seafood and meat.
  
  I will now turn to our growth goals for fiscal year 2007 and beyond. Please refer to our press release for more detailed guidance information.
  
  Please note that fiscal year 2007 will be a 53-week year, with 16 weeks in the first quarter, 12 weeks in the second and third quarters, and 13 weeks in the fourth quarter.
  
  For fiscal year 2007, on a 52-week to 52-week basis, we now expect total sales growth of 13 to 17 percent and are initiating comparable store sales growth guidance of 6 to 8 percent. In the first quarter, we have already opened two stores representing approximately 108,000 square feet, and all of our 13 tendered stores, representing approximately 690,000 square feet, are expected to open this fiscal year. Just to clarify, the tender date is the date we gain access to the site and can begin the construction process. With the release of our first quarter results in mid-February, we expect to announce five additional store tenderings for openings in fiscal 2007, translating to expected total year-over-year ending square footage growth of approximately 16 percent.
  
  Given our lowered sales growth expectations, we now expect growth in operating income before pre-opening and relocation costs to be in line with or slightly lower than our sales growth.
  
  We expect total pre-opening and relocation costs for fiscal year 2007 to be in the range of $68 million to $74 million. This significant year-over-year increase is due primarily to the anticipated acceleration in leases tendered and square footage opening in fiscal years 2007 and 2008, including the opening of 18 to 20 new stores this fiscal year. Approximately $18 million to $24 million of the total pre-opening relates to stores expected to open in fiscal year 2008. These ranges are based on estimated tender dates which are subject to change.
  
  We expect significantly higher-than-average pre-opening expense in fiscal year 2007 of approximately $7 million related to our first Whole Foods Market store in London. Excluding this store, we expect total pre-opening and relocation expense for stores opening in fiscal 2007 to average approximately $2.4 million per store. This is higher than the average for stores that opened in fiscal year 2006 due primarily to higher accelerated depreciation related to relocations. On an average weekly basis, we expect quarterly pre-opening and relocation expense to be fairly even throughout the fiscal year.
  
  We expect our materially higher pre-opening and relocation costs to significantly impact our fiscal year 2007 diluted earnings per share growth.
  
  We hope we have given enough information to communicate that we believe our long-term growth story is very much intact and that our management team is very bullish about fiscal 2007 and beyond. After producing such strong growth over the last three years, we believe fiscal 2007 will be a transition year for us. As we revert back to our historical comparable store sales growth range, without yet producing a fully offsetting increase in sales from new stores, we believe our total sales growth will be impacted. However, having opened six new stores over the last two months, we believe we are just beginning to execute on delivering an acceleration in store openings that will drive strong sales and comps in the not-so-distant future. We encourage our shareholders to stay focused on the long term. We are constantly evolving, innovating and maturing and have a demonstrated track record of competing, executing and delivering strong results.
  
  Whole Foods Market is about much more than just selling "commodity" natural and organic products. We are a lifestyle retailer and have created a unique shopping environment built around satisfying and delighting our customers. Our stores feature over 30,000 natural and organic SKUs, and our emphasis on the highest quality perishables, which are just under 70 percent of our sales and gradually increasing, broadens our appeal beyond the core natural and organic food customer.
  
  We adhere to the highest quality standards, and our empowerment culture comprised of 90 percent full-time team members fosters continual improvement and innovation. We are the leader, not a follower, and we walk our talk when it comes to our quality standards and our commitment to the environment. It is because of this commitment that our core shoppers shop with us, and when crossover shoppers make a true conversion they tend to trade up to Whole Foods Market as we are seen as the authentic healthier lifestyle retailer of natural and organic products.
  
  Our business model is very successful and continues to benefit all of our stakeholders. We are executing at a high level, continuing to produce much higher sales, comps and sales per square foot than any of our competitors. Given our strong historical sales growth, record store development pipeline, and anticipated 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 brand continues to strengthen.
July 31 - 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, 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 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 25, 2005. 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.
  
  I am hoping you have all had a chance to read our press release. Rather than repeat all of the information included in that release, I will focus on providing some additional color on the quarter and our thoughts for the future.
  
  To recap our third quarter results, we again produced strong top and bottom-line growth. Sales increased 18 percent to $1.3 billion driven by 14 percent weighted average year-over-year square footage growth and 9.9 percent comparable store sales growth. We are very pleased with our comps particularly given our 15.2 percent comparison in the prior year. These results translate to a 25.1 percent two-year comp, the highest we have produced this year. Average weekly sales for all stores hit a record $605,000 leading to record high sales per square foot of $932.
  
  Our comparable store base of 170 stores averages 32,900 square feet and is 7.7 years old on a square foot adjusted basis. Our 9.9 percent comparable store sales increase was due to a 50/50 breakout in the number of customer transactions to average basket size, a slight shift toward average basket from our historical 60/40 proportionate breakout.
  
  For the quarter, our new stores averaged 50,200 square feet in size, produced average weekly sales of $578,000 and had sales per square foot of $598. We don't have a cookie-cutter store design in terms of size or market type, so these metrics are likely to show some variation quarter to quarter and year over year depending on the particular mix of new stores being compared. We have opened 15 or fewer stores per year for the last three years so any blockbuster stores, like our stores in New York and Austin, have had a large positive impact on the new store average. This quarter, Union Square and Lamar dropped out of the new store category which is the main reason for this quarter's sequential and year-over-year decline in sales per square foot for new stores.
  
  We believe a better indication of our new store productivity is to look at trends over a longer period which smoothes out the particular mix of new stores being compared. For example, over the last five fiscal years, while our average store size has increased 22 percent, our average weekly sales per store have increased 65 percent or triple that amount, and we have seen our average contribution per store increase 58 percent, or more than two-and-a-half times the increase in store size.
  
  We continue to find many opportunities to lower our cost of goods sold, and we selectively pass on those savings to our customers as lower prices. While our customers are not primarily focused on price, we are always seeking ways to improve our value image particularly with regards to commodity-type products. We aim to be competitively priced on a market-by-market basis on these types of items and on identical product brands in grocery and Whole Body; however, our perishables, which are 68 percent of sales, may be priced at a premium to reflect the higher quality, broader selection, and better customer service available in our produce, meat, seafood, bakery, specialty and prepared foods departments. Our consistently robust sales, comps, and gross profit seem to indicate that this has been a successful strategy.
  
  One way we have improved our value image is through our private label products which give us an opportunity to lower our prices through our scale and buying practices. Whole Foods is the established brand with our customers. We recognize we have an opportunity to extend our brand equity with these products that communicate our broader quality, selection, and mission. Our private label SKU count increased 21 percent year over year to just under 1,700 SKUs, and our private label sales increased to 17 percent of our total grocery and Whole Body sales. We are committing additional resources to our private label team and expect private label to grow to a much higher percentage of our sales over time.
  
  Our year-to-date results as a percentage of sales for gross profit, direct store expenses and G&Amp;A are within our five-year historical ranges and averages and in line with our stakeholder philosophy of producing earnings growth through sales growth rather than through significantly leveraging these particular line items. While our comparable stores have historically produced year-over-year leverage in gross profit and direct store expenses, this typically has been offset wholly or partially by the lower gross profit and higher direct store expenses of our new stores.
  
  For the quarter, net income increased 33 percent to $54 million, and diluted earnings per share increased 27 percent to $0.37. We produced operating cash flow of $0.86 per share, and Economic Value Added improved $11 million to $21 million.
  
  We continue to produce very strong cash flow from operations. Year to date, we have produced $342 million in cash from operations and have received $209 million in proceeds from stock option exercises. We have self-funded $198 million in capital expenditures, of which $111 million was for new stores, and we have paid $337 million to shareholders in cash dividends. At the end of the quarter, our total cash and investments were $397 million, and our only long-term debt was down to $9 million.
  
  In the third quarter, we opened a 45,000 square foot store in Greenville, South Carolina and closed a 2,600 square foot Fresh & Wild store in the U.K. We ended the quarter with 183 stores and approximately 6.2 million square feet in operation. Four stores, including one relocation and representing approximately 230,000 square feet, are expected to open in the fourth quarter bringing our net square footage opened for the year to approximately 560,000 square feet, or a 10% increase year over year. Three of these stores are expected to open at the end of the fourth quarter.
  
  Over the last four quarters, we have opened 14 new stores, including one relocation. Six of these stores were in new markets, which we define as markets where the store is not expected to cannibalize any existing stores. The new stores averaged 50,400 square feet in size, had an average tender period of 9.6 months and had average pre-opening expense of $2.1 million per store.
  
  Our new store pipeline continues to increase with today's announcement of 8 new store leases with expected opening dates through 2009. In addition, we are very excited that we have expanded the lease for our highly successful store in Boulder from 39,000 to 74,000 square feet. We now have 86 stores under development totaling 4.8 million square feet or 78 percent of our existing square footage. These stores average 55,000 square feet in size, and 17 are in new markets. We believe we have significant growth opportunities ahead of us. None of our current markets are saturated, the top markets allow for a dense concentration of stores and many are still underserved, the success we are seeing in some of our new markets indicates there are a lot of opportunities in secondary markets, and we are still very excited about what lies ahead in terms of international expansion.
  
  I will now turn to our growth goals for fiscal year 2006 and beyond. Please refer to our press release for more detailed guidance information.
  
  For fiscal year 2006, we expect sales growth in the range of 18 to 21 percent, comparable store sales growth of 10 to 12 percent, and weighted average square footage growth in line with our 14 percent historical average.
  
  Based on our better-than-expected year-to-date diluted earnings per share of $1.13, we now expect diluted earnings per share growth for the year to be in line with or slightly higher than sales growth. As in our previous guidance, this excludes the $16.5 million in costs relating to Hurricane Katrina in fiscal year 2005, share-based compensation expense in fiscal years 2005 and 2006, and uses a 40 percent tax rate in both years.
  
  Please note that fiscal year 2007 will be a 53-week year, with the fifty-third week occurring in the fourth quarter.
  
  For fiscal year 2007, on a 52-week to 52-week basis, we expect sales growth of 15 to 20 percent.
  
  Of the 86 stores in development, 14 leases representing over 750,000 square feet have been tendered, meaning these projects are now under our control. While our average tender period will vary depending on the mix in markets and project type, for stores opened over the last four quarters our average tender period has been 9.6 months.
  
  Four of our tendered stores are expected to open in the fourth quarter this year and the ten remaining stores, representing approximately 520,000 square feet, are expected to open in fiscal year 2007. Note, this 520,000 square feet is equal to roughly 78 percent of the square footage we plan to open in all of 2006, and we expect to announce additional stores tendered for openings in 2007 over the next two quarters. Therefore, we expect our year over year ending square footage growth for fiscal year 2007 to be significantly higher than the 10% we expect this year.
  
  We expect growth in operating income before pre-opening for fiscal year 2007 to be in line with sales growth. While fluctuations in the number of new store openings each year and quarter over quarter could result in some temporary negative impact on store contribution, we currently anticipate that any such impact would not be material and thus we expect store contribution as a percentage of sales to be in line with our historical results.
  
  The anticipated acceleration in leases tendered and square footage opening in 2007 is expected to result in materially higher pre-opening and relocation costs year over year which, correspondingly, is expected to impact our diluted earnings per share growth.
  
  This is a good year to point out the increasing divergence between GAAP EPS and operating cash flow per share. Many of the expenses we now have to account for are actually non-cash, such as share-based compensation, or are recognized in advance of the actual cash expenditure, such as pre-opening rent expense. We expect to continue to produce strong operating cash flow and hope that our investors will increasingly focus on this metric as a better indicator of the health of our business and the sustainability of our model rather than simply looking at GAAP calculated earnings per share.
  
  Turning to our longer term goals, we want to be the best food retailer in every market in which we operate. Our goal is to reach $12 billion in sales in the year 2010.
  
  Due to our success, we have seen many competitors over the years add a limited selection of 500 to 2,000 natural and organic SKUs. To understand why this has not hurt us, but has instead created a gateway experience as evidenced by our strong historical comps, you have to understand that Whole Foods Market is about much more than just selling "commodity" natural and organic products.
  
  We are a lifestyle retailer and have created a unique shopping environment built around satisfying and delighting our customers. Our stores feature over 30,000 natural and organic SKUs and our emphasis on the highest quality perishables, which are just under 70 percent of our sales and gradually increasing, broadens our appeal beyond the core natural and organic food customer. We adhere to the highest quality standards, and our non-union empowerment culture comprised of 90 percent full-time team members fosters continual improvement and innovation. We are a leader, not a follower, and we walk our talk when it comes to our quality standards and our commitment to the environment.
  
  We are determined that we can and should do more to promote local agriculture. We believe that, in general, local foods are fresher and therefore more nutritious and better tasting, and use smaller amounts of fossil fuels in their supply chain and thus are better for the environment. We intend to strengthen our local sourcing resources and are planning to experiment with supporting local farmers markets by having some of our stand-alone stores across the United States, Canada and the U.K. host local farmers markets.
  
  We believe these initiatives speak to the fundamental integrity of Whole Foods Market and to our commitment to our core value of selling the highest quality natural and organic foods available. It is because of this commitment that our core shoppers shop with us and when crossover shoppers make a true conversion they tend to trade up to Whole Foods Market as we are seen as the authentic healthier lifestyle retailer of natural and organic products.
  
