Whole Foods 2007 Annual Report Download - page 32

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
General
Whole Foods Market is the world’s leading natural and organic foods supermarket 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, food safety
concerns, and the sustainability of our entire ecosystem. Through our growth, we have had a large and positive impact on the
natural and organic foods movement throughout the United States, helping lead the industry to nationwide acceptance over
the last 27 years.
Whole Foods Market, Inc. is a Texas corporation incorporated in 1980. The Company is based in Austin, Texas and conducts
business through various wholly owned subsidiaries. We operate in one reportable segment, natural and organic foods
supermarkets.
We opened our first store in Austin, Texas in 1980 and completed our initial public offering in January 1992. As of
September 30, 2007, we operated 276 stores organized into 11 geographic operating regions, each with its own leadership
team: 263 stores in 37 U.S. states and the District of Columbia; seven stores in Canada; and six stores in the United
Kingdom. This includes 74 stores (net of divested locations) acquired from Wild Oats Markets, Inc. (“Wild Oats”) on August
28, 2007: 70 stores in 22 U.S. states and four stores in Canada.
Effective August 28, 2007, the Company completed the acquisition of Wild Oats Markets, Inc. (“Wild Oats”), a leading
natural and organic foods retailer in North America, in a cash tender offer of $18.50 per share, or approximately $565
million plus the assumption of approximately $148 million in existing debt. Wild Oats results of operations are included in
our Consolidated Statements of Operations for the period beginning August 28, 2007 through September 30, 2007. 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 (“Capers”) in British Columbia. In connection with the acquisition of Wild Oats, the Company
separately entered into an agreement to sell certain assets and liabilities related to all 35 Henry’s and Sun Harvest stores and
a related distribution center in Riverside, CA to a wholly owned subsidiary of Smart & Final, Inc., a Los Angeles-based food
retailer. The Company received proceeds totaling approximately $165 million for the net assets of those stores, consisting
primarily of fixed assets, inventories and operating leases. This sale was completed effective September 30, 2007. Of the
remaining 74 Wild Oats and Capers banner stores the Company acquired in the Wild Oats Markets transaction, the Company
has closed nine stores, including one that will re-open after an extended renovation period, and relocated two stores to date,
and currently intends to close an additional store, re-open the renovated location, and relocate an additional seven stores to
existing Whole Foods Market sites in development.
Our results of operations have been and may continue to be materially affected by the timing and number of new store
openings. New stores generally become profitable during their first year of operation, although some new stores may incur
operating losses for the first one to three years of operations. Our results of operations are reported on a 52- or 53-week
fiscal year ending on the last Sunday in September. Fiscal year 2007 was a 53-week year and fiscal years 2006 and 2005
were 52-week years.
Fiscal Year 2007 Executive Summary
Effective August 28, 2007, the Company completed the acquisition of Wild Oats, a leading natural and organic foods retailer
in North America with 109 stores in 23 states and British Columbia at the date of acquisition. In connection with the
acquisition of Wild Oats, the Company separately entered into an agreement to sell certain assets and liabilities related to all
35 Henry’s and Sun Harvest stores and a related distribution center in Riverside, CA to a wholly-owned subsidiary of Smart
& Final, Inc., a Los Angeles-based food retailer. All of our 11 operating regions gained stores, with our three smallest
regions, the Florida, Rocky Mountain, and Pacific Northwest regions, gaining critical mass. The acquisition provided us with
immediate entry into five new states: Arkansas, Indiana, Oklahoma, Tennessee and Utah, and 15 new markets: Bend, OR;
Cincinnati, OH; Indianapolis, IN; Lexington, KY; Little Rock, AR; Melbourne, FL; Memphis, TN; Naples, FL; Nashville,
TN; Reno, NV; Salt Lake City, UT; Tampa, FL; Tucson, AZ; Tulsa, OK; and Westport, CT.
Fiscal year 2007 was a 53-week year and fiscal years 2006 and 2005 were 52-week years. Sales for fiscal year 2007 totaled
approximately $6.6 billion, an increase of approximately 17.6% over the prior year, driven by 14% ending square footage
growth (excluding acquired Wild Oats locations) and comparable store sales growth of 7.1%. Adjusted to reflect a fifty-two
week period in fiscal year 2007, sales increased 15.3% over the prior fiscal year.