Whole Foods 2009 Annual Report Download - page 32

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
General
Whole Foods Market, Inc. is the leading natural and organic foods supermarket and America’s first national “Certified
Organic” grocer. 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 27, 2009, we operated 284 stores: 273 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, natural
and organic foods supermarkets.
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. The Company historically has experienced lower average weekly sales in the fourth quarter,
which typically results in lower gross profit and higher direct store expenses as a percentage of sales.
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 in purchase acquisitions 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% from the comparable calculation 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 2009 and 2008 were 52-week years and fiscal year 2007 was a 53-week year.
Wild Oats Markets Acquisition
Effective August 28, 2007, the Company completed the acquisition of Wild Oats Markets, Inc. (“Wild Oats”). 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. As of September 27, 2009, the Company
had 53 continuing Wild Oats stores, substantially all of which had been rebranded as Whole Foods Market stores. Results of
operations for fiscal year 2007 include Wild Oats operating results for the period beginning August 28, 2007 through
September 30, 2007.
On June 1, 2009, the Federal Trade Commission (“FTC”) approved a settlement agreement resolving its antitrust challenge
to the Company’s acquisition of Wild Oats Markets, Inc. Under the terms of the agreement, a third-party divestiture trustee
was appointed to market for sale until September 8, 2009: leases and related assets for 19 non-operating former Wild Oats
stores; leases and related fixed assets (excluding inventory) for 12 operating acquired Wild Oats stores and one operating
Whole Foods Market store; and Wild Oats trademarks and other intellectual property associated with the Wild Oats stores.
The divestiture period was extended by the FTC until March 8, 2010 for six operating and two non-operating former Wild
Oats stores as well as Wild Oats trademarks and other intellectual property associated with the Wild Oats stores. The
divestiture period for those eight stores may be extended further only to allow the FTC to approve any previously submitted
purchase agreements. The remaining seven operating stores and 17 non-operating stores have been retained by the Company
without further obligation to attempt to divest.
Economic and Industry Factors
Food retailing is a large, intensely competitive industry. Our competition varies across the Company and includes but is not
limited to local, regional, national and international conventional and specialty supermarkets, natural foods stores, warehouse
membership clubs, smaller specialty stores, farmers’ markets, and restaurants, each of which competes with us on the basis
of product selection, quality, customer service, price or a combination of these factors. While growth has slowed from
historical levels, natural and organic food is still one of the fastest growing segments of food retailing today.
Whole Foods Market experienced a challenging retail environment beginning in the second half of fiscal year 2008 and
continuing in fiscal year 2009 caused primarily by the general economic environment in the United States and decreased
consumer confidence. The Company experienced negative comparable and identical store sales for the fiscal year for the first