For the quarter, the effective tax rate was 90.3%.
- Net income was $1.5 million and diluted earnings per share were 1 cent.
- These results include approximately charges of 15 cents per share that were not part of the guidance.
- The management increased the store closure reserves to 40 closed Wild Oats stores by $14.7 million or 27% to $64 million.
- The higher tax rate for the quarter was primarily due to the repatriation of $60 million in cash from the Canadian subsidiary and the ketchup adjustments to bring the effective rate for the year to 41.6%, which impacted earnings by 5 cents per share.
- The company recorded approximately $5.5 million or 2 cents per share as non-cash charges related to 13 lease terminations of Whole Foods stores that were in development.
- Additionally, the management recorded approximately $1.5 million, or 1 cent 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 the recorded asset balances.
- The store closure and lease termination expense include $2.6 million or 1 cent per share related to the closure of two regional bake-houses and one Fresh & Wild store in Bristol and England.
- The G&A expenses include $2.5 million, or 1 cent per share in legal cost related to the FTC lawsuit.
- Approximately $75 million relating to depreciation and amortization, share based payment, LIFO and deferred rent was expensed for accounting purposes but was non-cash.
- The company produced approximately $82 million in EBITDA and $97 million in earnings interest taxes, depreciation and amortization other non-cash expenses or EBITANCE.
The company raised $425 million of additional equity from the sale of the Series A Preferred Stock to Green Equity Investors V, L.P., an affiliate of Leonard Green & Partners, L.P.
- Leonard Green & Partners, one of the most experienced and successful investors in the retail industry, decided to make a significant investment in Whole Foods Market.
- The management views it as a strong vote of confidence in the business model and the long-term growth prospects despite the tough current economic environment.
- The equity infusion combined with strong cash flow from operations gives the financial flexibility to manage through the difficult economic times while continuing to prudently invest in long-term growth.
Fiscal 2009 Guidance:
- For the first five weeks of the first quarter ended November 2, 2008 comparable store-sales decreased 2.1% versus a 9.0% increase in the prior year.
- The identical store sales decreased 3.3% versus a 6.7% increase in the prior year.
- Due to the difficulties in forecasting under a changing environment, the management did not provide comparable store-sales guidance.
- However, the flat comparable store sales assumptions combined with the expectation of eight net new store opening translated total sales in the range of $8.3 billion for fiscal year 2009.
- The management estimates 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 95 cents to $1 excluding approximately 6 cents to 8 cents per share in estimated dilution from FTC-related legal costs and an estimated 19 cents per share impact from the Preferred Series A stock.
Key questions and answers from the fourth quarter fiscal 2008 earnings call conducted by Whole Foods Market on November 5, 2008.
Neil Currie (UBS): What are the chances of getting out of the Ideal stores soon?
Jim Sud: It’s becoming more and more challenging as the economy is not cooperating with this so we have hired an outside firm to work with this. They are in charge of disposition of excess properties and they are taking a very conservative approach based on current economic conditions.
Mark Wiltamuth (Morgan Stanley): Could you give us some progress update on how you’re doing on downsizing stores in the pipeline and any other efforts you have on expense control?
John Mackey: As far as downsizing, we are for the most part almost done with that process. There are a few sizes that we are currently working on.
Walter Robb: With respect to expense controls, the results in the Q4 and the item stores particularly show reasonable discipline in the gross margin and discipline in the labor and other direct store expenses. We are happy to say that those trends are continuing and are reflected in the guidance.
Mark Wiltamuth (Morgan Stanley): Do you see any scenario where you would cut store numbers any further or you are going to keep moving forward with these store openings?
Walter Robb: If you notice in the press release that we spaced up 66 stores that were still in development over the next four years and we should have operating cash flow adequate to open those stores at a measure rate. Thus we don’t anticipate adding that many new stores to the inventory unless there is a simultaneous elimination of stores from landlords who want to able to get their financing or haven’t been able to meet the covenants of the lease. In that way, we have got it organized and we are growing in a very sustainable pace that we should have adequate cash flow from operations to cover. Hence we are not looking to gut our development any further.
Ed Aaron (RBC Capital Markets): On the preferred investment, is the $425 million just for modeling purposes or its net proceeds? Can you also talk about the use of those proceeds; will you pay down debt immediately or do you plan on just keeping the cash on the balance sheet for now and how does that affect your debt covenants?
Glenda Chamberlain: We will pay down our line of credit immediately and the rest of that will just remain on the balance sheet. We have two debt covenants; one is our leverage ratio and of course it has the positive impact on that because it reduces our debt, although we certainly had tremendous amount of cushion anyway on that one. The other one is the fixed charge coverage ratio which has less effect on that but it does have a slight improvement because of that investment income that would be included in the calculation of earnings before interest and taxes and because the denominator would be lower as your interest expense goes down. We also weren’t in any trouble at all on that covenant.
Josh Dexter (Soak Bee): Looking at the market cap of about $4 billion to $5 billion and say that each of your stores has a value of $5 million or $6 million in the current market and you are spending $20 million to open new stores. Why would we want to sell stock to a new party at that level?
John Mackey: It makes sense because we are in very uncertain economic times and we are certain what is going to happen. The Management Team in looking out over the long-term wanted to be as prudent as possible to make sure we had adequate liquidity to see as through whatever comes down in the pike.
Josh Dexter (Soak Bee): Do you think EVA per share will be positive?
Walter Robb: We believe that the stores that we have in development will produce positive EVA on a present value basis, for both the short term and the long term.
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