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Edited Transcript of WFM earnings conference call or presentation 21-Feb-07 10:00pm GMT

·54 min read

Q1 2007 Whole Foods Market Earnings Conference Call and M&A Announcement AUSTIN Apr 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Whole Foods Market Inc earnings conference call or presentation Wednesday, February 21, 2007 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * John Mackey Whole Foods Market - Chairman, CEO * Glenda Chamberlain Whole Foods Market - EVP, CFO * A.C. Gallo Whole Foods Market - Co-President, Co-COO * Walter Robb Whole Foods Market - Co-President, Co-COO * Jim Sud Whole Foods Market - EVP, Growth and Business Development ================================================================================ Conference Call Participants ================================================================================ * Simeon Gutman Goldman Sachs - Analyst * Mark Husson HSBC - Analyst * Meredith Adler Lehman Brothers - Analyst * Steve Chick JP Morgan - Analyst * Ed Aaron RBC Capital Markets - Analyst * Mark Wiltamuth Morgan Stanley - Analyst * Greg Badishkanian Citigroup - Analyst * Andrew Wolf BB&T Capital Markets - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Welcome to today's teleconference. At this time, all participants are in a listen-only mode. Later there will be an opportunity to ask questions during our Q and A session. I would now like to turn the program over to Mr. John Mackey. Go ahead, please. -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [2] -------------------------------------------------------------------------------- Good afternoon. Joining me today are Walter Robb and A.C. Gallo, Co-Presidents and Chief Operating Officers; Glenda Chamberlain, Executive Vice President and Chief Financial Officer; Jim Sud, Executive Vice President, Growth and Business Development; Lee Valkenaar, Executive Vice President, Global Support; and Cindy McCann, Vice President of Investor Relations. First to the legalities. The following constitute the safe harbor statement under the Private Securities Litigation Reform Act of 1995. Except for the historical information contained herein, the matters discussed in this press release are forward-looking statements that involve risks and uncertainties which could cause our actual results to differ materially from those described in the forward-looking statements. These risks include but are not limited to general business conditions, the timing, development and opening of new stores, the impact of competition and other risks detailed from time to time in the Company's SEC reports including the reports on Form 10-K for the fiscal year ended September 24, 2006. The Company does not undertake any obligation to update forward-looking statements. The tender offer we will discuss today has not commenced. We have agreed in the merger agreement to commerce a tender offer on February 27, 2007. Our description of the tender offer today is neither an offer to purchase nor solicitation of an offer to sell shares of Wild Oats markets. At the time the tender offer is commenced, we will file with the SEC a tender offer statement on Schedule TO containing an offer to purchase and related materials. These documents will contain important information about the tender offer that should be read carefully before any decision is made with respect to the tender offer. We have two announcements today. Both press releases are now available on our website at www.wholefoodsmarket.com along with the scripted portion of this call and additional supplemental financial data. I'm hoping that you've all had a chance to read our press releases. I'll briefly recap our first quarter results and then turn to our announcement of a proposed acquisition of Wild Oats. Our sales for the first quarter increased 12% to $1.9 billion. Average weekly sales for all the stores increased 6% to $620,000 translating to sales per square foot of $926. We had 174 stores, or 92% of all stores, set new weekly sales records during the holidays. Our comparable store sales grew 7% on top of a 13% increase in the prior year. Our year-over-year average transactions per week increased approximately 5% to $3.2 million and our average basket size increased approximately 2% to $34.43. Our 13 new stores, including three relocations and two new markets, averaged 53,000 square feet in size, produced average weekly sales of $571,000 in the quarter and had sales per square foot of $559. Due to seasonality, our gross margins are typically are lower in the first quarter then for the remainder of the year averaging 34.3 in Q1 over the past five years. For the quarter, our gross profit was in line with this average decreasing 24 basis points year-over-year to 34.3% of sales. For stores and the comparable store base, gross profit improved two basis points to 34.5% of sales. The Whole Foods Market brand is synonymous with beautiful stores, exceptional customer service, the highest quality natural and organic products and a fun shopping experience. What we are not as well known for are the low price that we currently offer our customers. While our core customers are not primarily focused on price, our price image is important in terms of appealing to a broader customer base, especially as select natural and organic products are becoming more available through various retail formats. Our strategy has been to approach pricing on a market by market basis and to be competitive on the same or similar items in grocery and whole body. Our perishable area such as meat, seafood, produce, prepared foods and bakery have typically been priced at a premium reflecting the higher quality of our offering. Going forward, we expect to further differentiate our product offering throughout our stores and where differentiation is not possible, continue to selectively invest in lower prices on branded products to help enhance our value perception and broaden our appeal. The good news is that being a young and relatively small company, we have many opportunities to lower our cost of goods sold. We can use these savings to help offset our price investments. Therefore we believe our historical annual gross margin rate of 34% to 35% continues to be the best indicator of our future results. In the quarter, our private label SKU count increased 21% year-over-year to just over 1,900 SKUs and our private label sales increased to 17% of total grocery and whole body sales. We have committed additional resources to our private label team including creating a new Global Vice President of Private Label Position. We expect private label to play a key role in our product differentiation strategy and to grow to a much higher percentage of our sales over time. Direct store expenses increased 35 basis points to 25.8% of sales which is higher than our five-year average and above our five-year range. The increase was primarily due to higher share-based compensation expense and health care costs as a percentage of sales. For stores in the comparable store base, direct store expenses improved 6 basis points to 25.4% of sales. For the quarter, operating cash flow per share increased a very healthy 30% to $0.79 from $0.61 in the prior year. This takes into account approximately $10.2 million or $0.07 per share of share-based compensation, pre-opening rent and accelerated depreciation was expensed for accounting purposes but was non-cash, compared to $4.4 million or $0.03 per share in the prior year. In other news, we are extremely pleased to learn last month that for the tenth consecutive year, we made Fortune's list of the 100 Best Companies to Work For. We ranked number five, our highest ranging ever, and we are one of only 18 companies to be named every year since the list's inception. I will now turn to our announcement on our planned merger with Wild Oats. Wild Oats and Whole Foods Market have both had a large and positive impact on the natural and organic foods movement throughout the United States, helping lead the industry to nationwide acceptance and to becoming one of the fastest growing segments in food retailing today. The growth opportunity in the category has led to increased competition from many players, most of whom are not dedicated natural and organic food supermarkets, but are considerably larger than we are. Our companies have similar missions and core values and we believe the synergies gained from this combination will create long-term value for our customers, vendors and shareholders as well as exciting