  Our business model is very successful and continues to benefit all of our stakeholders. We are executing at a high level, posting strong sales, comps, earnings, operating cash flow and EVA growth. Given our strong historical sales growth, record store development pipeline, and anticipated acceleration in square footage growth, 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 brand continues to strengthen.
  
  — EVA® is a registered trademark of Stern Stewart & Co.
May 3 - 2nd Quarter Results
- Good afternoon. Joining me today are Walter Robb and A.C. 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 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 25, 2005. The Company does not undertake any obligation to update forward-looking statements.
  
  Our press release includes an income statement, balance sheet and cash flow statement, all of which are now available on our website at www.wholefoodsmarket.com along with the scripted portion of this call.
  
  I am hoping you have all had a chance to read our press release. Rather than repeat all of the information included in that release, I will focus on providing some additional color on the quarter and our thoughts for the future.
  
  To recap our second quarter results, we again produced strong top and bottom line growth. Sales increased 21% to $1.3 billion driven by 14% weighted average year-over-year square footage growth and 11.9% comparable store sales growth including an estimated 55 basis point negative impact from Easter shifting from the second quarter last year into the third quarter this year. We have produced double-digit comps for ten consecutive quarters, and we are gaining market share at an even faster rate than we have historically with our five-year average comp running just over 11%.
  
  Our comparable store base of 168 stores, averages 32,500 square feet, and is 7.6 years old on a square foot adjusted basis. Our 11.9% comparable store sales increase was due to a 7% increase in the number of customer transactions and a 5% increase in the average amount per transaction, in line with our historical proportionate breakout.
  
  For the quarter, our new stores averaged 50,500 square feet in size, produced record average weekly sales of $684,000 and had sales per square foot of $705. Even though our new stores are 58% larger than our identical stores, they are highly productive with sales per square foot at 73% of our identical stores, compared to 71% in the prior year.
  
  We continue to find many opportunities to lower our cost of goods sold, and we selectively pass on those savings to our customers as lower prices. While our customers are not primarily focused on price, we are always seeking ways to improve our value image particularly with regards to commodity-type products. We aim to be competitively priced on a market basis on these types of items and on identical product brands in grocery and Whole Body. However, our perishables, which are 67% of sales, may be priced at a premium to reflect the higher quality, broader selection, and better customer service available in our produce, meat, seafood, bakery, specialty and prepared foods departments. Our consistently robust sales, comps, and gross profit seem to indicate that this has been a successful strategy.
  
  One way we have improved our value image is through our private label products which give us an opportunity to lower our prices through our scale and buying practices. Whole Foods is the established brand with our customers. We recognize we have an opportunity to extend our brand equity with these products that communicate our broader quality, selection, and mission. Our private label SKU count increased 14% year over year to just under 1,700 SKUs and our private label sales increased to 16% of our total grocery and Whole Body sales. We expect private label to grow to a much higher percentage of sales over time.
  
  Our year-to-date results as a percentage of sales for gross profit, direct store expenses and G&Amp;A are within our five-year historical ranges and averages and in line with our stakeholder philosophy of producing earnings growth through sales growth rather than through significantly leveraging these particular line items.
  
  Net income increased 27% to $51.8 million and diluted earnings per share increased 20% to $0.36. We produced operating cash flow of $0.88 per share, and Economic Value Added improved $8.8 million to $19.2 million.
  
  Year to date, we have produced $217 million in cash from operations and have received $168 million from stock option exercises. We have self-funded $123 million in capital expenditures, of which $66 million was for new stores, and we have paid $316 million to shareholders in cash dividends. At the end of the quarter, we had cash and cash equivalents, including restricted cash, of $329 million, and long-term debt of $15 million.
  
  In the second quarter, we relocated one store in Alexandria, Virginia, opened two new stores in Woburn, Massachusetts, and Henderson, Nevada, and completely re-opened our two New Orleans stores. We also acquired one small store in Portland, Maine, which we plan to relocate to a larger store we currently have in development. We ended the quarter with 183 stores and approximately 6.2 million square feet in operation.
  
  In the third quarter, we have opened one new store in Greenville, South Carolina. We plan to open three to four additional stores in the fourth quarter, all but one of which will be opening in the last few weeks of the fiscal year.
  
  Our new store pipeline continues to increase with today's announcement of nine new store leases with expected opening dates through 2009. We now have 78 stores averaging 55,400 square feet under development of which 16 are in new markets. We believe we have significant growth opportunities ahead of us. None of our current markets are saturated, the top markets allow for a dense concentration of stores and many are still underserved, the success we are seeing in some of our new markets indicate there are lots of opportunities in secondary markets, and we are still very excited about what lies ahead in terms of international expansion.
  
  The first store we opened back in 1980 was 10,000 square feet which at the time was one of the largest natural and organic foods stores. Since then, we have continued to increase the size of our stores which we believe has been a significant factor in broadening our customer appeal. For example, over the last five fiscal years, while our average store size has increased 22%, our average weekly sales per store have increased 65% or triple that amount. We also believe larger stores will lead to higher returns as they will take longer to reach capacity while creating a higher barrier to entry. Over the last five years, we have seen our average contribution per store increase 58%, or more than two-and-a-half times the increase in store size.
  
  We currently operate eight stores within the 60,000 to 80,000 square-foot range and have 29 stores of that size in development through 2009. The five stores in the 60,000 to 80,000 square foot range that we developed ourselves are just under 1 ½ years old. They are off to a strong start which adds to our confidence about the higher future returns of these larger stores.
  
  I will now turn to our growth goals for fiscal year 2006 and beyond. Please refer to our press release for more detailed guidance information.
  
  Whole Foods Market is an EVA driven company  we are focused on delivering growth and long-term returns on invested capital. We have produced very consistent gross profit, direct store expenses, and G&Amp;A results as a percentage of sales over time and believe that we will produce earnings growth through sales growth rather than through significant operating leverage. We believe our historical results are the best indicator of our future results; however, due to fluctuations in the number of new store openings each year and quarter over quarter, there could be some temporary negative impact on store contribution, as new stores generally have lower gross profit and higher direct store expenses as a percentage of sales than more mature stores. A significant acceleration in leases tendered and new store openings could also lead to materially higher pre-opening and relocation costs year over year.
  
  Based on our strong 21% sales growth year to date, we now expect sales growth for fiscal year 2006 at the high end of our previously stated range of 18 to 21%. We still expect weighted average square footage growth in line with our 14% average but now expect higher comparable store sales growth of 10 to 12%, versus our previous guidance range of 8 to 11%.
  
  We expect pre-opening and relocation expense in the third quarter to be slightly higher than in the second quarter and then increase to approximately $13 million to $15 million in the fourth quarter due to an anticipated higher number of new store openings early in fiscal year 2007.
  
  Excluding the $16.5 million in cost relating to Hurricane Katrina in fiscal year 2005 and share-based compensation expense in fiscal years 2005 and 2006, and using a 40% tax rate in both years, we continue to expect diluted earnings per share growth to be slightly less than our sales growth due to an estimated increase of approximately 5% to 6% in diluted shares outstanding resulting from an expected year-over-year increase in stock price and stock option exercises.
  
  We currently have 78 stores in development, of which 11 leases have been tendered, meaning those projects are now under our control. It typically takes on average six months from a lease tender date for us to open the store but sometimes can take longer depending on the market and type of project. We continue to believe that we will see an accelerated number of store openings next year, and correspondingly, an increase in our year over year weighted average square footage growth. As of today, we are estimating our square footage growth in fiscal year 2007 to be in the range of 15% to 20%. We plan to give further guidance regarding 2007 with our third quarter announcement but will not be giving any further guidance at this time.
  
  Due to our success, we have seen many competitors over the years add a limited selection of natural and organic commodity products. To understand why that has not hurt us, but has instead created a gateway experience as evidenced in part by our accelerating comps over the last five years, you have to understand that Whole Foods Market is about much more than just selling commodity natural and organic products.
  
  Our goal is to be the best food retailer in every market in which we operate. Our stores feature over 30,000 natural and organic SKUs; however, our emphasis on the highest quality perishables, which are just under 70% of our sales and gradually increasing, is what broadens our appeal beyond the core natural and organic food customer. We are a lifestyle brand and have created a unique shopping environment built around satisfying and delighting our customers. We adhere to the highest quality standards, and our non-union empowerment culture comprised of 90% full-time team members fosters continual improvement and innovation.
  
  Our business model is very successful and continues to benefit all of our stakeholders. We are executing at a high level, posting strong sales, comps, earnings, and EVA growth. Given our current sales momentum and record store development pipeline, 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 brand continues to strengthen.
  
  — EVA® is a registered trademark of Stern Stewart & Co.
February 8 - 1st Quarter Results
- Good afternoon. Joining me today are Walter Robb and A.C. Gallo, Co-Presidents and Chief Operating Officers, Glenda Flanagan, Executive Vice President and Chief Financial Officer, 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 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 Forms 10K for the fiscal year ended September 25, 2005. The Company does not undertake any obligation to update forward-looking statements.
  
  Our press release includes an income statement, balance sheet and cash flow statement, all of which are now available on our website at www.wholefoodsmarket.com along with the scripted portion of this call.
  
  I am hoping you have all had a chance to read our press release. Rather than repeat all of the information included in that release, I will focus on providing some additional color on the quarter and on our thoughts for the future. Please note all references to shares outstanding and earnings per share amounts have been adjusted to reflect our 2-for-1 stock split on December 27th.
  
  To recap our first quarter results, we again produced strong top and bottom line growth. Sales increased 22 percent driven by 15 percent weighted average year-over-year square footage growth and 13 percent comparable store sales growth. We have now produced double-digit comps for nine quarters in a row with strength in sales across all regions, all departments and all age classes of stores. Our new stores not included in the comp base continue to produce very strong sales averaging $623,000 per week compared to $585,000 for all stores. And, despite the fact that our average store size continues to grow, our sales per gross square feet increased to a record level of just over $900.
  
  Our gross profit, direct store expenses and G&Amp;A results as a percentage of sales were within our five-year historical ranges and in line with our stakeholder philosophy of producing earnings growth through sales growth rather than through significantly leveraging these particular line items.
  
  Due to seasonality, our gross margin is typically lower in the first quarter than for the remainder of the year, averaging 34.2 percent over the past five years. However, in any given quarter, our gross margins may be up or down depending on sales mix, our execution, the percent of sales from new stores, the impact of weather, natural disasters or a host of other factors, including inflation. We believe our historical annual results, which have consistently been in the range of 34 to 35 percent of sales, continue to be the best indicator of our future results. We have initiatives in place to drive better purchasing, which we usually pass on to our customers as lower prices. Our pricing strategy continues to be market driven; we aim to be competitively priced on the same or similar items in grocery and Whole Body, while our perishables, which are just under 70 percent of sales, may be priced at a premium to reflect the higher quality of product available in our stores. Our consistently robust sales, comps, and gross margins seem to indicate that we are striking the right balance here.
  
  Including $1.1 million in share-based compensation expense, net income increased 26 percent to $58.3 million on top of a 26 percent increase last year, and diluted earnings per share increased 17 percent to $0.40 on top of a 21 percent increase last year. Our above average five percent increase in fully diluted shares outstanding year-over-year was due to the significant 61 percent increase in our average stock price over that time, along with a considerable increase in stock option exercises following the accelerated vesting of all options in late September. We had a sizeable increase in investment income due to a large increase in our cash balance; however, this is not expected to continue as we paid out $299 million in cash dividends to shareholders subsequent to the close of the quarter. We produced operating cash flow of $0.61 per share, and Economic Value Added improved $8.7 million to $16.3 million.
  
  We remain focused on our private label programs. Our SKU count increased 12 percent year over year to just under 1,600 SKUs and our private label sales increased to 16 percent of grocery and nutrition sales.
  
  During the quarter we opened five new stores: a 53,000 square foot store in Atlanta, Georgia; a 36,000 square foot store in Jericho, New York; a 47,000 square foot store in West Hartford, Connecticut; a 43,000 square foot store in West Palm Beach, Florida; and a 60,000 square foot store in Denver, Colorado. Jericho, West Hartford and West Palm Beach are all new markets for us. We ended the quarter with 180 stores and approximately six million square feet in operation.
  
  So far in the second quarter, we have relocated a store in Alexandria, Virginia to a new 41,000 square foot store, acquired a small store in Portland, Maine which we will relocate when we open our 45,000 square foot store currently under development there, and re-opened our New Orleans store which had been closed since Hurricane Katrina. As of today, we have opened 18 new stores over the last 12 months. We plan to open two additional stores in the second quarter, a 46,000 square foot store in Woburn, Massachusetts and a 50,000 square foot store in Henderson, Nevada; as well as fully re-open our store in Metairie, Louisiana which was also closed due to Hurricane Katrina but has been operating in a limited capacity since early November of last year.
  
  Our new store pipeline continues to increase with today's announcement of 10 new store leases totaling 535,000 square feet and with expected opening dates through 2009. The leases are as follows: a 50,000 square foot store in Wellington, Florida; a 67,000 square foot store in Honolulu, Hawaii; a 29,000 square foot store in Sonoma, California; a 35,000 square foot store in Napa, California; a 60,000 square foot store in Northbrook, Illinois; an 80,000 square foot store in Chicago, Illinois; a 60,000 square foot store in Philadelphia, Pennsylvania; a 46,000 square foot store in Seattle, Washington; a 60,000 square foot store in Richmond, Virginia; and a 50,000 square foot store in Reno, Nevada.
  
