SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the period ended July 6, 1997; or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________________
to _________________.
Commission File Number: 0-19797
WHOLE FOODS MARKET, INC.
(Exact name of registrant as specified in its charter)
Texas 74-1989366
(State of incorporation) (IRS employer
identification no.)
601 N. Lamar
Suite 300
Austin, Texas 78703
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code:
512-477-4455
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
The number of shares of the registrant's common stock, no par value,
outstanding as of July 6, 1997 was 19,648,000 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
July 6, 1997 and September 29, 1996
(In thousands, except share data)
1997 1996
------------------------
ASSETS
Current assets:
Cash $ 12,559 $ 1,720
Merchandise inventories 47,670 38,077
Accounts receivable and other 27,769 21,831
------------------------
Total current assets 87,998 61,628
------------------------
Net property and equipment 217,424 197,178
Excess of cost over net assets acquired, net 35,850 36,722
Other assets 22,399 15,076
------------------------
$363,671 $310,604
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 785 $ 1,014
Trade accounts payable 25,787 22,756
Accrued expenses and other 43,759 32,971
------------------------
Total current liabilities 70,331 56,741
------------------------
Long-term debt, less current installments 102,826 84,277
Other long-term liabilities 23,218 23,139
------------------------
Total liabilities 196,375 164,157
-------------------------
Shareholders' equity:
Common stock, no par value, 50,000,000 shares
authorized; 19,648,000 and 19,179,000
shares issued and outstanding 175,296 170,122
Retained deficit (8,000) (23,675)
-------------------------
Total shareholders' equity 167,296 146,447
-------------------------
$363,671 $310,604
=========================
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)
(In thousands, except per share data)
<TABLE>
<S> <C> <C> <C> <C>
Twelve weeks ended Forty weeks ended
July 6 June 30 July 6 June 30
1997 1996 1997 1996
-----------------------------------------------
Sales $257,634 $213,402 $796,723 $662,300
Cost of goods sold and occupancy costs 173,026 145,146 540,749 452,010
Direct expenses 63,333 52,082 194,613 163,664
------------------------------------------------
Store contribution 21,275 16,174 61,361 46,626
Pre-opening and relocation costs - 609 2,733 4,319
Amortization expense 565 346 1,849 1,143
General and administrative expenses 8,444 7,392 25,145 24,665
Restructuring expenses - - - 1,984
------------------------------------------------
Income from operations 12,266 7,827 31,634 14,515
Net interest expense 1,404 871 4,670 2,597
------------------------------------------------
Income before income taxes 10,862 6,956 26,964 11,918
Income taxes 3,910 2,293 9,707 5,697
------------------------------------------------
Net income $6,952 $4,663 $17,257 $6,221
================================================
Net income per common and
common equivalent share $0.33 $0.23 $0.85 $0.32
================================================
Weighted average shares outstanding 20,892 19,995 20,370 19,494
================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Forty weeks ended
July 6 June 30
1997 1996
----------------------
Net cash flow from operating activities $41,311 $25,756
Cash flow from investing activities:
Acquisition of property and equipment (41,034) (53,215)
Acquisition of leasehold rights (8,066) 0
Other (167) 108
----------------------
Net cash flow used by investing activities (49,267) (53,107)
----------------------
Cash flow from financing activities:
Net proceeds from bank borrowings 24,000 27,000
Net proceeds from issuance of senior notes payable 0 40,000
Payments on long-term debt (8,235) (48,264)
Proceeds from issuance of common stock 3,030 3,065
----------------------
Net cash flow from financing activities 18,795 21,801
----------------------
Net increase (decrease) in cash and cash equivalents 10,839 (5,550)
Cash and cash equivalents at beginning of period 1,720 11,532
----------------------
Cash and cash equivalents at end of period $12,559 $5,982
======================
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 6, 1997
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed financial statements of Whole Foods Market,
Inc. and subsidiaries ("Company") have been prepared in accordance with
generally accepted accounting principles for interim financial statements and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the
opinion of management, all adjustments, consisting of normal recurring accruals,
considered necessary for a fair presentation have been included. Certain
information and footnote disclosure normally included in annual financial
statements prepared in conformity with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10K for the fiscal year ended September 29,
1996.