opportunities for our new and existing team members by making us better positioned to compete in this rapidly changing food retailing environment. In our history, we have made 18 retail acquisitions, many of which we have considered to be platform acquisitions from which we have been able to accelerate our growth geographically. This will be the largest acquisition in our history. Wild Oats is a great geographical fit as all of our 11 operating regions will gain stores and three of our smallest regions, our Pacific Northwest, Rocky Mountain and Florida regions, will gain critical mass. We will also gain immediate access into a significant number of new markets. It has been our experience that most acquisitions take up to two years to transition to our decentralized operations and implement our incentive programs. We expect this acquisition to be similar and that over time, we will recognize significant synergies through G&A cost reductions, greater purchasing power and increased utilization of support facilities. We are particularly excited to gain many talented team members who will provide valuable support in reaching our growth goal of $12 billion of sales by the year 2010. We will be carefully evaluating each banner as well as each store to see how it fits into our overall brand and real estate strategy. Wild Oats has been rationalizing its store base over the last several years but we expect we will close some additional stores as well as relocate others to stores we currently have in development. We would also expect to make significant investments in remodeling stores before eventually rebranding them as Whole Foods Market stores. Our Company continues to evolve at a rapid pace. We have always learned from past acquisitions and look forward to building on our combined strengths, cultures and historical routes. We approach this acquisition from a strategic as well as ab EVA perspective and believe we will become a much stronger and better positioned Company that will produce strong returns for our shareholders in the future. As stated in our press release, our tender offer is conditioned upon at least a majority or 50.1% of the outstanding Wild Oats shares being tendered as well as customary, regulatory and other closing conditions. Wild Oats' Board of Directors has unanimously recommended that their shareholders tender shares in this offer. The Yucaipa Companies, Wild Oats' largest shareholder with approximately 18% ownership, has committed to tendering its shares. Approval of the transaction by our shareholders is not required. If all goes according to plan, we hope to close this transaction in April. We believe we are well-positioned to finance this transaction as well as fund our capital expenditures, ongoing cash dividend program and any future stock repurchases. We have committed financing of $700 million in place of closing and we also intend to upsize our revolving credit facility to $250 million from $100 million. With $222 million in total cash and investments, only $3 million of current long-term debt and very strong consistent cash flow from operations, we are very comfortable taking on this additional debt and hope to maintain our investment grade credit rating. Our guidance for fiscal year 2007 excludes any impact from the pending merger as the transaction has not closed. Our business model is very successful and continues to benefit all of our stakeholders. We are executing at a high level, continuing to produce much higher sales, comps and sales per square foot than our public competitors. Given our strong historical sales growth, record store development pipeline, continued anticipated acceleration in store openings and this merger, we believe we are well-positioned to achieve our goal of $12 billion in sales in the year 2010. Over the longer term, however, we believe that sales potential for Whole Foods Market is much greater than $12 billion as the market continues to grow and as our Company continues to improve. We have grown our stock price at an average compound annual growth rate of 23% since going public and we encourage our shareholders to stay focused on the long term. We are constantly evolving, innovating and maturing and have demonstrated, have a demonstrated track record of competing, executing and delivering strong results. Operator, we will now open it up for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you. [OPERATOR INSTRUCTIONS] We'll go ahead and take our first question from Simeon Gutman of Goldman Sachs. -------------------------------------------------------------------------------- Simeon Gutman, Goldman Sachs - Analyst [2] -------------------------------------------------------------------------------- Hey, it's Simeon Gutman. John, can you elaborate a bit on your comments about the store and the asset base? Can you put some numbers around how many you think you might close write a wakes how many you might replace over time or how many you might keep as is as it relates to oats? -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [3] -------------------------------------------------------------------------------- Yes. I'm sorry, I really can't do that. We are going to be, the transaction is not going to close until April, probably, and we are going to be evaluating all the different strategic opportunities. We are going to be evaluating each of the banners, each of the stores, and we haven't developed our strategic plan in detail that we are ready to disclose today to the investment community so probably it will have to wait until after the deal closes and we receive all regulatory approvals before we announce any type of exact plan for what stores we are going to open, what stores we are going to close, what stores we are going to convert into Whole Foods Market stores, et cetera, et cetera. -------------------------------------------------------------------------------- Simeon Gutman, Goldman Sachs - Analyst [4] -------------------------------------------------------------------------------- All right. Then maybe we can speak to, ahead of time, the assimilation of cultures? Clearly you guys have a special culture in place, whether or not it's superior to Oats, you guys to decide, but how -- do you have a plan of attack? How do you think about that going into this? -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [5] -------------------------------------------------------------------------------- Well, we've done a lot of retail acquisitions at this point and we are going to study Wild Oats and we're going to study how they do things and we are not going to take an arrogant attitude that we have all the answers. We want to understand how Oats does things and we want to look to do best practices between the two organizations. I mean, we're organized in 11 geographical regions so it's not going to be something Austin, Texas, is doing. Every one of our major acquisitions, Bread & Circus, Mrs. Gooch's, Fresh Fields, Harry's, they've all had, and Wellspring Grocery, they've all had an impact on the combined culture and it's impossible to predict exactly how this could involve the Whole Foods future. I mean we are a much larger Company than Wild Oats. We're five times larger than they are so I'd suspect that more of our culture is going to emerge from this thing. But I don't think we are -- we are open to learning and we have a learning organization and we are looking to see what Wild Oats can teach us and we think there's a lot of things we can teach Wild Oats and we think this combination is going to make both companies a lot better. -------------------------------------------------------------------------------- Simeon Gutman, Goldman Sachs - Analyst [6] -------------------------------------------------------------------------------- Okay, and last one if I may, the older stores, the comps in the older stores, those stores over five years old, continue to moderate. Do you have any predictions on when those stabilize? Was there a particular rebuttal or two in those basis that are causing the, those numbers to moderate? -------------------------------------------------------------------------------- Glenda Chamberlain, Whole Foods Market - EVP, CFO [7] -------------------------------------------------------------------------------- The, well, the comps in all of the the categories declined, and of course, this is Glenda, and, of course, that is the most vulnerable category since those stores are the smallest and the oldest. And this particular quarter, it did happen that debt, we have the highest