  We are particularly excited about our 80,000 square foot site in Chicago which will be a relocation of our highly successful Lincoln Park store, as well as the signing of our first store in Hawaii.
  
  We remain excited about the tremendous growth opportunities that lie ahead for us. We have announced seven or more newly signed leases in each of the last ten quarters and now have 72 stores and four million square feet under development through 2009, representing 66 percent of our existing square footage.
  
  Over the last five fiscal years, our average store size has increased 22 percent, while our average weekly sales per store have increased 65 percent, and our average contribution per store has increased 58 percent. We are confident about the potential future returns of larger stores, as we believe they appeal to a broader customer base, take longer to reach maximum capacity, and are less vulnerable to competition as they create a higher barrier to entry. We currently operate eight stores within the 60,000 to 80,000 square-foot range, with an additional 25 stores of that size in development, including eight relocations.
  
  We produced $89 million in cash from operations allowing us to self fund $69 million in capital expenditures of which $35 million was for new stores. In addition, we paid $17 million to shareholders in cash dividends. Year over year, we increased cash and cash equivalents, including restricted cash, by $246 million to $508 million, and reduced total long-term debt by $86 million to $15 million due primarily to voluntary conversions on the part of our bond holders.
  
  During the quarter, roughly 2.9 million stock options were exercised, and we received proceeds from the issuance of stock of approximately $130 million. In addition, holders of our Zero Coupon Convertible Debentures voluntarily converted approximately 7,000 bonds into 145,000 shares of common stock resulting in a $3.6 million decrease in our convertible debentures to $9.3 million at the end of the first quarter. On January 23, 2006, subsequent to the end of the first quarter, we paid shareholders approximately $299 million in cash dividends.
  
  To turn to some other quarterly highlights, we were very happy to join the S&P 500 index in December. This was followed by the announcement that we had once again earned a spot on FORTUNE magazine's annual list of "the 100 Best Companies to Work For" coming in at No. 15, our highest ranking ever. We are one of only 20 companies to be ranked every year since the list's inception nine years ago.
  
  In keeping with our core value of caring about our communities and our environment, we recently strengthened our commitment to be a leader in environmental stewardship by making the largest wind energy credit purchase in the history of the U.S. and Canada, becoming the only Fortune 500 Company to purchase enough wind energy credits to offset 100 percent of its electricity use.
  
  Additionally, our shoppers helped raise more than $650,000 during a recent "Global Five Percent Day" whereby we donated five percent of our sales on that day to continue the work of the Animal Compassion Foundation. The Foundation is an independent non-profit organization created last year with a mission to improve the quality of life of farm animals by helping producers achieve a higher standard of animal welfare excellence. We are dedicated to bringing the same level of visibility to animal welfare that now exists for natural and organic foods.
  
  I will now turn to our growth goals for fiscal year 2006 and beyond. Please refer to our press release for more detailed guidance information.
  
  Whole Foods Market is an EVA^® driven company  we are focused on delivering growth and long-term returns on invested capital. Regarding guidance, our goal continues to be to move away from giving detailed line-item guidance or quarterly guidance. We are fortunate that we can do this based on the consistency of our historical results and their relevance to the future. We would like to focus the investment community on our longer term growth goals and on our guidance for the current year's sales, comps, square footage growth and diluted earnings per share growth relative to achieving those longer term goals.
  
  For fiscal year 2006, we are reiterating our 18 to 21 percent sales growth guidance. We continue to expect comparable store sales growth of 8 to 11 percent and weighted average square footage growth in line with our five-year average of 14 percent.
  
  We have produced very consistent gross profit, direct store expenses, and G&Amp;A results as a percentage of sales over time and believe that we will produce earnings growth through sales growth rather than through significant operating leverage. We believe our historical results are the best indicator of our future results; however, due to fluctuations in the number of new store openings each year and quarter over quarter, there could be some negative impact on store contribution, as new stores generally have lower gross profit and higher direct store expenses as a percentage of sales than more mature stores.
  
  Excluding the $16.5 million in costs relating to Hurricane Katrina in fiscal year 2005 and share-based compensation expense in fiscal years 2005 and 2006, and using a 40 percent tax rate in both years, we expect diluted earnings per share growth to be slightly less than our guidance range for sales growth of 18 to 21 percent. This is due to an estimated increase of approximately 5 to 6 percent in diluted shares outstanding resulting from an expected year-over-year increase in stock price and stock option exercises. We expect share-based compensation in the second quarter to be in line with the first quarter on an average weekly basis and then increase to approximately $2 to $3 million in the third and fourth quarters, as our annual grant date at which the majority of options are granted is early in the third quarter. As we have stated, our intention is to keep our broad-based stock option program in place but limit future shares granted so that quarterly net income dilution from share based compensation expense will ramp up but not exceed 10% over time. We believe this strategy is best aligned with our stakeholder philosophy because it limits earnings dilution while retaining our broad base plan which we believe is important to our team member morale, our unique corporate culture and our success.
  
  Our business model is very successful and continues to benefit all of our stakeholders. We are executing at a high level, posting strong sales, comps, earnings, and EVA growth. Given our current sales momentum and record store development pipeline, we believe we are well positioned to achieve our goal of $12 billion in sales by 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 brand continues to strengthen.
  
  — EVA® is a registered trademark of Stern Stewart & Co.

2005

November 9 - 4rd Quarter Results
- Good afternoon. Joining me today are Walter Robb and A.C. Gallo, Co-Presidents and Chief Operating Officers, Glenda Flanagan, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Business 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 timely development and opening of new stores, the impact of competition, and other risks detailed from time to time in the Company's SEC reports, including the report on Form 10K-A Amendment No. 2 for the fiscal year ended September 26, 2004. The Company does not undertake any obligation to update forward-looking statements.
  
  Please note that our press release includes an income statement, balance sheet and cash flow statement, all of which are now available on our website at www.wholefoodsmarket.com along with the scripted portion of this call.
  
  Good afternoon and thank you for joining us. I am hoping you all have had a chance to read our earnings press release as well as the press release announcing our new cash management strategy. Rather than repeat all of the information included in those releases, I will focus on adding some additional color on the quarter, fiscal year and our thoughts on the future. We apologize for the complex accounting issues, but the bottom line is that we produced very strong results this year. Our guidance going into fiscal 2005 was for annual sales growth in the range of 15 percent to 20 percent and earnings growth slightly below that. We met or exceeded that guidance with sales growth over 20 percent and pro forma EPS growth just below that.
  
  To recap our fourth quarter results, we once again produced strong top and bottom line growth. Despite the negative impact from Hurricane Katrina, sales increased 20 percent driven by 13 percent weighted average year-over-year square footage growth and 13.4 percent comparable store sales growth. This was our eighth consecutive quarter of double-digit comps. We continue to see strength in sales across all regions, all departments and all age classes of stores. Our new stores continue to open with very strong sales  averaging $590,000 per week in the quarter compared to $542,000 for all stores. Our sales per gross square feet in fiscal 2005 were $869.
  
  Our gross margin, direct store expenses and G&Amp;A results as a percentage of sales were consistent with our historical averages and with our stakeholder philosophy of producing earnings growth through sales growth rather than through significantly leveraging these particular expenses.
  
  In any given quarter, our gross margins may be up or down depending on our execution, the mix of sales from new stores, the impact of weather or a host of other factors, including inflation. We believe our historical results, which have consistently been in the range of 34 to 35 percent of sales, continue to be the best indicator of our future results as we have not changed our long-term strategy. We have initiatives in place to drive better purchasing, which we usually pass on to our customers as lower prices. Our pricing strategy continues to be market driven; we aim to be competitively priced on the same or similar items in grocery and Whole Body, while our perishables may be priced at a premium to reflect the higher quality of product available in our stores. Our consistently robust sales, comps, and gross margins seem to indicate that we are striking the right balance here.
  
  For the quarter, pre-opening and relocation expenses, excluding the pre-opening rent accounting adjustment were $9.1 million, versus $3.7 million in the prior year. This total was higher than our prior guidance by approximately $2 million for several reasons. Pre-opening costs per store are rising - primarily because the store size and number of prepared foods venues are increasing - and we did have one store in the quarter which was significantly over budget on pre-opening. The good news is that store is another home run for us with early sales significantly exceeding our projections.
  
  For the year, we produced EVA^® increased $6.6 million to $10.4 million. Improvement of over $8 million compared to the prior year, and we produced free cash flow of $88 million, a 93% increase over $45 million in the prior year.
  During the fourth quarter we opened five new stores: a 51,000 square foot store in Baton Rouge, Louisiana; a 74,000 square foot store in Columbus, Ohio; a 59,000 square foot store in Denver, Colorado; a 38,000 square foot store in Boston, Massachusetts; and a 61,000 square foot store in Omaha, Nebraska. Baton Rouge, Omaha and Columbus are new markets for us. We ended the year with 175 stores and 5.8 million square feet in operation.
  So far in the first quarter, we have opened four new stores including a 52,000 square foot store in Atlanta; a 36,000 square foot store in Jericho, New York; a 43,000 square foot store in West Hartford, Connecticut, and a 41,000 square foot store in Palm Beach Gardens, Florida. We plan to open one additional 55,000 square foot store in Denver, Colorado in the current quarter.
  
  We are also pleased to announce that our Metairie store near New Orleans, which was closed following Hurricane Katrina, has recently reopened for business on a limited basis. While the store will require a complete re-building, we have opened an 11,000 square-foot "store within a store" in order to provide food to the community while simultaneously rebuilding the perimeter of the store, which we hope complete over the next three to six months. Also, we are now offering pick-up service at our urban New Orleans store and hope to re-open that store within the next three to six months as well.
  
  Our new store pipeline continues to increase with today's announcement of nine new store leases totaling 549,000 square feet. The stores range in size from 50,000 to 80,000 square feet with an average size of 61,000 square feet and are as follows: a 60,000 square foot store in Chandler, Arizona; a 50,000 square foot store Orlando, Florida; a 52,000 square foot store in Eugene, Oregon; a 56,000 square foot store in Tarzana, California (a Los Angeles suburb); a 65,000 square foot store in Plymouth Meeting, Pennsylvania (a Philadelphia suburb); an 80,000 square foot store in Dallas, Texas; a 61,000 square foot store in Reading, MA (a Boston suburb); a 50,000 square foot store in Connecticut and a 75,000-square-foot store in London.
  
  We are excited to extend the Whole Foods Market mission and brand beyond the United States and Canadian borders and into Europe. The U.K. was an obvious first choice due to the advanced acceptance of organic foods and the lack of a language barrier. We believe this spacious urban location positions us to duplicate the tremendous success Whole Foods Market has experienced in metropolitan cities in the United States, most notably New York City, by providing Londoners with a fresh and innovative choice in shopping for the most delicious and high quality foods. This is our first step in expanding the Whole Foods Market brand in the U.K. and ultimately into other parts of Europe, where we believe the long-term growth potential is tremendous.
  
  We have been working hard to capitalize on the tremendous growth opportunities that lie ahead for us and have announced seven or more newly signed leases in each of the last nine quarters. We now have 65 stores and 3.6 million square feet under development, representing 60 percent of our existing square footage. For fiscal year 2006, we expect capital expenditures of between $340 million and $360 million, of which approximately 60% is related to new stores.
  
  We currently operate eight stores within the 60,000 to 80,000 square-foot range, with an additional 21 stores of that size in development, five of which are relocations. We are confident about the potential future returns of these larger stores, as we believe they appeal to a broader customer base, take longer to reach maximum capacity, and are less vulnerable to competition as they create a higher barrier to entry.
  
  For the fiscal year, we produced $411 million in cash from operations which allowed us to self fund $324 million in capital expenditures of which $208 million was for new stores. In addition, we paid $55 million to shareholders in cash dividends. For the fiscal year, we increased cash and cash equivalents, including restricted cash, by $124 million to $345 million, and reduced total long-term debt by $152 million to $19 million due primarily to voluntary conversions on the part of our bond holders.
  
  Since accelerating the vesting of outstanding options at the end of September, we have already received over $80 million in proceeds from stock option exercises, as compared to the $86 million in proceeds from stock option exercises that we received in all of fiscal year 2005.
  
  We are very confident in our future performance and believe we will continue to produce strong cash flow from operations and stock option exercises in excess of our capital expenditure needs. As an EVA company that believes in maximizing returns on invested capital to our shareholders, we are very pleased to announce today a 20% increase in our quarterly dividend to $0.30 per share, a special dividend of $4.00 per share, and a $200 million four-year stock buyback program, along with a two-for-one stock split.
  
  Our priorities for the use and distribution of our excess cash in fiscal year 2006 are to increase our regular quarterly dividend to shareholders, pay a special dividend to shareholders, implement a stock buyback plan and invest additional dollars where appropriate in the ownership versus leasing of our stores.
  
  I will now turn to our growth goals for fiscal year 2006 and beyond. Please refer to our press release for more detailed guidance information.
  