The Company's fiscal year ends on the last Sunday in September. The first fiscal
quarter is sixteen weeks, the second and third quarters each are twelve weeks
and the fourth quarter is twelve or thirteen weeks. Fiscal year 1997 is a
fifty-two week year and fiscal year 1996 is a fifty-three week year.
2. Business Combination
In June 1997, the Company signed a definitive agreement to merge with Amrion,
Inc. ("Amrion"), a Boulder, CO based company engaged in developing, producing
and marketing nutriceuticals and nutritional supplements. Pursuant to the merger
agreement Amrion will become a wholly owned subsidiary of Whole Foods Market.
The terms of the agreement call for each outstanding share of Amrion common
stock to be converted into .87 shares of Whole Foods Market common stock, a
total consideration of approximately 4,680,000 shares of newly issued Company
stock. The merger transaction is intended to be accounted for using the
pooling-of-interests method. The merger is subject to the approval of the
shareholders of Whole Foods Market and Amrion at special meetings to be held by
both companies on September 11, 1997. Additional information regarding this
proposed transaction is included in the Company's Form S-4, File # 333-31269.
During the third fiscal quarter, the Company completed the acquisition of two
stores in South Florida doing business as Bread of Life in exchange for
approximately 200,000 shares of newly issued Company stock. The acquisition was
accounted for using the pooling-of-interests method. An adjustment to retained
earnings of approximately $1,582,000 has been recorded to include results of
Bread of Life operations prior to the combination in these financial statements.
Due to the immateriality of Bread of Life financial statements to the Company's
consolidated financial statements, financial information for the periods prior
to the combination has not been restated. Revenue and results of operations of
Bread of Life for the period from September 30, 1996 through the date of
acquisition are not material to the combined results.
3. Recent Pronouncement
In February 1997, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 128, Earnings per Share ("SFAS 128"), which is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods. Earlier application is not permitted. Effective
September 29, 1997, the beginning of the first quarter of fiscal 1998, the
Company will adopt SFAS 128, which establishes standards for computing and
presenting earnings per share ("EPS"). The statement requires dual presentation
of basic and diluted EPS on the face of the income statement for entities with
complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes the effect of potentially dilutive
securities while diluted EPS reflects the potential dilution that would have
occurred if securities or other contracts to issue common stock had been
exercised, converted, or resulted in the issuance of common stock. Diluted EPS
is expected to approximate the Company's fully diluted EPS as currently
calculated.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS - Twelve and forty weeks ended July 6, 1997 compared to
the same periods of the prior year.
The Company reports its results of operations on a fifty-two or fifty-three week
fiscal year ending on the last Sunday in September. The first fiscal quarter is
sixteen weeks, the second and third quarters each are twelve weeks and the
fourth quarter is twelve or thirteen weeks. Fiscal year 1997 is a fifty-two week
year and fiscal year 1996 is a fifty-three week year.
Overall
- -------
The Company's financial performance improved for the twelve and forty weeks
ended July 6, 1997 as compared to the same periods of the prior year. Decreases
in general and administrative expenses and increases in store contribution in
the current year, both as a percentage of sales, contributed to this
improvement. See below.
Sales
- -----
Sales increased 21% for the third fiscal quarter and 20% for the forty weeks
compared to the same periods of the prior fiscal year due to new stores opened
since last year and same store sales increases of approximately 9.7% for the
quarter and approximately 7.5% year-to-date. Comparable store sales in the
Southern California region for the current fiscal year have been negatively
affected by the July 1996 name change from Mrs. Gooch's to Whole Foods Market.
Increased same store sales in other regions resulted from both higher customer
counts and average transaction amounts.
<PAGE>
Store Contribution (Gross Profit less Direct Expenses)
- -----------------------------------------------------
Gross profit consists of retail sales less retail cost of goods sold and
occupancy costs, plus the net contribution from non-retail operations. The
Company's gross profit as a percentage of sales for the twelve and forty weeks
ended July 6, 1997 was 32.8% and 32.1%, respectively, compared to 32.0% and
31.8% for the same periods of the prior year. Direct store expenses as a
percentage of sales were 24.6% and 24.4% for the twelve and forty weeks,
respectively, of the current fiscal year compared to 24.4% and 24.7% for the
same periods of the prior fiscal year. The resultant increases in store
contribution percentage reflect improved performance from stores open more than
one year as compared to the prior year, and from new stores as compared to
historical new store results.