percentage of stores in that category that are being impacted by a combination of the factors that are affecting all the stores, competition, cannibalization, some remodeling disruptions, et cetera. -------------------------------------------------------------------------------- Simeon Gutman, Goldman Sachs - Analyst [8] -------------------------------------------------------------------------------- But could those get -- could those go negative before they get better again? -------------------------------------------------------------------------------- Glenda Chamberlain, Whole Foods Market - EVP, CFO [9] -------------------------------------------------------------------------------- We are not changing our comp guidance which is annual comp guidance and we don't talk about comps for the future related to any of those categories. -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [10] -------------------------------------------------------------------------------- So we are reiterating our comp guidance for 2007 at 26% and 8% for the year. -------------------------------------------------------------------------------- Simeon Gutman, Goldman Sachs - Analyst [11] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Thank you. We will take our next question from Mark Husson of HSBC. Go ahead, please. -------------------------------------------------------------------------------- Mark Husson, HSBC - Analyst [13] -------------------------------------------------------------------------------- Good evening. Talking about the acquisition of Wild Oats, how -- when you [inaudible] in time business management philosophy with an EVA view of things. You mentioned EVA in relation to Wild Oats. What has to happen given the price you're paying for it in order for this to be EVA positive? -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [14] -------------------------------------------------------------------------------- Well, this is EVA -- based on our internal work, this will be EVA positive for us on a present value basis over the long-term. I mean, the strategy is pretty simple. There's a lot of redundant corporate overhead between the two companies that's not all going to be retained. We are going to be able to significantly reduce the corporate overhead. We will rationalize the store base to a certain extent and we think that we will be able to improve the operations of the Wild Oats stores significantly which will increase comps and sales. And, I mean, we think it's going to have, we are going to have a very positive impact on Wild Oats and we think they are going to have a good impact on Whole Foods so based on our own internal calculations and we took a fairly conservative approach to it because our board insisted that we do, we are pretty optimistic that this is going to be a long-term EVA home run for our shareholders. -------------------------------------------------------------------------------- Mark Husson, HSBC - Analyst [15] -------------------------------------------------------------------------------- And have you or will you be changing any of your own shorter term EVA targets as it relates to bonus payments for executives over the next two years while you're assimilating this? -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [16] -------------------------------------------------------------------------------- That hasn't been discussed yet, and probably just raise questions for our management team. Honestly, we haven't been focused on our -- it won't affect my compensation so I guess I haven't thought too much about it. -------------------------------------------------------------------------------- Glenda Chamberlain, Whole Foods Market - EVP, CFO [17] -------------------------------------------------------------------------------- Go from $1.00 to $1.50. -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [18] -------------------------------------------------------------------------------- We will look at that but honestly we haven't, we just don't think about, I mean I guess maybe we are just different than other management teams. Really that's the first time that idea has even been raised. So the bottom line is that if this is a good move for the Company, the executives need to stand behind it on an EVA basis and if there's some short term hit from it, then it's a good deal. It's going to be a long-term EVA gain and I don't think -- actually I would argue there shouldn't be any adjustments for management team. They've got to live behind their decisions and they shouldn't be asking for adjustments. Of course, I'm only making $1.00 a year, so easy for me to say that. -------------------------------------------------------------------------------- Simeon Gutman, Goldman Sachs - Analyst [19] -------------------------------------------------------------------------------- And then just a final question on that. Just the amount of cost savings that come out of this, have you sort of thought intellectually about whether those drop to the bottom line or whether those go into providing sharper value in a more competitive environment? -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [20] -------------------------------------------------------------------------------- Both. Some will drop to the bottom line. Some we'll pass on to customers in more competitive prices and better services so I think the answer to that is both. -------------------------------------------------------------------------------- Simeon Gutman, Goldman Sachs - Analyst [21] -------------------------------------------------------------------------------- Thanks very much. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- Thank you. We will go ahead and take our next question from Meredith Adler of Lehman Brothers. Go ahead, please. -------------------------------------------------------------------------------- Meredith Adler, Lehman Brothers - Analyst [23] -------------------------------------------------------------------------------- Hey, guys. I'd like to start -- I don't know if this is what Simeon's question was getting at but if you could talk a little bit about the strategic rationale for the acquisition because I have some memory that in the past you felt that the stores were kind of small for you, and that your focus was on bigger stores. So maybe just a little bit about why do this now if the store base has so many small stores? -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [24] -------------------------------------------------------------------------------- Well, Oats has been upgrading their store base. I mean last time we looked to maybe make a deal with Wild Oats was about six and a half years ago and their company is completely different. They have lost -- they've written off a lot of stores in the last six years. If you look back over the last six years, they've taken, including the write-off they are going to take in Q4 they pre-announced, we are looking at $80 million in store closures and write-offs and many of the new format, for outlet stores they've opened in the last few years have been larger stores that are doing very well. So it's a different company than when we've looked at it in the past several years ago and stores are bigger. But Whole Foods continues to operate a number of large stores, I mean a number of small stores, so it's not like all our stores are large. In some cases, the Wild Oats stores over the intermediate and long-term will be relocated. We will take their smaller store and improve it and then we'll probably relocate it to a bigger store so it serves as a good platform or a good foundation that we can -- if you open a larger store and relocate a smaller store to it, the risk that you take in the larger store is not nearly as great as if you build a larger store in a new market where you don't have a market presence yet. So it actually takes a lot of risk out of doing any larger stores because they already have a solid smaller store in the market. I mean I just think Wild Oats operations have greatly improved in the last few years and it's a much stronger, much better company. We are really happy to be acquiring it and we think it's going to be a strategic rationale I kind of already explained but I will reiterate some of the main points. There is significant duplication in corporate overhead here that can be eliminated. We don't need two Chief Financial Officers, for example. I mean actually, they don't have a Chief Financial Officer at this time. He had already resigned, so bad example. There