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Whole Foods Market Reports Third Quarter Results

Stocks in this article: WFM

About Whole Foods Market

Founded in 1980 in Austin, Texas, Whole Foods Market ( www.wholefoodsmarket.com) is the leading retailer of natural and organic foods and America's first national "Certified Organic" grocer . In fiscal year 2012, the Company had sales of approximately $12 billion and currently has 355 stores in the United States, Canada, and the United Kingdom. Whole Foods Market employs approximately 76,000 team members and has been ranked for 16 consecutive years as one of the "100 Best Companies to Work For" in America by Fortune magazine.

Forward-looking statements

The following constitutes a "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. Except for the historical information contained herein, the matters discussed in this press release are forward-looking statements that involve risks and uncertainties, which could cause our actual results to differ materially from those described in the forward-looking statements. These risks include general business conditions, changes in overall economic conditions that impact consumer spending, including fuel prices and housing market trends, the impact of competition and other risks detailed from time to time in the SEC reports of Whole Foods Market, including Whole Foods Market's report on Form 10-K for the fiscal year ended September 30, 2012. Whole Foods Market undertakes no obligation to update forward-looking statements. 

The Company will host a conference call today to discuss this earnings announcement at 4:00 p.m. CT.  The dial-in number is (866) 952-1906, and the conference ID is "Whole Foods." A simultaneous audio webcast will be available at www.wholefoodsmarket.com .

Whole Foods Market, Inc.
Consolidated Statements of Operations (unaudited)
(In millions, except per share amounts)
         
  12 weeks ended 40 weeks ended
  July 7, 2013 July 1, 2012 July 7, 2013 July 1, 2012
Sales  $ 3,058  $ 2,727  $ 9,941  $ 8,788
Cost of goods sold and occupancy costs  1,939  1,746  6,373  5,659
Gross profit 1,119 981 3,568 3,129
Direct store expenses  781  689  2,529  2,242
Store contribution  338  292  1,039  887
General and administrative expenses  95  88  302  278
Operating income before pre-opening and store closure  243  204  737  609
Pre-opening expenses  13  12  37  33
Relocation, store closure and lease termination costs  2  4  9  8
Operating income  228  188  691  568
Investment and other income, net of interest expense  2  2  8  6
Income before income taxes  230  190  699  574
Provision for income taxes  88  73  269  221
Net income  $ 142  $ 117  $ 430  $ 353
         
Basic earnings per share  $ 0.38  $ 0.32  $ 1.16  $ 0.97
Weighted average shares outstanding  371.4  367.5  370.9  363.1
         
Diluted earnings per share  $ 0.38  $ 0.31  $ 1.15  $ 0.96
Weighted average shares outstanding, diluted basis  374.6  371.8  374.2  367.5
         
Dividends declared per common share  $ 0.10  $ 0.07  $ 1.30  $ 0.21
         
         
A reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations follows:
         
  12 weeks ended 40 weeks ended
  July 7, 2013 July 1, 2012 July 7, 2013 July 1, 2012
Net income (numerator for basic and diluted earnings per share)  $ 142  $ 117  $ 430  $ 353
Weighted average common shares outstanding (denominator for basic earnings per share)  371.4  367.5  370.9  363.1
Potential common shares outstanding:        
Incremental shares from assumed exercise of stock options  3.2  4.3  3.3  4.4
Weighted average common shares outstanding and potential additional common shares outstanding (denominator for diluted earnings per share)  374.6  371.8  374.2  367.5
         
Basic earnings per share  $ 0.38  $ 0.32  $ 1.16  $ 0.97
Diluted earnings per share  $ 0.38  $ 0.31  $ 1.15  $ 0.96
 
Whole Foods Market, Inc.
Consolidated Statements of Comprehensive Income (unaudited)
(In millions)
         
  12 weeks ended 40 weeks ended
  July 7, 2013 July 1, 2012 July 7, 2013 July 1, 2012
Net income  $ 142  $ 117  $ 430  $ 353
Other comprehensive (loss) income, net of tax:        
Foreign currency translation adjustments (6) (3) (11) -- 
Other comprehensive (loss) income, net of tax  (6)  (3)  (11)  --
Comprehensive income  $ 136  $ 114  $ 419  $ 353
 