  Whole Foods Market is an EVA driven company - we are focused on delivering growth and long-term returns on invested capital. Regarding guidance, our goal continues to be to move away from giving detailed line item guidance or quarterly guidance. We are fortunate that we can do this based on the consistency of our historical results and their relevance to the future. Instead we would like to focus the investment community on our longer term goals and to provide guidance for the current year on sales, comps, square footage growth and diluted earnings per share relative to achieving those longer term goals.
  
  In fiscal 2005 we produced very strong operating results which exceeded our own expectations and our initial guidance. The strength and consistency of our top-line growth along with the number and quality of the stores in our development pipeline have given us the confidence to raise our 2010 growth goal from $10 billion in sales to $12 billion.
  
  For fiscal year 2006, we are raising our sales growth guidance to 18% to 21% from 15% to 20%. We expect comparable store sales growth of 8% to 11% and weighted average square footage growth in line with our five-year average of 14%.
  
  We have produced very consistent gross margin, direct store expenses, and G&Amp;A results as a percentage of sales over time and believe that we will produce earnings growth through sales growth rather than through significant operating leverage. We believe our historical results are the best indicator of our future results; however, due to fluctuations in the number of new store openings each year and quarter over quarter, there could be some negative impact on store contribution, as new stores generally have lower gross margins and higher direct store expenses than more mature stores.
  
  We expect to return to our historical annualized 40% tax rate in fiscal year 2006. Excluding the $16.5 million in costs relating to Hurricane Katrina in fiscal year 2005 and share-based compensation expense in fiscal years 2005 and 2006, and using a 40% tax rate in both years, we expect diluted earnings per share growth to be slightly less than our increased guidance for sales growth of 18% to 21%. This is due to an expected increase in diluted shares outstanding resulting from an increase in stock option exercises from the accelerated vesting. The expected fully or partially offsetting impact of higher investment income on the increased cash balance will not be realized because of our announced intent to pay approximately $363 million in cash dividends to shareholders in fiscal year 2006.
  
  Our business model is very successful and continues to benefit all of our stakeholders. We are executing at a high level, posting strong sales, comps, earnings, and EVA growth. We are very pleased with our performance this year but believe that the best is yet to come.
  
  Given our current sales momentum and record store development pipeline, we believe we are well positioned to achieve our new goal of $12 billion in sales by 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 brand continues to strengthen.
July 28th - 3rd Quarter Results
- Good afternoon. Joining me today are Glenda Flanagan, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Business Development, Walter Robb, Co-President, Lee Valkenaar, Executive Vice President of Retail 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 timely development and opening of new stores, the impact of competition, and other risks detailed from time to time in the Company's SEC reports, including the report on Form 10K-A Amendment No. 2 for the fiscal year ended September 26, 2004. The Company does not undertake any obligation to update forward-looking statements.
  
  Please note that our press release includes an income statement, balance sheet and cash flow statement, all of which are now available on our website at www.wholefoodsmarket.com along with the scripted portion of this call.
  
  For the third quarter, our sales increased 23 percent to $1.1 billion. This increase was driven by 13 percent weighted average year-over-year square footage growth and 15.2 percent comparable store sales growth. Some of the big contributors to our comparable store sales increase were four relocations and two major store expansions, which combined represented an additional 160,000 square feet, in addition to our Fresh & Wild stores in the U.K. and our Columbus Circle store in New York City, which entered the comp base in the second quarter and continued to comp very well in the third quarter. Sales in identical stores increased 13.2 percent for the quarter. We continue to break new sales records, with average weekly sales reaching $557,000 for all stores and $618,000 for new stores. Our sales per gross square feet year to date were a record $871.
  
  Net income increased 31 percent to $42 million, our diluted earnings per share increased 25 percent to $0.60, and EVA^® increased $6.6 million to $10.4 million.
  
  Gross profit increased 72 basis points to 35.2 percent of sales, and direct store expenses decreased 13 basis points to 25.3 percent of sales, resulting in store contribution of 9.9 percent. General and administrative expenses increased 49 basis points to 3.5 percent of sales.
  
  In any given quarter, our gross margins may be up or down depending on our execution, the mix of sales from new stores, the impact of weather or a host of other factors, including inflation. We believe our historical results, which have consistently been in the range of 34 to 35 percent of sales, continue to be the best indicator of our future results as we have not changed our long-term strategy. We have initiatives in place to drive better purchasing, which we usually pass on to our customers as lower prices. Our pricing strategy continues to be market driven; we aim to be competitively priced on the same or similar items in grocery and Whole Body, while our perishables may be priced at a premium to reflect the higher quality of product available in our stores. Our consistently robust sales, comps, and gross margins seem to indicate that we are striking the right balance here.
  
  We produced $89 million in cash from operations which allowed us to self fund $81 million in capital expenditures of which $51 million was for new stores. In addition, we paid $16 million to shareholders in cash dividends during the quarter.
  
  Our balance sheet continues to improve. From the second to the third quarter, our total cash balance increased $30 million to $361 million, and our total long-term debt decreased $71 million to $19 million. Sixty-five million dollars of this decrease was due to a voluntary conversion by bondholders of approximately 124,000 of our zero coupon convertible bonds to approximately 1.3 million shares of our common stock, which resulted in a decrease in that debt to $13 million at the end of the third quarter.
  
  This quarter we opened three new stores: a 39,000 square foot store in Toronto, Canada, which is our second store in Toronto and third store in Canada, a 48,000 square foot store in Middletown, New Jersey, which is our first store along the Jersey shore, and a relocation of our original 8,600 square foot New Orleans, Louisiana store to a new 52,000 square foot store in Metairie, ending the quarter with 170 stores and 5.5 million square feet in operation.
  
  So far in the fourth quarter, we have opened a 51,000 square foot store in Baton Rouge, Louisiana, and we expect to open four additional stores: a 56,000 square foot store in Denver, Colorado, a 39,000 square foot store in Boston, Massachusetts, a 55,000 square foot store in Omaha, Nebraska, and a 75,000 square foot store in Columbus, Ohio. Baton Rouge, Omaha and Columbus are new markets for us. We expect to end the year with 175 stores and 5.8 million square feet in operation.
  
  Our new store pipeline continues to increase with today's announcement of a record ten new store leases totaling 616,000 square feet. The stores range in size from 45,000 to 77,000 square feet with an average size of 62,000 square feet and are as follows: a 63,000 square foot store in Cupertino, California; a 61,000 square foot store in Hollywood, California; a 45,000 square foot store in San Jose, California; a 55,000 square foot store in Pembroke Pines, Florida; a 67,000 square foot store in Schaumberg, Illinois; a 73,000 square foot store in Minneapolis, Minnesota; a 77,000 square foot store in Paramus, New Jersey; a 68,000 square foot store in South Hills, PA; a 51,000 square foot store in Dallas, Texas; and a 55,000 square foot store in Madison, Wisconsin.
  
  We have been working hard to capitalize on the tremendous growth opportunities that lie ahead for us and have announced seven or more newly signed leases in each of the last eight quarters. We now have 65 stores and 3.5 million square feet under development, representing 64 percent of our existing square footage.
  
  I will now turn to our updated guidance and future growth goals.
  
  For fiscal year 2005, we expect sales growth slightly above our previously stated range of 15 to 20 percent and comparable store sales growth slightly above our previous guidance range of 9 to 11 percent. We expect our weighted average square footage growth to be approximately 13 percent, based on the opening of 15 new stores including three relocations.
  
  We continue to expect diluted earnings per share growth for the year to be lower than sales growth primarily due to the previously announced anticipated one-time charge in the fourth fiscal quarter of approximately $10 to $15 million, caused by the anticipated acceleration in vesting of our outstanding stock options. Pre-opening and relocation expense is expected to be $23 million to $24 million for the year. We expect G&Amp;A expenses for the remainder of the fiscal year to be higher as a percentage of sales compared to the prior year primarily due to the relocation of our headquarters in January, which is expected to add approximately $4 million in G&Amp;A expenses annually. Capital expenditures are expected to be at the high end of our previous $300 to $320 million range.
  
  The Financial Accounting Standards Board ("FASB") recently has issued a proposed FASB Staff Position on accounting for rental costs incurred during the construction period that, if adopted, would require construction-period rentals to be recognized as expense for reporting periods beginning after September 15, 2005. If earlier adoption is permitted, we may decide to retroactively apply these requirements to our fiscal year 2005 and prior-year results to conform to the new accounting rules. Our 2005 guidance excludes any impact from these lease accounting rule changes, as FASB has not issued a final statement. For the first two quarters of fiscal 2005, the earnings impact would be approximately two cents per share each quarter and we estimate it would be approximately $0.03 to $0.04 per share each quarter in the third and fourth quarters. The impact is expected to be higher in the second half of the year primarily due to there being more stores under construction.
  
  For 2006, we expect total sales and earnings growth of 15 to 20 percent despite difficult comparisons due to our above-average results in 2004 and so far in 2005. We also expect our weighted average year-over-year increase in square footage to be in line with our stated 15 percent goal.
  
  Our business model is very successful and continues to benefit all of our stakeholders. We are executing at a high level, posting strong sales, comps, earnings, and EVA growth. We are very pleased with our performance year to date, particularly in light of our difficult year-over-year comparisons. In the past, we have said that we were not quite ready to say our comparable store sales growth has broken out of its historical eight to nine percent range. It is getting harder and harder to continue to believe that is not indeed the case. We have just posted our 7th consecutive quarter of double-digit comparable store sales increases. Our two-year comparable store sales increase average was 19 percent in 2003, 24 percent in 2004, and is 28 percent year to date in 2005.
  
  We believe one of the factors driving our double-digit comps is that the Whole Foods Market brand is continuing to gain momentum. Forbes Magazine recently ran a "Beyond the Balance Sheet" series that featured consumer research identifying growing and innovative brands. For brands whose values increased the most within their respective industries over the past four years, Whole Foods Market ranked 11th after companies such as Apple, Starbucks, and Coach.
  
  Given our current sales momentum and record store development pipeline, we believe we are well positioned to achieve our goal of $10 billion in sales by the year 2010. Over the longer term, however, we believe the sales potential for Whole Foods Market is much greater than $10 billion as the market continues to grow and as our brand continues to strengthen.
May 4th - 2nd Quarter Results
- Good afternoon. Joining me today are Glenda Flanagan, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Business Development, Walter Robb and AC Gallo, Co-Presidents, Lee Valkenaar, Executive Vice President of Retail 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 timely development and opening of new stores, the integration of acquired stores, the impact of competition, and other risks detailed from time to time in the Company's SEC reports, including the report on Form 10K-A for the fiscal year ended September 26, 2004. The Company does not undertake any obligation to update forward-looking statements.
  
  Please note that our press release includes an income statement, balance sheet and cash flow statement, all of which are now available on our website at wholefoodsmarket.com along with the scripted portion of this call.
  
  For the second quarter, our sales increased 20 percent to $1.1 billion. This is our first 12-week quarter that surpassed $1 billion in sales. This increase was driven by 13 percent weighted average year-over-year square footage growth and 11.6 percent comparable store sales growth, which was against a tough comparison of 17.1 percent comparable stores sales growth in the prior year. Sales in identical stores increased 10.2 percent for the quarter. Some of the big contributors to our comparable store sales increase were three relocations and two major store expansions, along with the entry into the comp base of our Fresh & Wild stores in the U.K. and our Columbus Circle store in New York. Our average weekly store sales for all stores were a record $539,000 and for new stores were a record $598,000.
  
  Net income increased 22 percent to $42 million, and our diluted earnings per share increased 17 percent to $0.61. These increases are on top of significant increases in the prior year.
  
  In the quarter, gross profit increased 29 basis points to 35.7 percent of sales, and direct store expenses decreased three basis points to 25.5 percent of sales, resulting in store contribution of 10.2 percent of sales. General and administrative expenses were relatively flat, increasing one basis point to 3.2 percent of sales.
  
  In any given quarter, our gross margins may be up or down depending on our execution, the mix of sales from new stores, the impact of weather or a host of other factors, including inflation. While we always have initiatives in place to drive better purchasing, we usually pass those savings on to our customers as lower prices. Our pricing strategy continues to be market driven; we aim to be competitively priced on the same or similar items in grocery and Whole Body, while our perishables may be priced at a premium to reflect the higher quality of product available in our stores. Our consistently robust sales, comps, and gross margins would seem to indicate that we are striking the right balance here.
  
  We produced $128 million in cash from operations which allowed us to self fund $74 million in capital expenditures of which $51 million was for new stores, as well as pay $12 million to shareholders in cash dividends.
  
  Our balance sheet continues to improve. During the second quarter, our total cash balance increased $70 million from the first quarter to $331 million, and our total long term debt decreased $11 million to $91 million.
  
  In November, we announced that our Board of Directors approved a 27% increase in our quarterly dividend to $0.19 per share. On April 5, 2005, we announced a 32% increase in our quarterly dividend to $0.25 per share and on April 25, 2005 paid approximately $16 million to shareholders in cash dividends.
  
  This quarter we opened four new stores, two of which were relocations, ending the quarter with 168 stores and 5.4 million square feet in operation. We are particularly excited about the openings of our 80,000 square foot store in Austin, Texas and our third Manhattan location, a 50,000 square foot store in Union Square.
  
