Whole Foods 2013 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 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. Since the purity of our food and the health of our bodies are directly related to the purity and health
of our environment, our core mission is devoted to the promotion of organically grown foods, healthy eating, and the sustainability
of our entire ecosystem. 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 incorporated in
1978, opened the first Whole Foods Market store in 1980, and as of September 29, 2013, operated 362 stores: 347 stores in 40
United States (“U.S.”) states and the District of Columbia; 8 stores in Canada; and 7 stores in the United Kingdom (“U.K.”).
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. Our growth strategy
includes opening new stores in existing and new areas and operating those stores successfully. The Company’s average weekly
sales and gross profit as a percentage of sales are typically highest in the second and third fiscal quarters, and lowest in the fourth
fiscal quarter due to seasonally slower sales during the summer months. Gross profit as a percentage of sales is also lower in
the first fiscal quarter due to the product mix of holiday sales.
Sales of a store are deemed to be comparable commencing in the fifty-third full week after the store was opened. Stores acquired
in purchase acquisitions enter the comparable store base effective the fifty-third full week following the date of merger. Identical
store sales exclude sales from relocated and remodeled stores with square footage changes greater than 20% from the comparable
calculation to reduce the impact of square footage changes 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. Comparable
and identical sales growth is calculated on a same-calendar-week to same-calendar-week basis.
The Company reports its results of operations on a 52- or 53-week fiscal year ending on the last Sunday in September. Fiscal
years 2013 and 2011 were 52-week years and fiscal year 2012 was a 53-week year, with an additional week falling in the fourth
fiscal quarter.
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 and quality, customer service, price, convenience 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. We believe our strict quality standards differentiate
our stores from other supermarkets and enable us to attract and maintain a broad base of loyal customers.
Highlights for Fiscal Year 2013
We ended fiscal year 2013 producing record fourth quarter results, delivering the best year in our Company’s 35-year history.
Total sales reached $12.9 billion, an increase of 10.4% over the 53-week prior year or 12.6% on a comparative 52-week basis,
translating to sales per gross square foot of $972. On May 29, 2013, the Company completed a two-for-one stock split. All
references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures
reflect this two-for-one stock split.
In fiscal year 2013:
• Sales growth was driven by a 6.9% comparable store sales increase and 6.6% identical store sales increase over the prior
year;
• Diluted earnings per share increased 16.5% over the 53-week prior year to $1.47, reflecting an 18.7% increase on a
comparative 52-week basis;
• EBITDA totaled $1.2 billion, approximately 9.5% of sales;
• We opened a record 32 new stores, expanding into 10 new areas and increasing our ending square footage approximately
8.2% to nearly 13.8 million square feet.
• e produced $1.0 in cash flow from operations and invested $537 in capital expenditures, of which $339
related to new
• The s Board of Directors announced a 43% increase in the quarterly dividend to $0.10 per common share, and
we made dividend payments to common shareholders totaling $508 , including a special dividend totaling
$371
• e repurchased $125 of common stock;
• e had cash, restricted cash, and investments totaling $1.4 at the end of the fiscal
The following table provides the s current outlook for fiscal year
Fiscal year 2014
Sales growth 11% - 13%
Comparable store sales growth 5.5% - 7.0%
Identical store sales growth 5.0% - 6.5%
General and administrative expenses as a percentage of sales 3.0% - 3.1%
Operating income as a percentage of sales 6.9% - 7.0%
Diluted earnings per share $1.65 - $1.69
Diluted earnings per share growth 12% - 15%
Tax rate 38.7% - 39.0%
Ending square footage growth 8% - 10%
The Company expects capital expenditures for fiscal year to be in the range of approximately $600 to $650 ,
which includes the opening of approximately to new
The following table sets forth the s statements of operations data for the fiscal years indicated expressed as a percentage
of
Cost of goods sold and occupancy costs 64.2 64.5 65.0
Gross profit
Direct store expenses 26.0
General and administrative expenses
Pre-opening expenses
Relocation, store closure and lease termination costs
Operating income 6.8 6.4
Interest expense
Investment and other income
Income before income taxes 6.9 6.4
Provision for income taxes
Net income
Sales totaled approximately $12.9 , 1.7 and $10.1 in fiscal years , and , ,
representing increases of , and over the previous fiscal years, . Sales increases for all years are
due to comparable store sales increases and stores opened or acquired less than one fiscal . Sales growth percentages reflect
an additional week of sales in fiscal year 2012, a 53-week . otal sales increased 12.6% in fiscal year 2013 and in
fiscal year 2012 over the previous fiscal years on a comparative 52-week basis. Comparable store sales increased approximately
6.9%, and in fiscal years , and , . Identical store sales increased approximately 6.6%,
and in fiscal years , and , . e saw our identical store sales breakout move toward an
equal mix of transaction count and basket size throughout fiscal year 2013. Our transaction count in identical stores increased
3.6%, while basket size improved over fiscal year 2012. The sales increase contributed by stores opened or acquired less
than one fiscal year totaled approximately $345 , $294 and $222 for fiscal years , and ,