Whole Foods 2010 Annual Report Download - page 24

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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 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 26, 2010, we operated 299 stores: 288 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. Gross profit is 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 period in 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 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 2010, 2009 and 2008 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, 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 and organic food continues to be one of the fastest growing segments of food retailing today.
Highlights for Fiscal Year 2010
Whole Foods Market experienced strong sales and earnings growth in fiscal year 2010 against increasingly tougher sales
comparisons in the later quarters of the year. We are gaining market share at a faster rate than most public food retailers and
attribute much of our success to the progress we have made in our relative price positioning and to our initiatives in areas
such as healthy eating, animal welfare and sustainable seafood. These initiatives are aligned with our core customer base and
reinforce our position as the authentic retailer of natural and organic foods, further differentiating the Whole Foods Market
shopping experience and making us the preferred choice for customers aspiring to a healthier lifestyle. In fiscal year 2010:
• Sales increased 12.1% over the prior year to $9.01 billion driven by a 7.1% comparable store sales increase.
Identical store sales increased 6.5% over the prior year;
• Income available to common shareholders increased 102% over the prior year to $240.4 million;
• Diluted earnings per share increased 69% over the prior year to $1.43;
• We produced $585.3 million in cash flow from operations and invested $256.8 million in capital expenditures. We
had cash, restricted cash, and investments totaling approximately $644.7 million at the end of the fiscal year; and
• We repaid $210 million of our term loan, leaving a remaining balance of $490 million at the end of the fiscal year,
and had $342.9 million available on our credit line.
Additionally, our Board of Directors promoted Walter Robb to co-chief executive officer and elected him to the Board of
Directors, and promoted A.C. Gallo as the Company’s sole president and chief operating officer. John Mackey, co-founder
of the Company, continues to serve as co-chief executive officer and as a member of the Board of Directors alongside Mr.
Robb.
Outlook for Fiscal Year 2011
The Company expects sales growth of 10% to 12% for fiscal year 2011 driven by weighted average square footage growth of
approximately 5% and identical stores sales growth of 5% to 7%. We are hopeful we can continue to successfully strike the
right balance between driving sales, improving our value offerings and maintaining margin going forward. The Company