AUSTIN, Texas -- Whole Foods Market here said last week it is maintaining same-store sales guidance for the year in the range of 8% to 10%, despite a stronger comparison for the first quarter ended Jan. 16.
Comps for the 16-week quarter climbed 11.4%, against a comp increase of 14.7% a year ago -- a quarter that was positively impacted by the strike-lockout in Southern California that lasted from October 2003 through February 2004. It was the chain's fifth consecutive quarter with double-digit comps.
"Even our stores in Southern California, which benefitted from the strike-lockout there last year, comped positively [in this year's first quarter]," John Mackey, chairman and chief executive officer, told industry analysts during a conference call to discuss first-quarter financial results. Sales for the quarter rose 22.4% to $1.4 billion, and net income rose 26.7% to $49.1 million.
Mackey sought to temper expectations for the second quarter, noting that last year's second-quarter comps of 17.4% were the best in the company's history. "That's one high bar to jump over," Mackey said, "and we will not match that figure."
John Heinbockel, an analyst with Goldman Sachs, New York, acknowledged that Whole Foods "once again defied the odds" in delivering stronger-than-expected comps.
"Even more indicative of the company's operating strength is its two-year comp record, [which] took another step forward to 26%, 300 basis points above the 2004 level, which was 400 basis points above 2003," he wrote in a research note. "It is clear the company's franchise quality is strengthening and continues to gain appeal with a broader segment of customers."
Steve Chick, an analyst with JP Morgan, New York, expressed concern that comps at stores less than two years old were "surprisingly low," at 17.1%. "This was explained by management largely as an aberration. But given the dynamic of larger, costly new stores, we are apprehensive about this," he said.
During the conference call, Mackey said the company has 58 stores in the development pipeline, including seven new leases signed during the quarter for new stores in Lake Oswego, Ore.; Seattle; Novato and Pasadena, Calif.; and Scottsdale, Ariz. Relocations are set for Annapolis and Rockville, Md. The company said it opened three new stores during the quarter, with store openings set for an 80,000-square-foot store here March 3 and a 50,000-square-foot store in Union Square in New York City March 17.
During the call, Mackey revealed plans by Whole Foods to limit the number of stock options it grants in any one year "so that net income dilution from equity-based compensation expense will not exceed 10% in future years."
The reason for this move, he said, is the imposition of Statement 123R by the Financial Accounting Standards Board -- "a bad rule," Mackey noted -- that requires all companies to expense share-based payments, including stock options, at fair value, beginning after June 15.
The charge to earnings resulting from this new rule includes the impact of stock options granted in prior years until those options are fully vested, Mackey pointed out. "To prevent this overhang from past option grants from impacting future income statements, we intend to accelerate the vesting of all outstanding stock options, excluding options held by the board and members of the executive team, sometime prior to July 4," he said. Such a move will create a one-time, mostly non-cash charge of approximately $10 million that Whole Foods intends to take in the third quarter, Mackey said.