Whole Foods Market, Inc.
Consolidated Balance Sheets (unaudited)
(In millions)
     
     
Assets July 7, 2013 September 30, 2012
Current assets:    
Cash and cash equivalents  $ 311  $ 89
Short-term investments - available-for-sale securities  678  1,131
Restricted cash  110  103
Accounts receivable  181  197
Merchandise inventories  390  374
Prepaid expenses and other current assets  87  77
Deferred income taxes  144  132
Total current assets  1,901  2,103
Property and equipment, net of accumulated depreciation and amortization  2,324  2,193
Long-term investments - available-for-sale securities  355  221
Goodwill  679  663
Intangible assets, net of accumulated amortization  66  62
Deferred income taxes  55  43
Other assets  14  9
Total assets  $ 5,394  $ 5,294
     
Liabilities and Shareholders' Equity    
Current liabilities:    
Current installments of capital lease obligations  $ 1  $ 1
Accounts payable  230  247
Accrued payroll, bonus and other benefits due team members  355  307
Dividends payable  37  26
Other current liabilities  431  396
Total current liabilities  1,054  977
Long-term capital lease obligations, less current installments  26  23
Deferred lease liabilities  482  441
Other long-term liabilities  47  51
Total liabilities  1,609  1,492
     
Commitments and contingencies    
     
Shareholders' equity:    
Common stock, no par value, 600.0 shares authorized; 374.9 and 371.6 shares issued; and 372.3 and 370.9 shares outstanding at 2013 and 2012, respectively  2,726  2,592
Common stock in treasury, at cost, 2.6 and 0.7 shares at 2013 and 2012, respectively  (116)  (28)
Accumulated other comprehensive (loss) income  (6)  5
Retained earnings  1,181  1,233
Total shareholders' equity  3,785  3,802
Total liabilities and shareholders' equity  $ 5,394  $ 5,294
 
Whole Foods Market, Inc.
Consolidated Statements of Cash Flows (unaudited)
(In millions)
     
  40 weeks ended
  July 7, 2013 July 1, 2012
Cash flows from operating activities    
Net income  $ 430  $ 353
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 257 235
Share-based payment expense 43 29
LIFO expense 2 2
Deferred income tax (benefit) expense (24) 11
Excess tax benefit related to exercise of team member stock options (30) (38)
Accretion of premium/discount on marketable securities 23 9
Deferred lease liabilities 36 58
Other 13 7
Net change in current assets and liabilities:    
Accounts receivable 15 (12)
Merchandise inventories (18) (41)
Prepaid expenses and other current assets (12) 3
Accounts payable (16) 2
Accrued payroll, bonus and other benefits due team members 49 38
Other current liabilities 54 72
Net change in other long-term liabilities  (4) 3
Net cash provided by operating activities 818 731
Cash flows from investing activities    
Development costs of new locations (226) (189)
Other property and equipment expenditures (151) (137)
Purchases of available-for-sale securities (1,104) (2,303)
Sales and maturities of available-for-sale securities 1,393 1,569
Increase in restricted cash (7) (12)
Payment for purchase of acquired entities (22) -- 
Other investing activities (7) (2)
Net cash used in investing activities (124) (1,074)
Cash flows from financing activities    
Common stock dividends paid (471) (69)
Issuance of common stock 61 325
Purchase of treasury stock (88) (28)
Excess tax benefit related to exercise of team member stock options 30 38
Payments on capital lease obligations (1) -- 
Net cash (used in) provided by financing activities (469) 266
Effect of exchange rate changes on cash and cash equivalents (3) -- 
Net change in cash and cash equivalents 222 (77)
Cash and cash equivalents at beginning of period 89 212
Cash and cash equivalents at end of period  $ 311  $ 135
     
Supplemental disclosure of cash flow information:    
Federal and state income taxes paid  $ 296  $ 154
 
Whole Foods Market, Inc.
Non-GAAP Financial Measures (unaudited)
(In millions)
         
In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, the Company provides information regarding Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), Adjusted EBITDA and Free Cash Flow in the press release as additional information about its operating results. These measures are not in accordance with, or an alternative to, GAAP. The Company's management believes that these presentations provide useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses these measures for reviewing the financial results of the Company as well as a component of incentive compensation.
         
