Whole Foods Market, Inc. Q4 Earnings Call Transcript


Whole Foods Market, Inc. (WFMI)
Q4 2009 Earnings Call Transcript
November 4, 2009 5:00 p.m. ET

Executives

John P. Mackey - Chairman and Chief Executive Officer
A. C. Gallo - Co-President and Chief Operating Officer
James P. Sud - Executive Vice President, Growth and Business Development
Walter Robb - Co-President and Chief Operating Officer
Cindy McCann - Vice President, Investor Relations.
Glenda J. Chamberlain - Executive Vice President and Chief Financial Officer

Analysts

John Heinbockel - Goldman Sachs
Charles Grom - J.P. Morgan
Mark Wiltamuth - Morgan Stanley
Alvin Concepcion - Citigroup
Scott Mushkin - Jefferies & Co
Meredith Alder - Barclays Capital
Edward Aaron - RBC Capital Markets
Karen Short - BMO Capital Markets
Neil Currie - UBS
Robert Summers - Pali Capital
Mark Miller - William Blair & Company, L.L.C.

Presentation

Operator

Welcome to today’s teleconference. At this time, I would like to turn the conference over to Mr. John Mackey. Please go ahead, sir.

John P. Mackey

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 and Development; and Cindy McCann, Vice President of Investor Relations.

First for the legalities. The discussion we are having will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and these statements involve risks and uncertainties that may cause actual events, results and/or performance to differ materially from those indicated by such statements. These risks and uncertainties include those outlined in today’s call as well as any other risks identified from time-to-time in the company’s public statements and reports filed with the SEC. I hope you had a chance to read our press release which is available on our website along with a scripted portion of this call.

We’re 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 a positive territory quarter to-date at 1.6% and 0.4% respectively.

We believe we’re continuing to strike the right balance between sales and gross margin while maintaining our cost control disciplines. On a 2.3% increase of sales for the quarter we produced a 70-basis point improvement in operating margin to 3.6% of sales, excluding LIFO and the prior year charges as outlined in our press release.

A 46% increase in adjusted EBITDA to $133.5 million, cash flow from operations of $113 million and $51 million of positive free cash flow. Variable store sales decreased 0.9% and identical store sales decreased 2.3%. This is an improvement from the 2.5% and 3.8% respective decreases we reported for the third quarter. Every department in almost every region showed sequential improvement in identical stores from the third quarter.

Transaction counts for comparable stores increased 1.4% 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% in Q3 to 0.4% 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% of sales, in line with our guidance.

Excluding LIFO, gross profit for the quarter increased 46 basis points to 34% 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.