  We believe our flagship store in Austin is not only the largest, but the best store we have ever opened. It offers 1800 wines, over 400 beer selections in a walk-in cooler, over 600 varieties of cheeses, 70 cuts of fresh meats, 32 varieties of sausages, 50 fresh-baked hearth breads daily, 40 varieties of olives, 18 flavors of handmade gelatos, and several sit-down eating venues within the store. New non-food venues include Whole Baby, Natural Home and a Putamayo Music Listening Station. It is a good thing we have close to 1000 parking spaces as the response from customers has been incredible. It is worth pointing out that while Austin's population is only around one million people, this store is closely competing with our New York stores in terms of sales volumes, regularly ranking within the top five highest volume stores in our company.
  
  The Whole Foods Market brand has received a very warm reception in New York City. Our success at Chelsea led to our fabulous Columbus Circle store. Our new Union Square store has quickly rivaled sales at Columbus Circle. While our Union Square store opening was the focus of much media attention, these are amazing results considering we didn't advertise or do any direct mail or additional promotions.
  
  Our new store pipeline continues to increase with today's announcement of seven new store leases averaging 50,000 square feet in size which are as follows: a 39,000 square foot store in San Francisco, California which will be our third San Francisco store; a 50,000 square foot store in Naples, Florida; a 45,000 square foot store in Portland, Maine; a 55,000 square foot store in West Orange, NJ; a 48,000 square foot store in Nashville, Tennessee; a 55,000 square foot store in Milwaukee, Wisconsin; and a 55,000 store in Vancouver, Canada which is our second store in Vancouver and our fourth store in Canada.
  
  We have announced seven or more newly signed leases in each of the last seven quarters and now have 59 stores and a record 3.1 million square feet under development. This is a 41 percent increase in square footage under development over this time last year and represents 57 percent of our existing square footage. Our goal is to produce 15 percent annual weighted average square footage growth going forward.
  
  Today we also announced that based on new determinations by the SEC, we will return to and continue our previous practice of capitalizing rent during the construction period. We are happy to be able to return to our prior method of accounting for rent incurred during the construction period of new stores, as we believe the capitalization of such rent is the correct method of accounting and is consistent with the accounting for other costs such as utilities and property taxes also incurred during this period. It is unfortunate that the deadline for filing our first quarter Form 10-Q fell prior to the date of the SEC's March determinations, and therefore we completed our filing without the benefit of information that would have enabled us to reflect the capitalization of construction-period rent in that filing. We apologize for any confusion these restatements have caused or may cause our shareholders.
  
  I will now turn to our future growth goals and updated guidance.
  
  We have a stated long-term growth goal of $10 billion in sales by the year 2010. Due to our strong sales performance year to date, we now expect sales growth for fiscal year 2005 at the higher end of our previously stated 15 percent to 20 percent range with comparable store sales growth in the range of 9 percent to 11 percent versus our previously stated range of 8 percent to 10 percent. We expect weighted average square footage growth of approximately 15 percent based on the opening of 15 to 18 new stores, including three relocations. We expect diluted earnings per share growth for the year to still be lower than sales growth primarily due to the anticipated acceleration in new store openings which is expected to result in pre-opening expenses in the range of $9 million to $11 million for the remainder of the year. In addition, we continue to expect new stores may have some negative impact on store contribution, as new stores generally have lower gross margins and higher direct store expenses than more mature stores. Due to the remaining charges for changes in lease accounting regarding the recognition of rent expense and depreciation for certain leases, we expect store contribution for the remainder of the year to be approximately $2 million to $4 million lower than it would have been under the original method of accounting. We continue to expect G&Amp;A expenses for the remainder of the fiscal year to be higher as a percentage of sales as compared to the prior year, primarily due to the relocation of our headquarters in January which is expected to add approximately $4 million in G&Amp;A expenses annually. Capital expenditures for the year are still expected to be in the range of $300 million to $320 million.
  
  In closing, our business model is very successful and is benefiting all of our stakeholders. We are executing at a high level, posting strong sales, comps, earnings, and EVA^® growth. We have joined the ranks of the Fortune 500 debuting at number 479. We are very pleased with our performance year to date, particularly in light of our difficult year-over-year comparisons. In the past, we have said that we were not quite ready to say our comparable store sales had broken out of their historical 8 to 9 percent range. It is getting harder and harder to continue to believe that. We have just posted our 6th consecutive quarter of double digit comparable store sales increases. Our two-year comparable store sales average was 19% in fiscal year 2003, 24% in fiscal year 2004, and is 27% year to date in fiscal year 2005. All indications are pointing to the fact that the Whole Foods Market brand has definitely hit the tipping point.
  
  We are building a record pipeline of new stores and have sufficient capital available to grow as rapidly as we can. We believe the best is yet to come as the Whole Foods Market brand continues to strengthen and as we open bigger and better new stores at an accelerated rate in the years ahead.
February 9th - 1st Quarter Results
- Good afternoon. Joining me today are Glenda Flanagan, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Business Development, Walter Robb and AC Gallo, Co-Presidents, Lee Valkenaar, Executive Vice President of Retail 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 timely development and opening of new stores, the integration of acquired stores, the impact of competition, and other risks detailed from time to time in the Company's SEC reports, including the report on Form 10K for the fiscal year ended September 26, 2004. The Company does not undertake any obligation to update forward-looking statements.
  
  Please note that our press release includes an income statement, balance sheet and cash flow statement, all of which are now available on our website at wholefoodsmarket.com along with the scripted portion of this call.
  
  For the first quarter, our sales increased 22 percent to $1.4 billion. This increase was driven by 15 percent weighted average year-over-year square footage growth and 11.4 percent comparable store sales growth which was against a tough comparison of 14.7 percent comparable stores sales growth in the prior year. We continue to see healthy sales across the country. Even our stores in Southern California, which benefited from the UFCW strike last year, comped positively. Our average weekly store sales were a record $516,000.
  
  Our net income increased 27 percent to $49 million versus a 51% increase last year, diluted earnings per share increased 21 percent to $0.73 against a 43 percent increase last, and we reported our fifth consecutive quarter of positive Economic Value Added which improved $3.3 million to $6.9 million. We are very pleased with our performance this quarter, particularly in light of our difficult year-over-year comparisons.
  
  As a percentage of sales, our quarterly results for gross profit, direct store expenses, store contribution and G&Amp;A expense were in line with our historical four-year average results.
  
  We produced $122 million in cash from operations which allowed us to self fund $85 million in capital expenditures of which $56 million was for new stores, as well as pay $9 million to shareholders in the form of a cash dividend.
  
  Our balance sheet continues to improve. During the quarter, our cash balance increased $40 million to $261 million. Year over year, total assets increased 26 percent to $1.6 billion, total liabilities increased 8 percent to $508 million, and shareholders' equity increased 37 percent to $1.1 billion. At the end of the quarter, we had $101 million in long-term debt. During the quarter, approximately 137,000 of our Zero Coupon Convertible Debentures were voluntarily converted by bondholders to approximately 1.5 million shares of common stock resulting in a decrease in that debt from $159 million at the end of last fiscal year to $89 million at the end of the first quarter.
  
  In November, we announced that our Board of Directors had approved a 27% increase in our quarterly dividend, and on January 17, 2005, we paid approximately $12 million to shareholders in quarterly dividends of $0.19 per share.
  
  This quarter we opened 3 new stores ending the quarter with 166 stores and 5.2 million square feet in operation. Our new store in Sarasota is the first downtown grocery store in that community in 50 years and our first location on Florida's West Coast. And, after thousands of requests from customers on the South Shore in Boston, we were excited to open our Hingham store in Massachusetts which features a seated-café area for over 100 customers, a dry-aged meat case, one of the largest seafood departments in the area which offers the widest variety of seafood straight from our own waterfront facility in Gloucester in addition to fabulous chowders, smoked fishes and frozen seafood. We also opened a 41,000 square foot store in Redwood City, California and are proud to be a part of the newly revitalized downtown area. We are providing a wide variety of products to satisfy the tastes of the multi-cultural population including a broad range of ethnic foods in the Global Cuisine bar; tortillas made fresh on-site; and a large salsa selection.
  
  Our new store pipeline continues to increase with today's announcement of seven new store leases averaging 56,000 square feet in size. We have announced seven or more newly signed leases in each of the last six quarters and now have 58 stores and a record 2.9 million square feet under development. This is a 57 percent increase in square footage under development over this time last year and represents 56 percent of our existing square footage. Our goal is to produce 15 percent weighted average square footage growth going forward.
  
  In other news, we are very pleased to announce that-for the eighth year in a row our Team Members have ranked us as one of Fortune magazine's "100 Best Companies to Work For." We moved up 17 places from last year to Number 30 this year, our highest placement on the list so far, and of the 37 large companies listed, we were ranked fifth. We were also recognized in the new Hall of Fame list of 22 companies that have appeared on the "100 Best" list since its inception in 1998.
  
  Additionally, on January 26, we announced that we had raised $550,000 through our first global five percent day whereby we donated 5% of our sales from our 166 stores in the United States, Canada and the United Kingdom, to kick off the funding for the new Animal Compassion Foundation, an independent, non-profit organization. We decided that the existing paradigm for animal production should change and that we now have the scale and scope to make a difference. Last year we began a rigorous process of creating enhanced farm animal treatment standards beyond the strict animal welfare we already required. These enhanced standards are being developed jointly by Whole Foods Market, animal welfare advocacy groups and various ranchers and farmers that we do business with. These standards will focus on providing environments that best support the animals' natural physical needs, behavior and well being. Through the Animal Compassion Foundation, we will create a network for the global exchange of humane animal husbandry techniques. Just as we played an important role in the creation of organic standards, we will work to raise the bar in treating farm animals with more compassion and we hope other retailers and animal producers will follow our lead. Please check our website for additional information about our animal welfare standards and Animal Compassion Foundation.
  
  I will now turn to the future.
  
  We have a stated long-term growth goal of $10 billion in sales by the year 2010. We produced above-average increases in sales, comps and earnings per share in 2004 of 23 percent, 15 percent and 26 percent, and will, therefore, face difficult comparisons in 2005, particularly in the second quarter of the year.
  
  For the fiscal year, we continue to expect sales growth of 15% to 20% driven by comparable store sales growth of 8% to 10% and weighted average square footage growth of approximately 15% based on the opening of 15 to 18 new stores, including four relocations. We do not expect the same level of year over year increases in sales and earnings produced in the first quarter to continue throughout the year. We still expect diluted earnings per share growth for the year to be lower than sales growth primarily due to the anticipated acceleration in new store openings, which is expected to result in pre-opening expenses in the range of $18 million to $20 million versus $10 million in the prior year. In addition, new stores could have some negative impact on store contribution, as new stores generally have lower gross margins and higher direct store expenses than more mature stores. We also expect G&Amp;A expenses for the remainder of the fiscal year to be higher as a percentage of sales as compared to the first quarter and as compared to the prior year, primarily due to the relocation of our headquarters this January which is expected to add approximately $4 million in G&Amp;A expenses annually. Capital expenditures are still expected to be in the range of $300 million to $320 million.
  
  In December the Financial Accounting Standards Board (FASB) finalized Statement 123R, Share-based Payment, which requires all companies to expense share-based payments, including stock options, at fair value. Absent any overruling by Congress, the new rules are effective for interim or annual periods beginning after June 15, 2005; therefore, we would expect to begin expensing stock options in the fourth quarter of fiscal year 2005.
  
  Though not retroactive, it should be noted that the charge to earnings resulting from this new rule includes the impact of stock options granted in prior years, since the expense is recognized over the vesting period of the options, which for us has been four years. Even if we never granted another option after today, we would still have stock option expense until all past option grants were fully vested. In order to prevent this "overhang" from past option grants impacting future income statements, we are today announcing our intention to accelerate the vesting of all outstanding stock options (excluding options held by the Board of Directors and the members of the executive team) sometime prior to July 4, 2005, the date the new rules would be effective for us. This accelerated vesting of options will create a one-time, mostly non-cash charge of approximately $10 million, consisting of the estimated increase in value to the option holders caused by the acceleration plus accrual of certain payroll taxes that will be due upon exercise of the options. We would expect to take this expense in the third quarter. The actual amount of the expense will vary based on the closing stock price at the date of the acceleration.
  
  Our current intention is to keep our broad-based stock option program in place, but going forward we will limit the number of shares granted in any one year so that net income dilution from equity-based compensation expense will not exceed 10% in future years. The equity-based compensation expense will ramp up beginning in the fourth quarter of fiscal year 2005 until it reaches 10% of net income dilution in fiscal year 2010. The equity-based compensation expense in the fourth quarter of fiscal year 2005 is expected to be approximately $500,000 consisting primarily of grants to the executive team and the Board of Directors, since we will not accelerate those options. This estimated equity-based compensation expense does not impact our annual guidance.
  
  We believe this strategy is best aligned with our stakeholder philosophy because it limits future earnings dilution from options while at the same time retains the broad-based stock option plan which we believe is important to Team Member morale and to our unique corporate culture and success. If Congress chooses to intervene and overrule FASB 123R, our strategy regarding accelerated vesting and future option grants may change.
  