is just a lot of duplication that's not going to be necessary. There can be significant corporate G&A reductions, A. Number two, they are in a lot of markets we are not in so we are going to be entering into a lot of new markets where we we'll get a market presence. In addition, three of our, all of our 11 regions gain stores so this gives additional sales volume and critical mass in terms of leveraging our distribution centers, our produce, our bakeries. All of our facilities get additional volume which makes them more efficient and more productive. We gain particularly, our, three of our smallest regions are in Rocky Mountain region, the Pacific Northwest and Florida. Those are three of our very smallest regions. They happen to be regions where Wild Oats has the most stores so it's going to give us critical mass in those three regions which is going to enable to us provide better infrastructure support for all of the stores in those regions. So those three regions particularly benefit although all of our regions will benefit from this. Our team is very excited about this. And we really think that Wild Oats has improved their stores quite a bit in the last few years but we think we can help them improve even more. We think with our retailing intellectual capital that we can put jet propulsion under a lot of those stores in the next year or two and get their comps into double digits. The fact that we have a decentralized structure and have incentive programs, whenever in the past we have implemented those incentive programs, we've seen comps go up. Pretty much every acquisition we've ever done, a year into that acquisition, comps are very strong and we don't anticipate it will be any different in this transaction. We think that we are going to see strong sales gains from the Oats stores so the deal makes a lot of sense for Whole Foods from a number of standpoints. -------------------------------------------------------------------------------- Glenda Chamberlain, Whole Foods Market - EVP, CFO [25] -------------------------------------------------------------------------------- I just want to add on to that to say that we still have 68 stores that we are operating that are less than 30,000 square feet in size and those stores are highly profitable for us. So even though our average store size is growing, Whole Foods Markets still loves those stores and will continue, and in this case, we believe that we can improve the profitability of those stores to the same level or close to those of our own stores. -------------------------------------------------------------------------------- Meredith Adler, Lehman Brothers - Analyst [26] -------------------------------------------------------------------------------- Okay, and if I may ask just a couple more questions. You mentioned that health care costs went up. If you could just talk a little bit about that and what sort of the outlook is, how you manage it? -------------------------------------------------------------------------------- Glenda Chamberlain, Whole Foods Market - EVP, CFO [27] -------------------------------------------------------------------------------- Our health care costs did go up greater than our sales in the quarter and similar for us as to most other companies in the United States that are dealing with increases in health care costs so nothing beyond that really to talk about. -------------------------------------------------------------------------------- Meredith Adler, Lehman Brothers - Analyst [28] -------------------------------------------------------------------------------- Okay, and then my final question is about your price point. And I know you've talked about branded products being more aggressive. But has the Company ever thought about changing your positioning in terms of perishables? Not the quality but instead of having the premium item in every category that you maybe move down a notch and would that help, do you think, the price perception? -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [29] -------------------------------------------------------------------------------- Walter, A.C., do you guys want to tackle that question? -------------------------------------------------------------------------------- A.C. Gallo, Whole Foods Market - Co-President, Co-COO [30] -------------------------------------------------------------------------------- Sure, I will. This is A.C. We are doing that to a certain extent. For instance, in seafood, we sell the highest quality fresh seafood and we probably -- it isn't easy in seafood, say, to drop your quality on fresh. You either have great seafood or you don't have great seafood. But what we have done is we've introduced over the last few years a whole line of frozen seafood under the Whole Catch label and that is priced very competitively with all our competitors and we are seeing a tremendous lift in those products and customers are really, we think they are really responding well to that. So within categories in the perishables, we have taken certain selections and offered them at a really great price point. But overall, when you really -- what most of our customers really expect is the highest quality perishables, produce, meat and seafood, and we are going to maintain that quality. We are not going to drop that but we can work within certain categories that can make it more affordable for our customers. -------------------------------------------------------------------------------- Meredith Adler, Lehman Brothers - Analyst [31] -------------------------------------------------------------------------------- And does that impact labor? Because all of these categories are labor-intensive and yet the price point is coming down so presumably the sales will come down. -------------------------------------------------------------------------------- A.C. Gallo, Whole Foods Market - Co-President, Co-COO [32] -------------------------------------------------------------------------------- Sure, the sales -- if people just transfer from say a fresh fish item to the frozen item and into the lower price point, our sales will go down unless we get great lift. What we have seen in a lot of areas is that we are getting great lift in order to hold our sales. In some cases, that may not be true right away but we think over the long term, we are going to be building sales, building overall sales even greater. -------------------------------------------------------------------------------- Meredith Adler, Lehman Brothers - Analyst [33] -------------------------------------------------------------------------------- Okay. Thank you very much. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- Thank you. We will go ahead and take our next question from Steve Chick of JP Morgan. Go ahead, please. -------------------------------------------------------------------------------- Steve Chick, JP Morgan - Analyst [35] -------------------------------------------------------------------------------- Hi, thanks. This is surprising. I guess I have a few questions if I could. Can you discuss maybe the bidding process that took place and how long your due diligence was as you looked at some of the books and did your analysis of Wild Oats and maybe just discuss how the process started first off. -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [36] -------------------------------------------------------------------------------- We tried to pay the lowest price possible and they tried to get the highest price possible and we compromised on it. Honestly, I initiated the contact by calling up their Interim CEO, Greg Mays. I mean, Perry [Odack,] the CEO's contract wasn't renewed at Wild Oats and their CFO that they had hired also resigned and I thought, gosh, maybe this would be a good time to approach Wild Oats because they don't have a new CEO in place. They may not have a clear, definite, strategic direction for where they want to go. And when we looked at it from Whole Foods' perspective, we kind of did that general strategic analysis that I just gave a minute ago about, we had seen continued operating improvement by Wild Oats in the last few years. These guys were definitely getting better. They were getting to be a stronger competitor. They were doing a much better job. They were doing a better job in their real estate and we just thought it was a good time to take a look at it so I basically gave Greg a call and kind of floated the idea out there and basically he said, well, what's your price going to be, and we danced around that for a