http://www.morningstar.com/earnings/48422497-whole-foods-market-inc-wfm-q1-2013.aspx

Whole Foods Market Inc WFM
Q1 2013 Earnings Call Transcript

Transcript Call Date 02/13/2013

Operator: Good day, everyone and welcome to Whole Foods First Quarter Earnings. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the Q&A session. We'll be standing by should you need any assistance.

It is now pleasure to turn the conference over to Cindy McCann. Please go ahead.

Cindy McCann - Global VP. IR: Good afternoon and thank you for joining us. On today's call are John Mackey and Walter Robb, Co-Chief Executive Officers; A.C. Gallo, President; Glenda Flanagan, Executive Vice President and Chief Financial Officer; Jim Sud, Executive Vice President of Growth and Development; and David Lannon and Ken Meyer, Executive Vice Presidents of Operations.

As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause the actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors including the risks outlined in our Company's most recently filed Form 10-K. Please note our press release and scripted remarks are available on our website. We assume you've read our press release so we will use this time to focus on highlights from the quarter as well as our future outlook.

I will now turn the call over to Walter.

Walter Robb - Co-Chief Executive Officer: Thank you, Cindy. Good afternoon, everyone. In Q1 we produced 20% increase in earnings per share on a 14% increase in sales, delivering another quarter of strong sales and earnings growth.

We opened 10 new stores more than we ever have in a single quarter and reported record Q1 results, including a 22 basis points increase in gross margin to 35.0%, a 30 basis points decrease in direct store expenses to 25.4% of sales, a 52 basis points improvement in store contribution to 9,6% of sales, a 48 basis points increase in operating margin to 6.1%, a 41 basis point improvement in EBITDA margin to 8.8%; and a 24 basis point improvement in return on invested capital to 13.1%.

Our solid performance and capital discipline generated $148 million in free cash flow during the quarter. We produced $316 million in cash through a combination of $303 million in cash flow from operations and $9 million in proceeds from team member stock option exercises.

We invested $155 million in new and existing stores, repurchased $26 million of common stock, and returned $397 million in dividend to our shareholders, including a special dividend of $371 million. We ended the quarter with cash and investments of $1.2 million and $446 million in share repurchase authority.

Turning to sales; our identical store sales increased 7.1% or 15.3% on a two year basis, in line with the items we reported for the first five weeks of the first quarter. We saw a 5% increase in transaction count and a 2% increase in basket size. The moderation in our sales trends since the fourth quarter was broad-based across regions, store departments and store age classes which we attribute in part due to (term) in consumer confidence in a macro environment.

We also had a tougher comparison to transaction count as we saw nearly 200 basis point sequential increase in our transaction count growth from Q4 of 2011 to Q1 of 2012. On a two year basis, our 11% transaction count increased this quarter was approximately in line with last quarter. Transaction count increase is continuing to drive our growth and the increase in our basket size was driven entirely by higher average price through item, as we selectively pass through some product cost increases and as customers continue trading up.

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