  In closing, our business model is very successful and is benefiting all of our stakeholders. We are executing at a high level, posting strong sales, comps, earnings, and EVA^® growth. We are very pleased with our performance this quarter, particularly in light of our difficult year-over-year comparisons; however, we do not expect to see this same level of year over year increases in sales and earnings to continue throughout the year.
  
  We are building a record pipeline of new stores and have sufficient capital available to grow as rapidly as we can. We are particularly excited about the upcoming openings of our 80,000 square foot store in Austin, Texas on March 3rd, and our 50,000 square foot Union Square store on March 17th which will be our third store in Manhattan. We believe the best is yet to come as the Whole Foods Market brand continues to strengthen and as we open bigger and better new stores at an accelerated rate in the years ahead.
  
  — EVA® is a registered trademark of Stern Stewart & Co.

2004

November 10 - 4th Quarter Results
- Good afternoon. Joining me today are Glenda Flanagan, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Business Development, Walter Robb and AC Gallo, Co-Presidents, Lee Valkenaar, Executive Vice President of Retail 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 timely development and opening of new stores, the integration of acquired stores, the impact of competition, and other risks detailed from time to time in the Company's SEC reports, including the report on Form 10K for the fiscal year ended September 28, 2003. The Company does not undertake any obligation to update forward-looking statements.
  
  Please note that our press release includes an income statement, balance sheet and cash flow statement, all of which are now available on our website at wholefoodsmarket.com along with the scripted portion of this call.
  
  For the fourth quarter, our sales increased 24 percent to $927 million, net income increased 27 percent to $30 million, diluted earnings per share increased 21 percent to $0.46, and Economic Value Added improved $2 million. These fourth quarter results cap off an outstanding fiscal year for Whole Foods Market.
  
  In a year that has been challenging for most food retailers, we grew sales 23 percent to just under $4 billion. Our 14.9 percent comparable store sales increase set a new company record. We saw strength across all regions, all departments, and all age classes of stores, with stores over 8 years of age even producing double-digit comps. Eighty-four percent of all stores set weekly sales records and our sales per gross square foot were $786, up from $716 last year. The 2004 class of new stores was our best yet, with the 12 new stores producing average weekly sales of $575,000 for the year.
  
  As a percentage of sales, our fiscal year results were very much in line with our historical four-year average results: gross profit was thirty basis points higher, direct store expenses were thirty basis points higher, and store contribution was ten basis points lower.
  
  In any given quarter, our gross margins may be up or down slightly depending on the mix of sales from new stores or the impact of weather or a host of other factors, including inflation. While we always have initiatives in place to drive better purchasing, we usually pass those savings on to our customers as lower prices. Our pricing strategy continues to be market driven; we aim to be competitively priced on the same or similar items in grocery and Whole Body, while our perishables may be priced at a premium to reflect the higher quality of product available in our stores. Our consistently robust sales, comps, and gross margins would seem to indicate that we are striking the right balance here.
  
  While we did see leverage in wages due to our healthy sales, our direct store expenses increased for the year primarily due to increases in workers comp and health care costs. We believe the investments we have made in our team members through improvements in our benefits are paying off in higher team member satisfaction which is evident from our Team Member Morale Surveys and our voluntary turnover for full-time team members, which was only 22 percent this year.
  
  Our net profit margin for the year improved 25 basis points to 3.5 percent of sales. We produced a 26 percent increase in diluted earnings per share to $2.09 which was well ahead of our initial guidance of $1.87 to $1.95, and we reported our fourth consecutive quarter of positive EVA^® resulting in record EVA improvement of $12.6 million.
  
  We produced $329 million in cash from operations which allowed us to self fund our $265 million in capital expenditures, of which $155 million was for new stores, as well as pay $28 million to shareholders in the form of a cash dividend.
  
  Our balance sheet continues to improve. Our cash balance increased $56 million, from $166 million at the end of last year to $222 million this year. Year over year, total assets increased 26 percent to $1.5 billion, total liabilities increased 24 percent to $521 million, and shareholders' equity increased 27 percent to $985 million. At the end of the year, we had $171 million in long-term debt.
  
  Our Board of Directors approved a 27 percent increase in our dividend to $0.19 per share from $0.15 per share. As we just initiated a dividend to shareholders last year, we are very pleased to be in a position to raise that dividend today.
  
  This year we opened 12 new stores, 6 of which were in new markets, and acquired 7 new stores in the United Kingdom, ending the year with 163 stores and 5.1 million square feet in operation.
  
  Our new store pipeline continues to increase with today's announcement of eight new store leases averaging 52,000 square feet in size. We have announced seven or more newly signed leases in each of the last five quarters and now have 53 stores and a record 2.6 million square feet under development. This is a 61 percent increase in square footage under development over this time last year and represents 50 percent of our existing square footage. Our goal is to produce 15 percent weighted average square footage growth in fiscal 2005 and beyond.
  
  Given our healthy store development pipeline of 53 stores and our goal of reaching $10 billion in sales by the year 2010, we have made some changes to our executive team and operating structure to best position ourselves to achieve this growth goal. I have transferred the title of president to Walter Robb and A.C. Gallo who have both done an excellent job over the past three-and-a-half years and are well deserving of this recognition. Also, given our expected acceleration in growth, we believe it is important to have a top executive fully focused on certain areas that support our retail efforts including purchasing, marketing, and team member services, so we have added the newly created position of Executive Vice President of Retail Support to which Lee Valkenaar has been named. Lee has over eight years of solid performance as a regional president, and we look forward to continued valuable contributions from him in this new role.
  
  We have expanded our number of operating regions from eight to ten by separating the Southwest region into the Southwest and Rocky Mountain regions, and the Northern Pacific region into the Northern California and Pacific Northwest regions. The former Southwest and Northern Pacific regions were wide-spread geographically over several states, making them increasingly difficult to operate effectively. By splitting them each into two regions, we will be better able to regionally support our existing store base as well as provide for our anticipated growth in those regional areas in the future.
  
  Now I would like to turn to the future.
  
  We have a stated long-term growth goal of $10 billion in sales by the year 2010. We produced above-average increases in sales, comps and EPS in 2004 of 23 percent, 15 percent and 26 percent, and will, therefore, face difficult comparisons in 2005. This is true particularly in the first half of the year.
  
  However, for fiscal year 2005, we still expect sales growth of 15 percent to 20 percent and comparable store sales growth of 8 percent to 10 percent despite the tough comparisons. We expect weighted average square footage growth of approximately 15 percent based on the opening of 15 to 18 new stores, including three relocations.
  
  Diluted earnings per share growth is expected to be lower than sales growth primarily due to the anticipated acceleration in square footage growth which will result in significantly higher pre-opening expenses in the range of $18 million to $20 million versus $10 million in the prior year. In addition, new stores could have some negative impact on store contribution, as new stores generally have lower gross margins and higher direct store expenses than more mature stores. Capital expenditures are expected to be in the range of $300 million to $320 million.
  
  Our EPS guidance excludes any impact from expensing stock options as FASB has not issued a final statement.
  
  In closing, our business model is very successful and is benefiting all of our stakeholders. We are executing at a high level, posting strong sales, comps, earnings, and EVA growth. When we initiated our fiscal year 2004 guidance last year, we expected total sales growth at the low end of the 15 to 20 percent range, comparable store sales growth of 7 to 9 percent and diluted earnings per share of $1.87 to $1.95. Over the past year, we raised our guidance $0.15, met our higher goals, and we are still expecting a year of solid growth in fiscal year 2005 despite the difficulty of comparing against one of the best years in our company's history.
  
  We are building a record pipeline of new stores and have sufficient capital available to grow as rapidly as we can. We believe the best is yet to come as the Whole Foods Market brand continues to strengthen and as we open bigger and better new stores at an accelerated rate in the years ahead.
  
  We will now answer any questions from the investment community.
  
  — EVA® is a registered trademark of Stern Stewart & Co.
July 28th - 3rd Quarter Results
- Good afternoon. Joining me today are Glenda Flanagan, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Business Development, Walter Robb, Executive Vice President and Chief Operating Officer, 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 timely development and opening of new stores, the integration of acquired stores, the impact of competition, and other risks detailed from time to time in the Company's SEC reports, including the report on Form 10K for the fiscal year ended September 28, 2003. The Company does not undertake any obligation to update forward-looking statements.
  
  Please note that our press release includes an income statement, balance sheet and cash flow statement, all of which are now available on our website at wholefoodsmarket.com along with the scripted portion of this call.
  
  Today, I will review our performance for the third quarter, update our guidance for the fiscal year, and initiate sales and earnings guidance for fiscal year 2005.
  
  We produced another quarter of strong sales results. Our 22 percent sales increase was driven by 9 percent weighted average square footage growth and comparable store sales growth of 14.1 percent. We continue to see strength across the country with all of our regions producing double digit comps and 38 of our stores, or 24% of all stores, setting weekly sales records during the third quarter. We are also seeing strength across all age classes of our stores. As we highlighted in the store returns chart in our press release, even our stores over eight years old produced double digit comps of 12 percent.
  
  Excluding the pre-tax gain of $3 million, or approximately $0.03 in diluted earnings per share, related to the distribution of proceeds from the sale of Blooming Prairie Cooperative in the prior year, net income for the quarter increased 22% and diluted earnings per share increased 17%. Net operating profit after taxes increased 12 percent to $34 million. Our capital charge for the quarter was $31 million resulting in EVA^® of approximately $3 million.
  
  In the third quarter, gross profit increased 2 basis points to 34.6 percent of sales, and direct store expenses increased 35 basis points to 25.3 percent of sales resulting in a 33 basis point decrease in store contribution to 9.3 percent of sales. For the 143 stores in the comparable store base, gross profit improved 41 basis points to 34.9 percent of sales, and direct store expenses increased 10 basis points to 25 percent of sales resulting in a 32 basis point increase in store contribution to 9.8 percent of sales. General and administrative expenses decreased 19 basis points to 3 percent of sales.
  
  In any given quarter, our gross margins may be up or down slightly depending on the mix of sales from new stores or the impact of weather or a host of other factors, including inflation. While we always have initiatives in place to drive better purchasing, we usually pass those savings on to our customers as lower prices. Our pricing strategy continues to be market driven; we aim to be competitively priced on the same or similar items in grocery and Whole Body, while our perishables may be priced at a premium to reflect the higher quality of product available in our stores.
  
  As a percentage of sales, our year-to-date results are very much in line with our historical four year average results: gross profit is thirty basis points higher, direct store expenses are ten basis points higher and store contribution is ten basis points higher. While there may be more variability during a particular quarter, we want to emphasize the consistency of these various line items as a percentage of sales over time.
  
  We are producing strong, consistent cash flow from operations which totaled $57 million for the quarter and $254 million year to date. We are internally funding our store growth from our cash flow. Our capital expenditures for the quarter totaled $62 million, including $37 million for new stores. Year to date our cap ex is $201 million, including $118 million for new stores.
  
  Our balance sheet continues to improve. Year over year, total assets increased 27 percent to $1.5 billion, total liabilities increased 25 percent to $499 million, and shareholders' equity increased 29 percent to $960 million. At the end of the quarter, we had $168 million in long-term debt and $213 million in total cash and cash equivalents.
  
  On July 19th, we paid approximately $9 million to shareholders in our third quarterly dividend of 15 cents per share. We are hopeful that our continued success will allow us to steadily increase our dividend over time.
  
  During the third quarter, we opened five new stores in Fort Collins, Colorado; White Plains, New York; Charleston, South Carolina; Glendale, California and Bellevue, Washington. Some highlights from the new stores we opened during the quarter include:
  - Our fifth store in Colorado is a 45,000 square foot store located in Fort Collins and features one of the largest selections of fresh seafood in the city; more than 20 varieties of olives, an in-house meat and seafood smoker; nearly 300 varieties of bulk items, house-made tortillas and an in-house pastry team. Additionally, a Whole Foods Market Salud! ® Cooking & Lifestyle School is adjacent to the store, offering daily classes in cooking, nutrition and fitness.
  - After a ten year search for the perfect location, we are very excited about our new 37,000 square foot White Plains store which features a steamed shrimp bar, a salsa station in the chip aisle featuring exotic and freshly made blends of tomato and fruit based salsas, and a hot chili and stew station.
  - We opened our first South Carolina store in Charleston. The 45,000 square foot store features a 40-foot seafood counter, housemade sausages, exotic meats and a showcase dry-aged beef room.
  - By 8:45 a.m. on opening day, all 160 parking spaces at our new Glendale store were filled, and the line to enter stretched across the street. By mid-afternoon, more than 1,000 customers had walked through the doors of our new 44,000-square-foot store, which replaced a 14,000-square-foot store.
  - We knew our Bellevue, Washington store was going to be a hit since the most frequent comment we heard from customers at our first Seattle store was that we needed another store on the Eastside. Within the new store's 56,000 square feet, is a gelato bar, crêpe counter, four-foot-long chocolate case, 150 kinds of beer and 800 choices of wine. We are glad we put in 26 cash registers, as it looks like Bellevue will quickly become one of our top 10 volume stores.
  Our new stores continue to perform above our expectations with the nine new stores opened this fiscal year producing average weekly sales of $595,000 year to date. We believe the fact that we are able to open successful stores in such diverse markets speaks to the broad appeal of our stores and the growing awareness of our brand.
  
