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STRIKE MIGRATION BOOSTS WHOLE FOODS' COMPS

AUSTIN, Texas -- Whole Foods Markets here said its comparable-store sales in the second quarter were up 17.1% over year-ago levels, some of which it attributed to gains from the labor dispute that affected its competitors in Southern California.The natural foods retailer estimated it has retained 30% of the sales it gained since the strike-lockout at Vons, Ralphs and Albertsons stores was settled

AUSTIN, Texas -- Whole Foods Markets here said its comparable-store sales in the second quarter were up 17.1% over year-ago levels, some of which it attributed to gains from the labor dispute that affected its competitors in Southern California.

The natural foods retailer estimated it has retained 30% of the sales it gained since the strike-lockout at Vons, Ralphs and Albertsons stores was settled in March. In a conference call with analysts last week, John Mackey, Whole Foods chairman, president and chief executive officer, said the retailer is "penetrating into the mainstream consciousness of America," and that the strike accelerated that switch in Southern California.

"We got a lot of publicity during that strike, and a lot of customers came in for the first time and liked what they saw and stayed," Mackey said. "They start sticking their toe in the water, and they just shop occasionally, and the experience is good for them. And over time they migrate more and more frequently to our stores. What happened in Southern California accelerated that process."

Comparable-store sales excluding the 18 strike-affected stores were up 16.4% during the 12-week quarter ended April 11, the company said. Net income for the quarter increased 38% to $35.3 million, on a sales increase of 24% to $902 million, compared with year-ago results. For the 28-week period, net income rose 45% to $74 million, and sales increased 23% to $2 billion. Earnings-per-share of 54 cents exceeded analyst expectations of 50 cents.

Mackey cautioned that Whole Foods will find it difficult to maintain the pace of the quarter in earnings, sales and comps. Sales during the current quarter are below the 15.8% comps year-to-date, Mackey added, citing a negative shift in the Easter holiday, the expectation that more shoppers in California will return to their historical shopping patterns, and difficult year-over-year comparisons.

"Comparisons in the first half of our 2005 fiscal year are going to be extremely difficult against the above-average results we have produced so far this year," he said.

Monica Aggarwal, analyst, Merrill Lynch, New York, noted in a report that Whole Foods "is a strong fundamental story in the context of food retailing and retailing at large," but that given current trading levels there is limited immediate upside. "We can find only a handful of specialty stores that have produced 24% comp-store sales growth on a two-year basis," Aggarwal said. "What's more impressive is that top-line growth has not come at the expense of earnings."

Whole Foods said it had signed leases for seven new stores averaging 56,000 square feet and now has 46 stores and 2.2 million square feet in development. The company expects to gain around 10% in total square footage during this fiscal year and intends to increase its square footage by 15% during fiscal 2005. It expects to open nine to 10 new stores in the second half of the year, relocate one store, and expand six existing stores.

Mackey said the company has been encouraged by the success of its 59,000-square-foot Columbus Circle store which opened in February in New York and that the company is looking to replicate and improve upon some of that store's features as it develops new stores.

2ND-QUARTER RESULTS

Qtr Ended: 4/11/04; 4/13/03

Sales: $902 million; $725 million

Change: +24.4%

Comp-store: +17.1%

Net Income: $35.3 million; $25.5 million

Change: +38.4%

Inc/Share: 54 cents; 41 cents

28 Weeks: 2004; 2003

Sales: $2.0 billion; $1.6 billion

Change: +23%

Comp-store: 15.8%

Net Income: $74.0 million; $51.2 million

Change: +45%

Inc/Share: $1.14; 83 cents