Whole Foods 2008 Annual Report Download - page 34

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
General
Whole Foods Market, Inc. and its consolidated subsidiaries own and operate the largest chain of natural and organic foods
supermarkets. Our Company mission is to promote vitality and well-being for all individuals by supplying the highest
quality, most wholesome foods available. Through our growth, we have had a significant and positive impact on the natural
and organic foods movement throughout the United States, helping lead the industry to nationwide acceptance. We opened
our first store in Texas in 1980 and, as of September 28, 2008, we operated 275 stores: 264 stores in 38 U.S. states and the
District of Columbia; six stores in Canada; and five stores in the United Kingdom. We have one operating segment,
supermarkets emphasizing natural and organic foods.
Effective August 28, 2007, the Company completed the acquisition of Wild Oats Markets, Inc. (“Wild Oats”) in a cash
tender offer of $18.50 per share, or approximately $565 million plus the assumption of approximately $148 million in
existing debt. At the date of acquisition, Wild Oats had 109 stores in 23 states and British Columbia, Canada operating under
four banners: Wild Oats Marketplace nationwide, Henry’s Farmers Market (“Henry’s”) in Southern California, Sun Harvest
in Texas, and Capers Community Market in British Columbia. In connection with the acquisition of Wild Oats, the Company
separately entered into an agreement to sell certain assets and liabilities, consisting primarily of fixed assets, inventories and
operating leases, related to all 35 Henry’s and Sun Harvest stores and a related distribution center. This sale was completed
effective September 30, 2007 and the Company received net proceeds totaling approximately $164 million in fiscal year
2008. As of September 28, 2008, the Company had closed 19 Wild Oats stores and had 55 continuing Wild Oats stores, of
which 45 had been rebranded as Whole Foods Market stores. The Company currently intends to close one additional store
and relocate an additional three stores as existing Whole Foods Market sites in development open through fiscal year 2010.
The Company has made investments to raise the Wild Oats stores up to our high standards, including investments in repairs
and maintenance of the stores, lower prices, an expanded perishables offering and increased labor. Wild Oats results of
operations are included in our Consolidated Statements of Operations for the period beginning August 28, 2007 through
September 30, 2007 and for the fiscal year ended September 28, 2008.
Our results of operations have been and may continue to be materially affected by the timing and number of new store
openings. Stores typically open within 24 months after entering the store development pipeline. New stores generally
become profitable during their first year of operation; although some new stores may incur operating losses for the first
several years of operation.
Sales of a store are deemed to be comparable commencing in the fifty-third full week after the store was opened or acquired.
Stores acquired from Wild Oats entered the comparable store sales base effective the fifty-third full week following the date
of the merger. Identical store sales exclude sales from relocated stores and remodeled stores with expansions of square
footage greater than 20% until the fifty-third full week after the store is relocated or remodeled to reduce the impact of
square footage growth on the comparison. Stores closed for eight or more days are excluded from the comparable and
identical store base from the first fiscal week of closure until re-opened for a full fiscal week.
The Company reports its results of operations on a 52- or 53-week fiscal year ending on the last Sunday in September. Fiscal
years 2008 and 2006 were 52-week years and fiscal year 2007 was a 53-week year.
Overview
Whole Foods Market continues to experience a challenging retail environment caused by a number of ongoing factors
including the general economic environment in the United States. Retail sales in the United States declined in September
2008; the third consecutive monthly decline and the first such consecutive three-month decline in more than a decade. For
the fourth quarter of fiscal year 2008, our comparable store sales increased 0.4% compared to an increase of 8.2% for the
same period of the prior fiscal year, and identical store sales declined 0.5% compared to an increase of 6.0% for the same
period of the prior fiscal year. For the first five weeks of the first quarter of fiscal year 2009, comparable store sales
decreased 2.1% versus a 9.0% increase for the same period of the prior year, and identical store sales decreased 3.3% versus
a 6.7% increase in the same period of the prior year. We believe our customers remain committed to Whole Foods Market,
although the unrelenting negative economic news appears to be shifting buying behavior to making fewer trips and to
making more value conscious decisions. For comparable stores, our transaction count declined approximately 1.5% and
average basket size increased approximately 2% in the fourth quarter of fiscal year 2008.
The Whole Foods Market brand stands for the highest quality, and over the last several years we have worked hard to
increase the value choices within our stores without sacrificing our standards. Our “The Whole Deal” program, launched in
July 2008, has helped to highlight the values we offer within perishables. The program includes a quarterly in-store guide
providing specially priced product discounts, money-saving coupons and tips, as well as budget recipes. We believe that
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