  Our new store pipeline continues to increase with today's announcement of eight new store leases averaging 55,000 square feet in size. We are particularly excited about the signing of our fourth and largest store in Manhattan, a 66,000 square foot location in the East Village at Bowery and Houston. We have announced five or more newly signed leases in each of the last seven quarters and now have 49 stores and a record 2.4 million square feet under development. This is a 76 percent increase in square footage under development over this time last year and represents 47 percent of our existing square footage. Our goal is to produce 15 percent weighted average square footage growth in fiscal 2005 and beyond.
  
  Now I would like to update our guidance for fiscal year 2004 and initiate guidance for fiscal year 2005 as follows:
  
  In the fourth quarter, we expect comparable store sales growth in the range of 11 to 13 percent reflecting the above average comparable store sales growth we have produced this year while taking into account the tougher year-over-year comparison in the fourth quarter. We expect to open four new stores during the quarter bringing us to 13 new stores, including one relocation, for the year.
  
  Based on our strong year-to-date results, sales growth for the fiscal year is expected to be at the high end of our previously stated 18 to 22 percent range of guidance. We expect operating margin improvement in fiscal year 2004 primarily due to an increase in gross margin, along with slight improvements in G&Amp;A and pre-opening and relocation expenses as a percentage of sales. We expect diluted earnings per share for the fiscal year to be at the higher end of our previously stated $2.03 to $2.10 range of guidance.
  
  For fiscal year 2005, we expect total sales and earnings growth in line with our stated long-term goal of 15 to 20 percent with weighted average square footage growth of approximately 15 percent. We are facing difficult comparisons with regard to sales growth, comparable store sales increases, and diluted earnings per share growth due to the above-average results we have produced so far this year. Additionally, our diluted earnings per share growth could be lower than our sales growth due to an expected acceleration in square footage growth which would result in higher pre-opening expense and could have some negative impact on store contribution, as new stores generally have lower gross margins and higher direct store expenses than more mature stores.
  
  In closing, our business model is very successful. We are executing at a high level, posting strong sales, comps, earnings, and EVA growth. At this time last year when we initiated our fiscal year 2004 guidance, we expected total sales growth to be at the low end of the 15 to 20 percent range, comparable store sales growth of 7 to 9 percent and diluted earnings per share of $1.87 to $1.95. In the fourth quarter, we raised our guidance a penny to $1.88 to $1.96. In the first quarter of 2004, we again raised our guidance approximately $0.06 to $1.93 to $2.02. In the second quarter, we again raised our guidance to $2.03 to $2.10. This quarter we are again raising our guidance to the high end of our $2.03 to $2.10 range. So, over the past four quarters, we have essentially raised our guidance $0.15, and we are still expecting a year of solid growth in fiscal year 2005 despite the difficulty of comparing to one the best year in our company’s history.
  
  The questions we are asked most often are "what is our magic formula for comps" and "is our growth sustainable?" While we are not ready today to say our comps have broken out of their historical 8 to 9 percent range, we certainly have been seeing accelerating trends over the last ten years, and most dramatically over the last year. We are building a record pipeline of new stores and have sufficient capital available to grow as rapidly as we can. We believe the best is yet to come as the Whole Foods Market brand continues to strengthen and as we open bigger and better new stores at an accelerated rate in the years ahead.
  
  — EVA® is a registered trademark of Stern Stewart & Co.
May 4th - 2nd Quarter Results
- Good afternoon. Joining me today are Glenda Flanagan, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Business Development, AC Gallo and Walter Robb, Executive Vice Presidents and Chief Operating Officers, 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 timely development and opening of new stores, the integration of acquired stores, the impact of competition, and other risks detailed from time to time in the Company's SEC reports, including the report on Form 10K for the fiscal year ended September 28, 2003. The Company does not undertake any obligation to update forward-looking statements.
  
  Please note that our press release includes an income statement, balance sheet and cash flow statement, all of which are now available on our website at wholefoodsmarket.com along with the scripted portion of this call.
  
  Today, I will review our performance for the second quarter and update our guidance for the fiscal year.
  
  We produced another quarter of outstanding results with strong sales, earnings and EVA^® improvement. Our 24 percent increase in sales to $902 million was driven by 7 percent weighted average square footage growth and record comparable store sales growth of 17.1 percent. This strength in sales was apparent in all of our regions across the country, as we produced comparable store sales growth of 16.4 percent excluding the 18 stores positively impacted by the strike in Southern California.
  
  Our strong comp growth has been accelerating as natural and organic products are entering the mainstream consciousness, and as our execution has improved and our brand awareness has increased. We attribute our 17.1 percent comparable store sales growth in the second quarter primarily to these factors as well as to an easy comparison to a below-average 7.0 percent comparable stores sales increase in the prior year which was due to several factors including severe weather and the negative Easter shift, and secondly to the positive 70 basis point impact from the strike in Southern California.
  
  While we are seeing great performance in all of our regions across the country, we would like to highlight what we are seeing in Southern California post-strike. We estimate that we have retained approximately 30 percent of the sales that we gained and maintained during the 20-week strike. As customers were newly introduced or were reintroduced to our stores, a significant percentage of them appeared to find it a more appealing shopping experience. We are very pleased with this level of retention, as we believe it points to the significant growing attraction of our store concept and therefore the customer opportunity that exists in our other markets across the country.
  
  Net income for the quarter increased 38 percent to $35 million and diluted earnings per share increased 32 percent to $0.54. Our year-over-year percentage increases were well above average because of our stronger-than-expected sales. Had we recognized compensation costs for stock options as prescribed by Statement of Financial Accounting Standards Number 123 in the current and prior year, our pro forma net income for the quarter would have increased 40 percent to $31 million, and our diluted earnings per share would have increased 33 percent to $0.48.
  
  We produced a significant $5 million dollar improvement in EVA year over year driven by a 37 percent increase in net operating profit after taxes and 21 percent increase in total capital. Our comparable stores produced an annualized net operating profit after-tax return on invested capital during the second quarter of 37 percent.
  
  In the second quarter, gross profit increased 99 basis points to 35.5 percent of sales, and direct store expenses increased 49 basis points to 25.4 percent of sales resulting in a 50 basis point increase in store contribution to 10 percent of sales. For the 142 stores in the comparable store base, gross profit improved 118 basis points to 35.7 percent of sales, and direct store expenses increased 31 basis points to 25.2 percent of sales resulting in an 87 basis point increase in store contribution to 10.4 percent of sales.
  
  For the last four years, our gross margins have averaged 34.5 percent, which we believe is about the right place for us to be. In any given quarter, margins may be up or down slightly depending on the mix of sales from new stores or the impact of weather or a host of other factors. While we always have initiatives in place to drive better purchasing, we usually pass those savings on to our customers as lower prices. Our pricing strategy continues to be market driven; we aim to be competitively priced on the same or similar items in grocery and Whole Body, while our perishables may be priced at a premium to reflect the higher quality of product available in our stores.
  
  Our gross margin in the second quarter was the highest we have seen in any quarter of the last four years and is primarily attributable to our increased sales. The significant year-over-year improvement was due to lower occupancy costs as a percentage of sales, lower cost of goods sold as a percentage of sales and improved performance at our non-retail facilities. For direct store expenses, leverage in certain line items such as wages was more than offset by an increase in health care and benefit expenses, asset write-offs related to significant remodels and professional and legal fees. General and administrative expenses were relatively flat, down 2 basis points, as a percentage of sales.
  
  Our balance sheet continues to strengthen. Year over year, total assets increased 30 percent to $1.4 billion, total liabilities increased 34 percent to $522 million, and shareholders' equity increased 28 percent to $899 million. We produced cash flow from operations of $113 million. Capital expenditures for the quarter excluding acquisitions totaled $70 million, including $46 million for new stores. At the end of the quarter, we had $177 million in long-term debt and $214 million in total cash and cash equivalents.
  
  On April 19th, we paid approximately $9 million to shareholders in our second quarterly dividend of 15 cents per share.
  
  We are very pleased to announce that Moody's recently upgraded all of our credit ratings two notches, and our corporate rating is now investment grade at Baa3. While we have no current plans to access the debt or equity markets, we are proud of this important milestone in our Company's history and believe it will further enhance our opportunities within the real estate development community.
  
  During the second quarter, we opened our wildly successful 59,000 square foot Columbus Circle store, which is our second store in Manhattan and the largest supermarket in the city. We also opened stores in two new markets, Louisville, Kentucky and Colorado Springs, Colorado. While Louisville and Colorado Springs certainly do not have the population density that New York City has, all stores are performing at or above our expectations. We believe the fact that we are able to open successful stores in such diverse markets speaks to the broad appeal of our stores and our brand.
  
  We continue to build our new store pipeline, today announcing leases for seven new stores averaging 56,000 square feet in size. We have announced five or more newly signed leases in each of the last six quarters and now have 46 stores and a record 2.2 million square feet under development. This is an 82 percent increase in square footage under development over this time last year and represents 46 percent of our existing square footage. Our goal is to produce 15 percent weighted average square footage growth in fiscal 2005 and beyond.
  
  Now I would like to update our guidance for fiscal year 2004 as follows:
  
  Due to our 23 percent sales growth year to date, we now expect our total sales growth for the fiscal year to be in the range of 18 to 22 percent. We expect weighted average year-over-year square footage growth for the year of 10 percent, including 41,000 square feet related to the expansion of six existing stores. Square footage growth is expected to be higher in the second half of the year as we opened four new stores in the first half of the year and expect to open nine to ten new stores, including the relocation of an existing store, in the second half of the fiscal year.
  
  So far in the third quarter, our comps are running below the 15.8 percent comparable store sales growth we have produced year to date. We expect comparable store sales growth in the second half of the year to be in the range of 10 to 12 percent, reflecting a regression to the mean, as well as the negative Easter shift, an expectation that some Southern California customers may return to their historical shopping patterns, and increasingly tougher year-over-year comparisons.
  
  We expect operating margin improvement in fiscal year 2004 primarily due to slight improvements in gross profit and G&Amp;A as a percentage of sales. Pre-opening and relocation expense is expected to be in the range of $10 million to $12 million.
  
  Capital expenditures are expected to come in at the high end of our $210 million to $240 million range. Our cap ex budget is higher than in prior years because it includes the majority of costs related to our new headquarters building scheduled to open in late 2004, certain costs that will be incurred in fiscal 2004 for an accelerated rate of new store openings in fiscal 2005, and because our stores in development are larger. We expect to fund our cap ex with cash flow from operations and the issuance of stock from options exercises, so we do not expect any borrowings on our $100 million dollar credit line for the year. Interest expense, net of investment and other income, is now expected to be in the range of $2 million to $3 million as our cash balances and investment income are higher than previously estimated.
  
  Our original EPS guidance for the fiscal year was $1.88 to $1.96. After our strong first quarter results, we raised our guidance range to $1.93 to $2.02. Due to our higher-than-expected second quarter earnings, we are today again raising our guidance for fiscal year 2004 diluted earnings per share to $2.03 to $2.10.
  
  While we are proud of and excited about our year-to-date results, we are concerned about the expectations that may result. We expect that our sales, comps and earnings per share increases will return to more historical levels in the second half of the year. We also note that in the third quarter last year we had a $0.03 gain from the sale of Blooming Prairie Cooperative that we will not have in the current year.
  
  We are not prepared to issue fiscal year 2005 guidance at this time; however, we would like to emphasize that comparisons in the first half of fiscal year 2005 are going to be extremely difficult against the above-average results we have produced so far this year including 23 percent sales growth, 15.8 percent comps and 38 percent earnings per share growth. As a result, we expect below average increases in sales, comps and earnings per share in the first half of next fiscal year.
  
  The Whole Foods Market business model is very successful. We continue to execute at a high level, posting strong sales, comps and earnings. We are continuing to build a strong pipeline of new stores and have sufficient capital available to grow as rapidly as we can. We believe our results will continuously improve as we open bigger and better new stores at an accelerated rate in the years ahead, and from our consistently strong comparable store sales growth.
  
  — EVA® is a registered trademark of Stern Stewart & Co.
February 11th - 1st Quarter Results
- Good afternoon. Joining me today are Glenda Flanagan, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Business Development, AC Gallo and Walter Robb, Executive Vice Presidents and Chief Operating Officers, 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 timely development and opening of new stores, the integration of acquired stores, the impact of competition, and other risks detailed from time to time in the Company's SEC reports, including the report on Form 10K for the fiscal year ended September 28, 2003. The Company does not undertake any obligation to update forward-looking statements.
  
  Please note that our press release includes an income statement, balance sheet and cash flow statement, all of which are now available on our website at wholefoodsmarket.com along with the scripted portion of this call.
  
  Today, I will review our performance for the first quarter, initiate guidance for the second quarter, and update our guidance for the fiscal year.
  
  For the first time in our company's 23-year history, our quarterly sales were over one billion dollars. Our 21 percent increase in sales to $1.1 billion was driven by 8 percent weighted average square footage growth and a comparable store sales increase of 14.7 percent. This strength in sales was apparent in all of our regions across the country, as we produced comparable store sales growth of 12.8 percent excluding the 17 stores positively impacted by the strike in Southern California. Our comp performance is even more impressive when you consider that it was on top of a 10.5 percent comparable store sales increase last year, which is well above our 8.5 percent 10-year average. This resulted in a record 25 percent two-year comp for all stores.
  
