FORM 10-Q
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 April 13, 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 (IRS employer
incorporation) 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 April 13, 1997 was 19,306,000 shares.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
April 13, 1997 and September 29, 1996
(In thousands, except share data)
<CAPTION>
1997 1996
ASSETS
<S> <C> <C>
Current assets:
Cash $5,428 $1,720
Merchandise inventories 43,973 38,077
Accounts receivable and other 26,023 21,831
Total current assets 75,424 61,628
Net property and equipment 212,672 197,178
Excess of cost over net assets acquired, net 36,111 36,722
Other assets 22,784 15,076
$346,991 $310,604
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<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Current installments of long-term debt $838 $1,014
Trade accounts payable 24,352 22,756
Accrued expenses and other 38,888 32,971
Total current liabilities 64,078 56,741
Long-term debt, less current installments 102,000 84,277
Other long-term liabilities 23,205 23,139
Total liabilities 189,283 164,157
Shareholders' equity:
Common stock, no par value, 50,000,000 shares
authorized; 19,306,000 and 19,179,000
shares issued and outstanding 171,078 170,122
Retained deficit (13,370) (23,675)
Total shareholders' equity 157,708 146,447
$346,991 $310,604
See accompanying notes to condensed consolidated financial statements.
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WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)
(In thousands, except per share data)
<CAPTION>
Twelve weeks ended Twenty-eight weeks ended
April 13 April 7 April 13 April 7
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Sales $241,443 $203,912 $539,089 $448,898
Cost of goods sold and occupancy costs 163,392 138,083 367,723 306,864
Direct expenses 58,661 50,055 131,280 111,582
Store contribution 19,390 15,774 40,086 30,452
Pre-opening and relocation costs 1,129 2,712 2,733 3,710
Amortization expense 563 343 1,284 797
General and administrative expenses 7,464 7,476 16,701 17,723
Restructuring expenses 0 1,984 0 1,984
Income from operations 10,234 3,259 19,368 6,688
Net interest expense 1,509 860 3,266 1,726
Income before income taxes 8,725 2,399 16,102 4,962
Income taxes 3,141 882 5,797 3,404
Net income $5,584 $1,517 $10,305 $1,558
Net income per common and
common equivalent share $0.28 $0.08 $0.52 $0.08
Weighted average shares outstanding 19,945 19,419 19,930 19,280
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
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WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<CAPTION>
Twenty-eight weeks ended
April 13 April 7
1997 1996
<S> <C> <C>
Net cash flow from operating activities $25,382 $12,622
Cash flow from investing activities:
Acquisition of property and equipment (31,706) (36,263)
Acquisition of leasehold rights (8,066) 0
Other (403) (153)
Net cash flow used by investing activities (40,175) (36,416)
Cash flow from financing activities:
Net proceeds from bank borrowings 24,000 25,000
Payments on long-term debt (6,454) (7,879)
Sale of common stock 955 1,435
Net cash flow from financing activities 18,501 18,556
Net increase (decrease) in cash and cash equivalents 3,708 (5,238)
Cash and cash equivalents at beginning of period 1,720 11,532
Cash and cash equivalents at end of period $5,428 $6,294
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
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WHOLE FOODS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 13, 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
Subsequent to the end of the second 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 will be accounted for using the pooling-of-interests method. 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
andpresenting 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.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS - Twelve and twenty-eight weeks ended April 13, 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 Companys financial performance improved significantly for the twelve and
twenty-eight weeks ended April 13, 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 18% for the second fiscal quarter and 20% for the twenty-eight
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 7.4% for
the quarter and approximately 6.3% 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. Goochs to Whole Foods Market.
Increased same store sales in other regions resulted from both higher customer
counts and average transaction amounts, reflecting increases in market share as
stores mature.