couple of weeks and we went back and forth on it and there you have it. I mean, we are giving a good premium over the market price and we think it's a good transaction for the Wild Oats shareholders and we think it's going to prove to be a very good transaction for the Whole Foods Market shareholders because of the value-added that we can bring to Wild Oats we think from Whole Foods. So anyway we are very excited about it. -------------------------------------------------------------------------------- Steve Chick, JP Morgan - Analyst [37] -------------------------------------------------------------------------------- Yes, I can see the potential value. It was just interesting that it sounds like the conversation maybe had taken place on the heels of your recent, I guess a quarter ago, where you discussed some competitive things within the industry so I'm just wondering a bit if it's a reaction or somewhat of a defensive type of acquisition or if you would characterize it as offensive. -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [38] -------------------------------------------------------------------------------- No, Steve, actually we just -- highly opportunistic. A lot of times a deal is about the right timing. When is the right timing, and the timing was right because of this strategic gap at Wild Oats. Without a clear, without a new CEO, they're in an executive search looking for one, without a clear sense of where they are going to go, we thought it would be a good time to approach and it was so I don't really have much else to say about it. -------------------------------------------------------------------------------- Steve Chick, JP Morgan - Analyst [39] -------------------------------------------------------------------------------- Okay, that helps. All right, and then in terms of the synergies, you mentioned some line items of synergies here in G&A costs and so forth. It seems like the most material one would be the fact that your stores' productivity are double that of the Wild Oats base and I was wondering with your due diligence, can you speak a little bit about to what the SKU overlap is, broadly, of course, at this point but SKU overlap and re-merchandising, and can some of those stores structurally take a $450 sales per square foot and get it closer to where you are? -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [40] -------------------------------------------------------------------------------- Steve, you just gave the rationale for the merger better than I articulated it which is, yes, our sales per square foot are practically 100% higher and there is no intrinsic reason why with a lot of shared intellectual capital and best practices and hard work, we can't get those sales per square foot at the Wild Oats stores comparable over time to what Whole Foods Markets is. If you can really understand that, you can understand the tremendous upside this deal has for our shareholders. -------------------------------------------------------------------------------- Steve Chick, JP Morgan - Analyst [41] -------------------------------------------------------------------------------- Right. That's why I was surprised you didn't label this number one in terms of your synergies. -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [42] -------------------------------------------------------------------------------- We talk about shared intellectual capital but we don't want to come out there and say we're going to double the sales per square foot in the next year or two. It sounds -- it's a pretty high hurdle to jump over but we do think we can improve the productivity of the Wild Oats stores significantly. But it will take time. We did emphasize in the script that it usually takes a couple of years to fully integrate stores so we are not going to work miracles here the first month after we take control of the stores. It's going to take, it takes hard work and time, a lot more than you can see on a spread sheet. But a year from now, we will definitely be seeing very good progress and it might take fully two years before you really see all the synergies beginning to play out. -------------------------------------------------------------------------------- Steve Chick, JP Morgan - Analyst [43] -------------------------------------------------------------------------------- Right. Okay. And as I walk into a Whole Foods store and when I go to a Wild Oats store, it seems like the SKUs and the merchandising are just vastly different. I mean, is critically like is the idea here that you take your sign, your merchandising expertise and maybe revamp their SKU base to look more like yours? I mean is that the initial thought? -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [44] -------------------------------------------------------------------------------- Well, we want to understand what Oats is doing as well as possible. We don't want to be too presumptuous. But, yes, I do think that we will undoubtedly, a lot of our intellectual capital is going to flow to Wild Oats and some of it is going to flow to Whole Foods Market and it's hard to predict exactly how that's going to mix before we get in there and start doing it, and we can't get in there and start doing it until the transaction closes. So there is going to be a lag period here. -------------------------------------------------------------------------------- Steve Chick, JP Morgan - Analyst [45] -------------------------------------------------------------------------------- And is the FTC an issue or is that something -- ? I mean, are they even go to look at this in light of competition from traditional grocers is -- do you think there's a -- the FTC needs to look at this closely and will that be an issue? -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [46] -------------------------------------------------------------------------------- You're asking me whether I think they should? I mean I'm the wrong guy to answer that question. Obviously we want the government to bless this transaction so the sooner they do, the sooner we can move forward and begin the integration but I'm not the one to ask about how government, regulators are going to view this. But I mean in view of the fact that this a highly competitive market and there are no barriers to entry, and Safeway and Kroger and Super Value and Wal-Mart are massive companies that are multiple times bigger than Whole Foods and they are all selling these products, I just don't anticipate why there should be any problems here. This is a highly competitive market and this transaction is not going to make it less competitive -- not to mention Trader Joe's which has grown from 120 stores to 270 stores in the past six years. I mean they are a very formidable competitor and kind of flies under the radar because they don't talk to the media and they are a private company. But they are financed by one of the richest families in Germany with billions of dollars of assets behind them. They are a very large and their company has more stores than we have and is growing very rapidly so this is a highly competitive market. This is a big acquisition for us but we are still -- I mean our current growth rates will grow even without this transaction, we basically are growing about every year and a half equal to what we are getting in this deal in terms of increased sales so it's going to accelerate our growth but it's something that we can integrate these stores, we can make them better, we are excited about it and it's, it's a very competitive market out there. This is something that's in the best interest of Wild Oats shareholders and the best interest of Whole Foods Market shareholders. We need each other. -------------------------------------------------------------------------------- Steve Chick, JP Morgan - Analyst [47] -------------------------------------------------------------------------------- No, good points. If I could, two others, if I could just last. Glenda, you reiterated your operating income guidance that grows in line are slightly lower than sales but this quarter if I'm -- your contribution margins, it looks like your contribution profit grew below sales for the first quarter of the year. Am I looking at something differently? I was a little surprised. I don't know why you didn't get a little more conservative with your new store openings that are coming on through the year and so forth. -------------------------------------------------------------------------------- Glenda Chamberlain, Whole Foods Market - EVP, CFO [48] -------------------------------------------------------------------------------- Well, our guidance is annual guidance, not quarterly guidance. And what we said in the press release, we reiterated our growth goal for FY 2007 and beyond and stated that we have not changed our guidance because, or that our guidance does not reflect the merger, obviously. -------------------------------------------------------------------------------- Steve Chick, JP Morgan - Analyst [49] -------------------------------------------------------------------------------- Right. Okay. Well just looks on the core base that maybe you need an acceleration in net operating earnings number as the year goes on. I guess that's what's implied in guidance, right? -------------------------------------------------------------------------------- Glenda Chamberlain, Whole Foods Market - EVP, CFO [50] -------------------------------------------------------------------------------- Slightly, yes. -------------------------------------------------------------------------------- Steve Chick, JP Morgan - Analyst [51] -------------------------------------------------------------------------------- Yes, okay. And last I will let you go because I've taken a lot of time. Just John, you don't usually speak to EPS dilution or EPS generally and you speak to EVA which I can appreciate but just so we kind of have once this deal closes and we kind of have our thoughts right, I mean it does look like it's $700 million, I don't know what borrowing rate we should use but I guess if I use a 6% pretax borrowing rate and the current operating earnings of Wild Oats. Right out of the box, it looks like it might be EPS dilutive with the idea that it will become accretive over the course of the year, two-year plus time frame as you said. Is that the way I should think about it? -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [52] -------------------------------------------------------------------------------- We are not giving any guidance on EPS here in this transaction. I mean by the time the deal closes, for our fiscal year will already be significantly over and there is going to be a transition period in terms of rationalizing the corporate G&A and deciding what stores to close, et cetera, et cetera. So it's going to be a little messy for a quarter or two I think, but I think a year from now, when we are having this call one year from today, the value or the synergies of this merger are going to start appearing very strongly. -------------------------------------------------------------------------------- Steve Chick, JP Morgan - Analyst [53] -------------------------------------------------------------------------------- Yes, I can appreciate -- -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [54] -------------------------------------------------------------------------------- We really appreciate, we really want to encourage our shareholder base to look at least a year or two down the road instead of a couple of months down the road here. This is a very good strategic intermediate to long-term transaction for our shareholders, for our EPS, for our EVA, but I'm not going to make any predictions about first quarter or two after the deal happens. -------------------------------------------------------------------------------- Steve Chick, JP Morgan - Analyst [55] -------------------------------------------------------------------------------- No, that's fair enough. I can appreciate that. It's just to maybe as you close a deal, it might be helpful right out of the box. I mean we can all do our math, I will do it and everybody else will, but just to maybe have a First Call thought process consistent with what you think, but whatever, we will go from there. But congratulations. Thanks. -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [56] -------------------------------------------------------------------------------- Hey, Steve, we are really trying to -- we are working hard to try to get people to think long-term on our stock and so we are really trying to not do minute quarter by quarter guidance. We really are trying to give ranges looking out into the future. Hey, it's up to you guys to do the quarterly stuff. -------------------------------------------------------------------------------- Steve Chick, JP Morgan - Analyst [57] -------------------------------------------------------------------------------- No, thanks. Good comps for the quarter, by the way. -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [58] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [59] -------------------------------------------------------------------------------- We will take our next question from Ed Aaron of RBC Capital Markets. Go ahead, please. -------------------------------------------------------------------------------- Ed Aaron, RBC Capital Markets - Analyst [60] -------------------------------------------------------------------------------- Great, thanks for taking my question. Actually I wanted to touch on a couple of things. There seems to be kind of a growing perception, at least in the investment community, that Whole Foods is starting to more and more kind of beat up vendors in a way that's unsustainable. And just with that as kind of a backdrop and now with the Oats acquisition coming together, can you talk about how you are going about managing your supplier relationships? -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [61] -------------------------------------------------------------------------------- Ed, I want to make, for the record, we don't -- I don't beat my wife and we don't beat up vendors. So I don't really know how to respond to that question. Vendors are part of our stakeholder group and we try to deal with them with integrity and as fairly as possible. At the same time, we are trying to create value for our customers and our shareholders so I don't know what else to say about it. We feel like we are treating our vendors very fairly and we've created tremendous value for our suppliers over time and have allowed many of them to flourish and sell out to rich companies for lots of money, due primarily to Whole Foods volume. So we are always seeking to get a better deal for our customers and for our shareholders so I think that's just the dynamic of business. -------------------------------------------------------------------------------- Ed Aaron, RBC Capital Markets - Analyst [62] -------------------------------------------------------------------------------- That's fair. It wasn't my opinion necessarily, I just wanted you to address the perception that I think seems to be out there. But secondly, you've always, I think, taken a philosophy with your business of investing to drive comps and you spend a lot of money on your stores. You don't chinse on labor and as long as you've had good comps, which you really always have, it's worked very well for you. Just with comps having slowed somewhat of late, now I was just wondering if you've kind of thought strategically since this past quarter or so about any kind of contingency plan that you might have in the event that the competition out there has increased to a level where your comps do slow further from where they've gone at this point. -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [63] -------------------------------------------------------------------------------- Gosh, I mean I don't want to apologize for 7% comps. We think our comps are very good and if do you a two-year base, two-year number, that's a 20% comp over the last two years. Are there any other food retailers close to that? No, the answer is no. Our comparisons have been very difficult and over the next few quarters, we are going to start getting easier comparisons so it's going to get easier. Also, of course, we think a year from now when this transaction is closed and we've been able to, as Steve Chick very perceptibly noted, our productivity for Whole Foods stores is much higher and as we are able to transfer that productivity to Wild Oats stores, we expect significant gains in their comps and as we rationalize the store base to a certain extent, there will be some comp gains as a result of that as well. I don't think Whole Foods has a comp problem. It's only that we had three years of very high comps that apparently has gotten people thinking that we weren't going to revert to the mean although we always sort of indicated we would so we've given 6% to 8% guidance for the year. I feel confident we are going to hit that number