The Company defines Adjusted EBITDA as EBITDA plus non-cash share-based payment expense and deferred rent. The following is a tabular reconciliation of the non-GAAP financial measure Adjusted EBITDA to GAAP net income, which the Company believes to be the most directly comparable GAAP financial measure.
         
  12 weeks ended 40 weeks ended
EBITDA and Adjusted EBITDA July 7, 2013 July 1, 2012 July 7, 2013 July 1, 2012
Net income  $ 142  $ 117  $ 430  $ 353
Provision for income taxes  88  73  269  221
Investment and other income, net of interest expense  (2)  (2)  (8)  (6)
Operating income  228  188  691  568
Depreciation and amortization  78  73  257  235
EBITDA  306  261  948  803
Share-based payment expense  13  9  43  29
Deferred rent  9  9  27  30
Adjusted EBITDA  $ 328  $ 279  $ 1,018  $ 862
         
         
The Company defines Free Cash Flow as net cash provided by operating activities less capital expenditures. The following is a tabular reconciliation of the Free Cash Flow non-GAAP financial measure.
         
  12 weeks ended 40 weeks ended
Free Cash Flow July 7, 2013 July 1, 2012 July 7, 2013 July 1, 2012
Net cash provided by operating activities  $ 228  $ 214  $ 818  $ 731
Development costs of new locations  (69)  (74)  (226)  (189)
Other property and equipment expenditures  (44)  (38)  (151)  (137)
Free Cash Flow  $ 115  $ 102  $ 441  $ 405
 
Whole Foods Market, Inc.
Non-GAAP Financial Measures (unaudited)
(In millions)
         
In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, the Company provides information regarding Return on Invested Capital ("ROIC") as additional information about its operating results. This measure is not in accordance with, or an alternative to, GAAP. The Company's management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses this measure for reviewing the financial results of the Company as well as a component of incentive compensation. The Company defines ROIC as annualized adjusted earnings divided by average invested capital. Earnings are annualized on a 52-week basis. Adjustments to earnings are defined in the following tabular reconciliation. Invested capital reflects an average of the trailing four quarters.
         
  12 weeks ended 40 weeks ended
ROIC July 7, 2013 July 1, 2012 July 7, 2013 July 1, 2012
Net income  $ 142  $ 117  $ 430  $ 353
Interest expense, net of taxes  --  --  --  --
Adjusted earnings  142  117  430  353
         
Total rent expense, net of taxes 1  52  48  169  157
Estimated depreciation on capitalized operating leases, net of taxes 2  (35)  (32)  (113)  (105)
Adjusted earnings, including interest related to operating leases  159  133  486  405
         
Annualized adjusted earnings  $ 614  $ 507  $ 559  $ 459
Annualized adjusted earnings, including interest related to operating leases  $ 689  $ 576  $ 632  $ 527
         
Average working capital, excluding current portion of long-term debt  $ 945  $ 818  $ 945  $ 818
Average property and equipment, net  2,249  2,041  2,249  2,041
Average other assets  1,033  915  1,033  915
Average other liabilities  (511)  (438)  (511)  (438)
Average invested capital  $ 3,716  $ 3,336  $ 3,716  $ 3,336
Average estimated asset base of capitalized operating leases 3  2,895  2,641  2,895  2,641
Average invested capital, adjusted for capitalization of operating leases  $ 6,611  $ 5,977  $ 6,611  $ 5,977
         
ROIC 16.5% 15.2% 15.0% 13.8%
ROIC, adjusted for capitalization of operating leases 10.4% 9.6% 9.6% 8.8%
         
1 Total rent includes minimum base rent of all tendered leases
2 Estimated depreciation equals two-thirds of total rent expense
3 Estimated asset base equals eight times total rent expense
CONTACT: Cindy McCann
         VP of Investor Relations
         512.542.0204

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