Whole Foods 2012 Annual Report Download - page 30

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Whole Foods Market, Inc. is the world’s leading retailer of natural and organic foods and America’s first national “Certified
Organic” grocer. Our Company mission is to promote the vitality and well-being of 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. The Company was
formed in 1980 and, as of September 30, 2012, operated 335 stores: 322 stores in 39 U.S. states and the District of Columbia;
7 stores in Canada; and 6 stores in the United Kingdom. We have one operating segment, natural and organic foods supermarkets.
Our continued growth depends on our ability to increase sales in our identical stores and open new stores. New stores generally
become profitable within their first year of operation; although some new stores may incur operating losses for the first several
years of operation. The Company’s average weekly sales and gross profit are typically highest in the second and third fiscal
quarters, and lowest in the fourth fiscal quarter. Average weekly sales and gross profit are typically lower in the first fiscal quarter
due to the product mix of holiday sales, and in the fourth fiscal quarter due to the seasonally slower sales during the summer
months.
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 enter 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 major 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
year 2012 was a 53-week year and fiscal years 2011 and 2010 were 52-week years.
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, online retailers, smaller specialty stores, farmers’ markets and restaurants, each of which competes with us
on the basis of store ambiance and experience, product selection, quality, customer service, price or a combination of these
factors. Natural product sales through retail channels continue to experience significant growth, increasing 10% over the prior
year, according to Natural Foods Merchandiser.
We offer a broad and differentiated selection of high-quality natural and organic products with a strong emphasis on perishable
foods. We aspire to become an international brand synonymous with not just natural and organic foods, but also with being the
highest quality food retailer in every community in which we are located.
Highlights for Fiscal Year 2012
We ended fiscal year 2012 with strong sales growth and record fourth quarter results, delivering the best year in our Company’s
32-year history. The pace of new store openings and lease signings continues to increase, and our accelerated growth plans are
on track. Our commitment to natural and organic products, local products, high quality standards, emphasis on perishable product
sales, healthy eating products and education, range of choices based on price, and empowered team members who focus on
unparalleled customer service differentiate us from the competition and have created a loyal customer base. We continue to
evaluate and strengthen our value offerings, providing a clear range of choices in every category. We believe our focus in these
areas has played a key role in driving our sales growth, and we are committed to maintaining our unique positioning. In fiscal
year 2012, a 53-week year:
• Sales increased 15.7% over the prior year to $11.70 billion driven by an 8.7% comparable store sales increase and identical
store sales increased 8.4% over the prior year;
• Net income increased 35.9% over the prior year to $465.6 million;
• Diluted earnings per share increased 30.6% over the prior year to $2.52;
• EBITDA totaled $1.06 billion, an increase of 26.4% over the prior year;
• We produced $919.7 million in cash flow from operations and invested $456.2 million in capital expenditures, of which
$261.7 million related to new locations;
• We made four dividend payments to common shareholders totaling $94.5 million; and
• We had cash, restricted cash, and investments totaling $1.54 billion at the end of the fiscal year.