Pre-Opening and Relocation Costs
- --------------------------------
Pre-opening and relocation costs for the forty weeks ended July 6, 1997 relate
to the openings of new Company stores in the Washington DC area, LaJolla,
California and Philadelphia in the first fiscal quarter, and to openings of new
Company stores in San Rafael and San Diego and the relocation of a Chicago area
store in the second fiscal quarter. There were no new store openings or
relocations during the third fiscal quarter. In the prior fiscal year, there
were two new store openings in the third fiscal quarter and nine new store
openings and one store relocation for the forty weeks. No additional new store
openings or store relocations are scheduled for the remainder of the current
fiscal year.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses, excluding amortization, decreased as a
percentage of sales for the twelve and forty weeks ended July 6, 1997 from 3.3%
and 3.2%, respectively, compared to 3.5% and 3.7% for the same periods of the
prior year. These improvements are due to increases in sales at rates higher
than increases in such expenses, and to a decrease in personnel and related
overhead associated with the August 1996 merger between Whole Foods Market and
Fresh Fields.
Net Interest Expense
- --------------------
Net interest expense consists primarily of costs related to bank debt and senior
notes payable, net of capitalized interest associated with new store
development. Net interest expense for the third quarter was approximately
$1,404,000 compared to approximately $871,000 for the third quarter of the prior
year, net of capitalized interest of approximately $157,000 and $218,000,
respectively. Current year-to-date interest expense was approximately $4,670,000
compared to approximately $2,597,000 for the same period of the prior year, net
of capitalized interest of approximately $560,000 and $997,000, respectively.
The Company expects to incur greater interest expense in the remainder of fiscal
1997 compared to the same periods in the prior year due to increased balances
currently outstanding under its bank line of credit and senior notes payable.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION
During the second quarter of fiscal 1997, the Company amended its bank credit
agreement to increase its $75 million expansion line of credit to $100 million.
The revolving credit term, repayment terms and interest rate election options
under the bank credit agreement were not changed by the amendment. The amounts
borrowed under this agreement are convertible into a four year term loan upon
the expiration of the revolving credit term on June 30, 1999. At July 6, 1997,
approximately $62 million was drawn under this agreement.
No new store openings or store relocations are scheduled for the remainder of
the current fiscal year. The Company has seventeen stores currently under
development that are expected to open during the next two fiscal years. The
Company expects that cash generated from operations and available under its bank
line of credit will be sufficient to finance this expansion and other
anticipated working capital and capital expenditure requirements .
RISK FACTORS
The Company wishes to caution readers that inherent risks and uncertainties
including those listed below, among others, could cause the actual results of
Whole Foods Market to differ materially from those indicated by forward-looking
statements made in this Quarterly Report on Form 10-Q and other written
communications, as well as oral forward-looking statements made from time to
time by representatives of the Company. Except for historical information, the
matters discussed in such oral and written communications are forward looking
statements that involve risks and uncertainties, including but not limited to
general business conditions, the timely and successful development and opening
of new or relocated stores, the impact of competition and other factors which
are often beyond the control of the Company.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed with this report:
Exhibit 27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the fiscal
quarter ended July 6, 1997.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Whole Foods Market, Inc.
-----------------------
Registrant
Date: August 19, 1997 By: Glenda Flanagan
Glenda Flanagan
Vice President and
Chief Financial Officer
(Duly authorized officer and
principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE WHOLE FOODS MARKET 3RD QTR FORM 10-Q AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-END> JUL-06-1997
<CASH> 12,559
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 47,670
<CURRENT-ASSETS> 87,998
<PP&E> 217,424
<DEPRECIATION> 0
<TOTAL-ASSETS> 363,671
<CURRENT-LIABILITIES> 70,331
<BONDS> 0
0
0
<COMMON> 175,296
<OTHER-SE> (8,000)
<TOTAL-LIABILITY-AND-EQUITY> 363,671
<SALES> 796,723
<TOTAL-REVENUES> 796,723
<CGS> 540,749
<TOTAL-COSTS> 540,749
<OTHER-EXPENSES> 224,340
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,970
<INCOME-PRETAX> 26,964
<INCOME-TAX> 9,707
<INCOME-CONTINUING> 17,257
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,252
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.85
</TABLE>