and I think those are good comps and we are proud of that. We think we are in a very competitive market, Whole Foods is doing a very well -- doing a very good job of producing really good comps in a very competitive market so if they are not good enough, I don't know what else to say. We are happy with them. -------------------------------------------------------------------------------- Ed Aaron, RBC Capital Markets - Analyst [64] -------------------------------------------------------------------------------- All right. Fair enough. One more question and I was just hoping you could maybe address kind of your managerial bandwidth. This acquisition is coming on at the time of a significant acceleration of square footage growth, and just how you are tackling that? I know you have a decentralized management structure that's quite adaptable but just want to get your thoughts. -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [65] -------------------------------------------------------------------------------- Yes, it's a good question. It is hard to please the investment community sometimes because first we've got our growth slowing down and maybe now we are growing too fast. Can we handle the accelerated growth? But the best ones to -- we've got 11 geographical regions and I think Walter and A.C. should answer this question because they are really positioned well to say whether they think the regions can handle the Wild Oats integration combined with the additional stores we are opening up. A.C. and Walter, what do you think? -------------------------------------------------------------------------------- A.C. Gallo, Whole Foods Market - Co-President, Co-COO [66] -------------------------------------------------------------------------------- Walter, do you want to take that one? -------------------------------------------------------------------------------- Walter Robb, Whole Foods Market - Co-President, Co-COO [67] -------------------------------------------------------------------------------- Yes. I think that this thing lines up nicely with where the growth is. The regions that have the greatest growth in the next two years actually don't have or have the lower amount of stores in this acquisition and the regions, as John mentioned, that have -- that are kind of on our smaller side have the nice growth from this acquisition so it actually lays up nicely side by side from that respect. So it gives us the critical mass to really accelerate those three particular regions and on the other ones, they are able to continue on and focus on their new store growth. -------------------------------------------------------------------------------- A.C. Gallo, Whole Foods Market - Co-President, Co-COO [68] -------------------------------------------------------------------------------- And in some ways, I'll answer that, too. In some ways, it really helps the smaller regions because by getting this volume where all of a sudden we are able to build up the infrastructure of those regions a little bigger right now which allows it to handle the growth that they are going to be having over the next three years in opening up new stores, but it does, as Walter say, match up pretty well with our different needs around the Company. -------------------------------------------------------------------------------- Walter Robb, Whole Foods Market - Co-President, Co-COO [69] -------------------------------------------------------------------------------- I wanted to just make one other comment to Steve Chick's question which is that remember that Wild Oats and Whole Foods have very similar quality standards. It's not like we're buying someone that has merchandise that we are going to have to put out on the sidewalk. These standards, they are very similar core values and cultures so the remerchandising that happens there's a lot of similar product and that makes this sort of movement forward much, much easier that a situation where we'd have to rethink things. -------------------------------------------------------------------------------- Ed Aaron, RBC Capital Markets - Analyst [70] -------------------------------------------------------------------------------- Great. Thank you, and good luck. -------------------------------------------------------------------------------- Operator [71] -------------------------------------------------------------------------------- Thank you. We will go ahead and take our next question from Mark Wiltamuth of Morgan Stanley. Go ahead. -------------------------------------------------------------------------------- Mark Wiltamuth, Morgan Stanley - Analyst [72] -------------------------------------------------------------------------------- Mark Wiltamuth, Morgan Stanley. Just want to know if you think there is going to be any upfront transitional spending in the first year and do you have any thoughts on what the CapEx will be to go through remodeling? -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [73] -------------------------------------------------------------------------------- We've only done some initial thinking about it. We don't have anything to announce today about it. We are going to make some capital expenditures on some of the stores but we don't have a complete plan for it yet and we won't before the transaction closes so hopefully next quarter we will be able to throw a little more light on it. -------------------------------------------------------------------------------- Mark Wiltamuth, Morgan Stanley - Analyst [74] -------------------------------------------------------------------------------- Okay, and getting back to some of the productivity issues, are the sales per square foot for your smaller stores of a similar average as your entire base relative to the Oats stores? I know obviously you have bigger stores that are probably more productive. Just trying to get an apples-to-apples store size comparison on productivity. -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [75] -------------------------------------------------------------------------------- We don't actually have that data from Wild Oats. You'd have to appreciate Wild Oats' position for sharing data with their largest competitor. Needless to say, they were not -- they were having to be conservative in terms of what they showed us in the event the deal didn't get agreed upon by the boards of directors and in the event the shares don't get fully tendered so we don't have that information yet and probably won't have all that detailed information until after the transaction closes. We only know what Wild Oats reports in terms of sales per square foot and they do it on a rollup basis. I expect that when we look at it, it will probably be somewhat similar to Whole Foods. Yes, smaller stores tend to have higher sales per square foot on a general average, but they're also, the smaller stores are older and so they're also more mature. I suspect that rule probably is similar for Wild Oats. -------------------------------------------------------------------------------- Mark Wiltamuth, Morgan Stanley - Analyst [76] -------------------------------------------------------------------------------- And maybe if you could go through looking at merchandising opportunities, what categories do you think you can really improve upon in the Wild Oats stores, just to give us an idea of where you will be working? -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [77] -------------------------------------------------------------------------------- Walter and A.C., where are we going to be working? -------------------------------------------------------------------------------- A.C. Gallo, Whole Foods Market - Co-President, Co-COO [78] -------------------------------------------------------------------------------- Primarily in the perishable departments. The -- our -- in the center store, the SKU counts are fairly similar in the natural and organic foods. We tend to carry more, say, foodie, foodie brands and maybe more a little upscale foods in the center store but we feel like we have a lot of experience and a lot of great talent in the perishable areas. And because each one of these stores lines up with one of our operating regions, we can give really great support with our facilities. We have distribution centers for produce and we do a lot of our own seafood distribution. So we feel like we've got the infrastructure in place to really upgrade the perishable qualities and in all the perishables and we think that we also can improve tremendously their