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 twenty-eight
weeks ended April 13, 1997 was 32.3% and 31.8%, respectively, compared to 32.3%
and 31.6% for the same periods of the prior year. Direct store expenses as a
percentage of sales were 24.3% and 24.4%, respectively for the twelve and
twenty-eight weeks of the current fiscal year compared to 24.5% and 24.9%,
respectively, for the prior fiscal year. The resultant increase in store
contribution percentage reflects improved performance from stores open more than
one year as compared to the prior year, and from new stores as compared
tohistorical new store results.
Pre-Opening and Relocation Costs
Pre-opening and relocation costs for the twelve and twenty-eight weeks ended
April 13, 1997 relate to the openings of new Company stores in San Rafael and
San Diego and the relocation of a Chicago area store in the second fiscal
quarter, and to openings of new Company stores in the Washington DC area,
LaJolla, California and Philadelphia in the first fiscal quarter. In the prior
fiscal year, there were seven new store openings and one store relocation
through the second quarter. 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 weeks and twenty-eight weeks to 3.1% for both
periods of the current year from 3.7% and 3.8%, respectively, for the prior year
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.
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Interest Expense
Net interest expense for the second quarter was approximately $1,509,000
compared to approximately $860,000 for the second quarter of the prior year, net
of capitalized interest of approximately $133,000 and $304,000, respectively.
Current year-to-date interest expense was approximately $3,266,000 compared to
approximately $1,726,000 for the same period of the prior year, net of
capitalized interest of approximately $403,000 and $779,000, respectively.
Interest expense consists primarily of costs related to bank debt and senior
notes payable, net of capitalized interest associated with new store
development. The Company expects to incur greater interest expense in the
remainder of fiscal 1997 compared to the prior year due to increased balances
currently outstanding under its bank line of credit and senior notes payable.
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 April 13, 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 thirteen stores currently under
development that are expected to open during the next twenty-four months. The
Company expects that cash generated from operations and available under its bank
line of credit will be sufficient to fund cash needs through the end of fiscal
1997.
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.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On March 24, 1997, the Company held its annual meeting of shareholders to elect
ten directors of the Company. Each of the ten directors nominated by the Company
was elected, with voting results as follows:
For Against Abstaining
Cristina G. Banks 14,482,724 6,912 19,831
David W. Dupree 14,487,747 1,889 19,831
John B. Elstrott 14,487,821 1,815 19,831
Elizabeth Cogan Fascitelli 14,483,559 6,077 19,831
Avram J. Goldberg 14,487,294 2,342 19,831
Fred Lager 14,481,562 8,074 19,831
John P. Mackey 14,487,959 1,677 19,831
Linda A. Mason 14,483,108 6,528 19,831
Ralph Z. Sorenson 14,477,437 12,199 19,831
James P. Sud 14,487,330 2,306 19,831
Subsequent to the election, James Sud joined the executive management team of
the Company in the new position of Vice-President of Operations. He resigned
from the Board upon acceptance of his new position.
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 April 13, 1997.
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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: May 27, 1997 By: Glenda Flanagan
Glenda Flanagan
Vice President and
Chief Financial Officer
(Duly authorized officer and
principal financial officer)
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<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE WHOLE FOODS MARKET 2ND QTR FORM 10-Q AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
<MULTIPLIER> 1,000
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-END> APR-13-1997
<PERIOD-TYPE> OTHER
<CASH> 5,428
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 43,973
<CURRENT-ASSETS> 75,424
<PP&E> 212,672
<DEPRECIATION> 0
<TOTAL-ASSETS> 346,991
<CURRENT-LIABILITIES> 64,078
<BONDS> 0
0
0
<COMMON> 171,078
<OTHER-SE> (13,370)
<TOTAL-LIABILITY-AND-EQUITY> 346,991
<SALES> 539,089
<TOTAL-REVENUES> 539,089
<CGS> 367,723
<TOTAL-COSTS> 367,723
<OTHER-EXPENSES> 151,998
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,266
<INCOME-PRETAX> 16,102
<INCOME-TAX> 5,797
<INCOME-CONTINUING> 10,305
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,305
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
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