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Whole Foods Market Earnings Call, Fourth Quarter 2008
Author: Godwin Gwetu
Last Update: 1:20 AM ET November 12 2008


The leading natural and organic foods supermarket generated full year consolidated sales of $8 billion compared with $6.6 billion for the full year 2007. The full year net income dipped to $114.5 million or 82 cents per share versus 2007 net income of $182.7 million or $1.29 per share. The company also announced an agreement for $425 million of additional equity from sale of Series A Preferred Stock to Green Equity Investors V, L.P., an affiliate of Leonard Green & Partners, L.P.

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This summary is based on the fourth quarter fiscal 2008 earnings call conducted by Whole Foods Market Inc. (WFMI) on November 5, 2008.


Chairman and CEO: John Mackey
EVP and CFO: Glenda Chamberlain
Co-President and COO: Walter Robb
Co-President and COO: A.C. Gallo
EVP, Growth and Business Development: Jim Sud

Key Investor Issues:

- Full year dividend per share was 60 cents versus 87 cents in fiscal 2007.
- Q4 sales increased marginally to $1.8 billion from $1.7 billion in the year ago period.
- Quarter-to-quarter net income slumped from $33.9 million to $1.5 million.

Fourth Quarter Financial Highlights:

For the fiscal year sales grew a healthy 24% driven by comparable stores sales growth of 5%.

- For the fourth quarter sales increased 16% to $1.8 billion.
- This is excluding $49 billion in sales from the 35 subsequently divested Henry''s and Sun Harvest stores and 13 of the subsequently closed Wild Oats stores in Q4 of last year.
- Comparable store sales grew 0.4% versus an 8.2% increase in the prior year and identical store sales declined 0.5% versus a 6% increase in the prior year.

The Whole Deal program launched in July helped to highlight the values the company offers with imperishable.

- The program includes a quarterly in-store guide providing specialty price product discounts, money saving coupons and tips as well as budget recipes.
- For the July to September period, there was a lift on all items included in the Whole Deal program with perishables driving significant majority of the sales list.

For store in the identical store base, excluding Wild Oats stores, gross profit in Q4 decreased 106 basis points.

-This was 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.

The SKU count offerings under the company’s own label increased 27% year-over-year to just less than 2600 with sales at 21% of total grocery and Whole Body sales.

- The company has now closed the 300 exclusive branded products with another 20% in the pipeline.
- The management announced that Michael Besancon, formal President of the Southern Pacific region has accepted a newly created position of Senior Global Vice President of Purchasing, Distribution and Marketing.
- Michael will be reporting to the two Co-Presidents.
- The company’s goal with this new position is to create a collaborative vision for the purchasing, marketing and distribution teams at the regional and global levels.

Identical stores continue to deliver healthy improvement despite decelerating sales and direct store expenses, which decreased 43 basis points in the quarter primarily driven by levers in the wages.

- The management opened eight new stores, including two relocations in the fourth quarter.
- These stores averaged 52,000 square feet and included three new markets being Venice, California; Honolulu, Hawaii and Richmond, Virginia.
- The Venice Beach store was off to a very strong start ranking as the highest volume store in the Southern Pacific region.
- The company is also opening the first four stores in Hawaii, the Honolulu store in Kahala Mall opened with over 20% of its inventory and local product.

For the quarter, the 26 new and relocated stores averaged 54,000 square feet in size and are approximately seven months old.

-The average weekly sales were $582,000 translating to sales per square foot of $553.
- The new stores during the quarter produced a higher store contribution as a percentage of sales in the class of new stores in Q4 last year and accounted for approximately 9% of the core sales versus 10% last year.

The company is now one year into the merger with Wild Oats.

- The management has made many of the upfront investments and product, quality, labor pricing and repairs and maintenance.
- This is designed to raise the overall shopping experience in the Wild Oats stores up to the expected standards.
- Sales at the 55 continued 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%.
- Continuing stores produced a 54 basis points 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 9 cents per share in the quarter.
- The dilution run rate is primarily due to non-operating charges of approximately 6 cents per share relating to idle Wild Oats properties and asset impairments at two continuing Wild Oats locations.
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Sources: Data collected by and from company press releases, filings and corporate websites.
Market data: BATS Exchange. Inc.

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