  As you would expect due to the strike, our breakdown between transaction count and basket size contribution to comps is slightly higher in transaction count than our historical 60 to 40 ratio. In the early weeks of the strike we assumed that sales would taper off as customers returned to their regular shopping patterns; however, that does not appear to be happening as of yet.
  
  Net income for the quarter increased 51 percent to $39 million and diluted earnings per share increased 45 percent to $0.60. These year-over-year percentage increases were well above average because of our stronger-than-expected sales, a positive contribution from our Harry's stores and facilities compared to a loss in the prior year, lower pre-opening expenses year over year, and last year's greater pre-tax impairment charge related to our now liquidated investment in Gaiam.
  
  For the quarter, G&Amp;A improved 17 basis points to 3.2 percent of sales and store contribution improved 46 basis points to 9.2 percent of sales. The improvement in store contribution was driven by a 7 basis point decrease in direct store expenses to 25.2 percent of sales and a 39 basis point increase in gross profit to 34.4 percent of sales. For the last four years, our gross margins have averaged 34.5 percent, which we believe is about the right place for us to be. In any given quarter, margins may be up or down slightly depending on the mix of sales from new stores or the impact of weather or a host of other factors. While we always have initiatives in place to drive better purchasing, we usually pass those savings on to our customers as lower prices. Our pricing strategy continues to be market driven; we aim to be competitively priced on the same or similar items in grocery and Whole Body, while our perishables may be priced at a premium to reflect the higher quality of product available in our stores.
  
  We produced a significant $7.2 million dollar improvement in EVA^® year over year driven by a 49 percent increase in net operating profit after taxes. Our comparable stores produced an annualized net operating profit after-tax return on invested capital during the first quarter of 33 percent.
  
  Our balance sheet continues to strengthen. Year-over-year, total assets increased 26 percent to $1.3 billion, total liabilities increased 20 percent to $458 million, and shareholders' equity increased 30 percent to $819 million. We produced cash flow from operations of $84 million. Capital expenditures for the quarter totaled $69 million, including $35 million for new stores. At the end of the quarter, we had $171 million in long-term debt and $182 million in cash and equivalents.
  
  On January 16th, we paid approximately $9 million to shareholders in our first quarterly dividend. The $0.15 per share dividend was paid to shareholders of record as of January 6th. Subject to capital availability and a determination that cash dividends continue to be in the best interest of our shareholders, it is the intention of our Board of Directors to pay a quarterly dividend on an ongoing basis, and we hope our continued success will allow us to steadily increase this dividend over time.
  
  During the quarter, we opened our second store in San Francisco. The 30,000 square foot store located in the South of Market district caters to its community with a large focus on prepared foods including food bars featuring vegan, vegetarian and high-protein options as well as a rotating range of ethnic foods in the global cuisine section. The SOMA district population has increased faster than any other area in the city, and the store has opened with sales well above our projections.
  
  We continue to build our new store pipeline, today announcing leases for seven new stores averaging 45,000 square feet in size. We have announced five or more newly signed leases in each of the last five quarters and now have 41 stores and a record 1.9 million square feet under development. This is an 81 percent increase in square footage under development over this time last year and represents 40 percent of our existing square footage. Our goal is to produce 15 percent weighted average square footage growth in fiscal 2005 and beyond.
  
  While our growth prospects in the U.S. are obviously abundant as demonstrated by our record store development pipeline, one of our goals is to extend our company mission and the Whole Foods Market brand beyond North America. On January 30th, after the end of the first quarter, we issued approximately $20 million in cash and $16 million in stock for the previously announced acquisition of Fresh & Wild Holdings Limited, a chain of seven natural and organic foods stores in London with sales of approximately 18 million British Pounds or $29 million for the year ended December 31, 2003.
  
  We are pleased to announce that we have selected Otto Leuschel to lead the Fresh & Wild integration team. Otto is especially qualified for this position having worked for Whole Foods for over 13 years during which time he was the opening Store Team Leader of two of our highest volume, most successful stores  in San Francisco and New York City.
  
  We believe Fresh & Wild will be as significant of an acquisition to our company as Bread & Circus, Mrs. Gooch's, Fresh Fields and Harry's Farmers Market have been. We have a solid track record of leveraging our retail acquisitions, and Fresh & Wild provides us with a strong Team Member base, a management team with extensive operating knowledge of the U.K. retail market, access to a loyal and growing customer base, established relationships with local suppliers, and an infrastructure capable of supporting immediate expansion. We are actively seeking real estate sites in the London area with the goal of opening a large format Whole Foods Market store over the next few years.
  
  On February 5th, we opened our 59,000 square foot Columbus Circle store, which is the largest supermarket in New York City. The store has received an incredible response from customers and the media, with hundreds of people waiting in line to sit in our 248-seat café; enjoy fresh-cut sushi wrapped in organic seaweed at our full service Sushi Bar; tour our walk-in Greenhouse; peruse our Wine Shop with over 700 varieties of wine; tempt themselves at our bakery's Chocolate Enrobing Station where customers can request just about anything covered in chocolate; and explore our Whole Body department featuring the largest selection of luxurious natural and organic body care items and cosmetics, as well as an extensive selection of unadulterated nutritional supplements and vitamins.
  
  Now back to the numbers. Our guidance for the second quarter and fiscal year 2004 is as follows:
  
  We continue to expect total sales growth for fiscal year 2004 in the range of 15 to 20 percent. We expect weighted average year-over-year square footage growth for the year of 10 percent, including 41,000 square feet related to the expansion of six existing stores. While we have built a record pipeline of new stores, it will take time before these stores start to rapidly open. Therefore, as we have previously stated, an acceleration in new store openings and weighted average square footage growth is not expected until later in the fiscal year. We expect to open four new stores in the first half of the year and nine to ten new stores, including one Fresh & Wild store and a relocation of an existing store, in the second half of the fiscal year. We now anticipate our Union Square store in New York City will open late in the first quarter of fiscal year 2005, rather than in this fiscal year, due to delays in the developer turning the site over to us.
  
  We expect second quarter comparable store sales growth of 11 to 14 percent. This is higher than our historical performance, reflecting some continued positive sales benefit from the ongoing strike, Easter shifting from the third quarter last year to the second quarter this year, and a below-average 7 percent comparable store sales increase in the prior year. Our comparable store sales in the prior year were negatively impacted by severe weather across several major markets, the start of the war, and Easter shifting from the second quarter of fiscal year 2002 to the third quarter of fiscal year 2003. We expect comparable store sales growth for the second half of the year to be in range of 8 to 10 percent, assuming the strike in Southern California has ended and noting the increasingly tougher year-over-year comparisons.
  
  We continue to expect operating margin improvement in fiscal year 2004 primarily due to slight improvements in gross profit, direct store expenses and G&Amp;A as a percentage of sales. Pre-opening and relocation expense is still expected to be in the range of $10 million to $12 million.
  
  Our capex budget for fiscal 2004 is $210 million to $240 million. This is higher than in prior years because it includes the majority of costs related to our new headquarters building scheduled to open in late 2004, certain costs that will be incurred in fiscal 2004 for an accelerated rate of new store openings in fiscal 2005, and costs associated with a number of major remodels and because our stores in development are larger. We expect to fund our capex with cash flow from operations and the issuance of stock from options exercises, so we do not expect any borrowings on our $100 million dollar credit line for the year. Interest expense, net of investment and other income, is expected to be in the range of $3 million to $4 million, excluding the impact of potential future quarterly dividend payments.
  
  While we are proud of and excited about our first quarter results, we are concerned about the expectations that may result. The strike will not last forever, and while we believe we will retain some of the new customers that we have gained during this time, we expect the majority of these customers will return to their normal shopping habits and our sales and profit increases will return to more historical levels. Based on our comparable store sales guidance for the second quarter of 11 to 14 percent, we are initiating diluted earnings per share guidance for the quarter of $0.47 to $0.50, an expected year-over-year increase of 15 to 22 percent. We expect pre-opening and relocation expense in the second quarter of approximately $2.5 million to $3 million due to three new store openings planned for the second quarter and nine to ten new store openings planned for the second half of the fiscal year, as well as accelerated depreciation for several planned store relocations.
  
  Due to our higher-than-expected first quarter earnings and some expected continued positive benefit from the ongoing strike in the second quarter, we are raising our previously stated guidance for fiscal year 2004 diluted earnings per share to $1.93 to $2.02 from $1.88 to $1.96.
  
  Comparisons in the first quarter of fiscal year 2005 are going to be extremely difficult, so we want to start preparing you now for that eventuality - which will almost surely result in below-average increases in sales and earnings. Our two year averages will be particularly relevant then.
  
  The Whole Foods Market business model is very successful. We continue to execute at a high level, posting strong sales, comps and earnings. We are continuing to build a strong pipeline of new stores and have sufficient capital available to grow as rapidly as we can. We believe our results will continuously improve as we open bigger and better new stores at an accelerated rate in the years ahead, and from our consistently strong comparable store sales growth.
  
  — EVA® is a registered trademark of Stern Stewart & Co.
January 16th - Whole Foods Market Expands into U.K.
- Good afternoon. Joining me today are Glenda Flanagan, Executive Vice President and Chief Financial Officer, Jim Sud, Executive Vice President of Growth & Business Development, AC Gallo and Walter Robb, Executive Vice Presidents and Chief Operating Officers, David Lannon, President of the Northeast Region, 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 timely development and opening of new stores, the integration of acquired stores, the impact of competition, and other risks detailed from time to time in the Company's SEC reports, including the report on Form 10K for the fiscal year ended September 28, 2003. The Company does not undertake any obligation to update forward-looking statements.
  
  Every five years, Whole Foods Market hosts an event we call Future Search. At Future Search, we bring together members of our various stakeholder groups including customers, Team Members, investors and vendors, along with our Board of Directors and National Leadership Team, to collectively envision the future of our company. Last October, we hosted our fourth Future Search with 135 people participating over a three day period. It was a successful event that produced some very powerful goals and aspirations for Whole Foods Market over the next five years. While our growth prospects in the U.S. are abundant and continue to increase, one of the goals for which there was tremendous passion was extending our company mission and the Whole Foods Market brand beyond North America.
  
  Global expansion has come up at prior Future Search events, but we never felt the time was right. Over the past two years, our management team has been actively exploring overseas opportunities and evaluating strategies for Whole Foods Market to best capitalize on those opportunities with the goal of maintaining the same discipline relative to our European expansion that we have upheld with such success in the U.S.
  
  We now believe the time is right, and we are very pleased to announce today the signing of a definitive agreement to acquire Fresh & Wild for approximately $38 million. We have the depth of management and the financial resources to make such an investment while maintaining our current growth plans in the U.S. and Canada. We are taking an incremental approach to globally expanding our company and believe the U.K. is the best entry point just as other leading branded retailers who have entered the European market have determined. The UK market offers an advanced acceptance of organics, well developed supply chain, and lack of language barriers, and we believe an acquisition is the right strategy for our first overseas venture.
  
  Fresh & Wild is the U.K.'s leading independent organic retailer with six natural and organic food stores in London, one store in Bristol and one store in development scheduled to open in London later this year. The store base is approximately three years old with stores averaging 5,200 gross square feet in size. The stores feature organic foods, natural remedies, juice bars and delis. For the twelve months ending December 31, 2003, total revenues were approximately $29 million and identical store sales increased 10%.
  
  Fresh & Wild is a good strategic and cultural fit with a customer demographic that is very similar to ours and a Team Member base that is focused on high quality customer service. We have always been committed to offering our customers a unique shopping experience and one of the ways we accomplish that is through offering a wide selection of international products. We are very excited that we will now have everyday access to the latest European products and trends which we can then share with our stores across the company giving us an extra edge against our domestic competitors. We plan to make minimal capital investments in the stores, and our merchandising approach is to keep the aspects that make the Fresh & Wild stores great while adding elements that have been successful at Whole Foods Market. The stores will join our Northeast Region and continue to operate under the Fresh & Wild brand. We will hire an additional Northeast regional vice president to be based in London to help ensure a smooth and successful integration and to spearhead opportunities for the development of future Whole Foods Market stores.
  
  The terms of the deal are as follows:
  
  Today we signed a definitive agreement to acquire Fresh & Wild Holdings Limited in a stock purchase transaction valued at approximately $38 million, subject to post-closing adjustments. Fresh & Wild shareholders will have until January 26, 2004 to elect to receive any combination of cash or Whole Foods Market common stock. The number of shares issued will be based on the $68.586 average closing price of Whole Foods Market common stock for the last 10 trading days ending today. We expect the transaction to close by the end of February.
  
  We believe Fresh & Wild can be as significant of an acquisition to our company as Bread & Circus, Mrs. Gooch's, Fresh Fields and Harry's Farmers Markets have been. We have a solid track record of leveraging acquisitions and Fresh & Wild provides us with a strong Team Member base, a management team with extensive operating knowledge of the U.K. retail market, access to a loyal and growing customer base, established relationships with local suppliers and an infrastructure capable of supporting immediate expansion. We are actively seeking real estate sites in the London area with the goal of opening a large format Whole Foods Market store over the next few years. This acquisition is not expected to impact our previously stated diluted earnings per share guidance for the current fiscal year of $1.88 to $1.96.

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