Q2 2014 Earnings Call Transcript

Transcript Call Date 05/06/2014

Operator: Good day, everyone and welcome to today's Whole Foods Second 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. I will be standing by, should you need any assistance.

It is now my pleasure to turn the conference over to Cindy McCann, Vice President of Investor Relations. Please go ahead.

Cindy McCann - VP, Investor Relations: 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 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.

I will now turn the call over to John Mackey.

John Mackey - Co-CEO: Thank you, Cindy. Good afternoon everyone. First, I will share highlights from the quarter and then turn to our updated outlook for 2014 and strategic vision for the next few years.

In Q2, our sales grew approximately $300 million to a record $3.3 billion. Our comparable store sales excluding the Easter shift increased 5%, reflecting healthy market share gains. We increased our operating square footage 8% to $14.2 million, expanding our reach to 374 stores across 41 states and three countries. We are particularly proud to have produced average weekly sales per store of $742,000, translating to record sales per gross square foot of $1,000.

As we have called out since the fourth quarter, we believe our comps have been impacted by many factors including our own strategies around value and growth as well as increased competition, the macro environment and weather.

Since Q3 last year, our average price per item growth has moderated 160 basis points, from 3.3% to a three-year low of 1.7% this quarter. We attribute this primarily to our proactive value strategy and believe this is the biggest contributor to the change in our comp trends over the last several quarters.

A dynamically changing competitive environment is certainly a factor as well. With the growing demand for fresh, healthy foods, the offering of natural and organic products is expanding everywhere in new stores, existing stores and online. Looking at the big picture, that's positive for us as it affirms our mission for the last 36 years and speaks to the increasing growth opportunity. However, we believe it is currently impacting our transaction count growth.

In addition, severe weather in several of our larger regions impacted shopping patterns again this quarter, customers making fewer trips and buying more items each trip.

And looking at the sequential change in costs from Q1 and Q2, we estimate that Easter shift was approximately 50 basis points. The moderation in average price per item growth was 26 basis points and an increase in the impact from cannibalization was 5 basis points. Our costs have always included some impact from cannibalization. With our accelerated growth over the last few years, we are seeing a slightly greater impact today. However, at the same time, we're gaining market share.

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