prepared foods and bakery. -------------------------------------------------------------------------------- Walter Robb, Whole Foods Market - Co-President, Co-COO [79] -------------------------------------------------------------------------------- Yes, there are some things that Wild Oats does extremely well, as John mentioned. Their private label is sharp, their brand has some equity. If you go in -- so I think we are going to take the approach that John outlined of just trying to learn and see what's really going on there under the hood when we get in there. But if you look at their perimeter, I think that's where the greatest opportunity, if you compare the two companies, that's probably the greatest opportunity to incrementally improve. And again, I just want to make an overall comment on behalf of us is that we know how to do this. We've done acquisitions before and they have always been a tremendous help to the Company in terms of us learning and growing and it's -- we always try to honor the traditions of the company that we've acquired and made it a good two-way street and this is right up something we know how to do very well which is these are stores that are similar to ours even if they are on the slightly smaller size. We know how to do this and it's going to be a very, very exciting time for Whole Foods. -------------------------------------------------------------------------------- Mark Wiltamuth, Morgan Stanley - Analyst [80] -------------------------------------------------------------------------------- And on the distribution side, is there anything notable there in terms of what Oats brings to the party or will you just roll them into your distribution? -------------------------------------------------------------------------------- A.C. Gallo, Whole Foods Market - Co-President, Co-COO [81] -------------------------------------------------------------------------------- We have to look at that and make sure we understand exact what will they have but I don't think their infrastructure is as developed on that side so most likely roll it into ours but we have to look. We haven't really studied all that yet. -------------------------------------------------------------------------------- Mark Wiltamuth, Morgan Stanley - Analyst [82] -------------------------------------------------------------------------------- Okay. Thank you. -------------------------------------------------------------------------------- Operator [83] -------------------------------------------------------------------------------- Thank you. Due to time constraints, we no longer have any time to take any further questions but I'd like to turn the call back over. -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [84] -------------------------------------------------------------------------------- Operator, we are going to extend the call. We have a lot of people in the queue so we are going to extend it another five to ten minutes. Okay? -------------------------------------------------------------------------------- Operator [85] -------------------------------------------------------------------------------- All right. No problem. Then we'll go ahead and take our next question from Greg Badishkanian from Citigroup. Go ahead. -------------------------------------------------------------------------------- Greg Badishkanian, Citigroup - Analyst [86] -------------------------------------------------------------------------------- Great, thanks. Greg Badishkanian. I will just -- one quick question, and congratulations on the Oats deal, by the way. When you look at the new stores that you've opened recently over the past year or so, how would you compare those to the ones that you opened up maybe two or three years ago? Are they as successful and when you look at the different markets that you plan to focus on going forward, any changes there? Do you think you can open up more in say the urban formats or is there some sort of geographic areas that you think you would want to focus more on given performance of new stores? -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [87] -------------------------------------------------------------------------------- Greg, we are basically, we're happy with the new stores we've opened. I mean in any particular year, I mean a couple of years ago, we opened up Union Square in Manhattan and we opened up our Austin store. When you open up stores like that, they really drive up the overall sales, profitability and productivity of the new store base, and guess what happens after 12 months. They are no longer new stores. They go into the comp base. They do help comps but they no longer help the new stores. And -- but -- the stores -- so we haven't opened up any stores in 2006 that were -- or so far in 2007 that were comparable to those two blockbuster stores. We actually think in 2007, we think our new store in Manhattan at Bowery House is going to open up in March and in June, we are opening up our store in London. We think those are going to be blockbuster stores, both of them, so we may see good new store productivity numbers kind of skew up as a result. So I don't think you should read too much in from any particular, or try to get too much about trend lines because it's so dependent upon the inventory. What stores have actually come in and which ones have gone out and they don't reflect any overall change at Whole Foods Market. We are happy. Our stores are performing in terms of sales, where we estimated them to do or above in almost every case. -------------------------------------------------------------------------------- Glenda Chamberlain, Whole Foods Market - EVP, CFO [88] -------------------------------------------------------------------------------- This is Glenda. When we are a larger company and we are opening a lot more stores on an annual basis, then that will be a lot more meaningful. But because the number of stores we are opening in any one year is small, one or two outlyers, either direction, can have a significant effect. -------------------------------------------------------------------------------- Greg Badishkanian, Citigroup - Analyst [89] -------------------------------------------------------------------------------- Right, and would you say that the opportunity to open up new stores is, there is still an opportunity in all types of markets? There is not any one type of market that you would be focusing more he heavily on going forward? There's just a lot of opportunity out there? -------------------------------------------------------------------------------- Jim Sud, Whole Foods Market - EVP, Growth and Business Development [90] -------------------------------------------------------------------------------- Yes, this is Jim Sud. We are continuing to see a lot of opportunities, as you can tell from the materials, we've currently got 88 stores in development, slightly under 5 million square feet and continue to add to the pipeline every quarter. So and one of the stores we announced today was actually another new location in Manhattan. So there's a lot of opportunity that we are continuing to see in new markets and existing markets and so there is a lot of growth ahead in that regard. -------------------------------------------------------------------------------- Greg Badishkanian, Citigroup - Analyst [91] -------------------------------------------------------------------------------- Great. Look forward to shopping in your downtown store when it opens up. Thanks. -------------------------------------------------------------------------------- Operator [92] -------------------------------------------------------------------------------- Thank you. We will go ahead and take our last question from Andrew Wolf of BB&T Capital Markets. Go ahead, please. -------------------------------------------------------------------------------- Andrew Wolf, BB&T Capital Markets - Analyst [93] -------------------------------------------------------------------------------- Thank you. Can you speak to the Wild Oats contract for distribution with United Natural Foods? I think it has a few years left. Is there any opportunity for a change of control or other means to get the terms of that to be what Whole Foods' terms are or do you have to wait til that pare the contract down? -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [94] -------------------------------------------------------------------------------- Andy, that's a fair question but we are not prepared to answer it yet because we haven't even talked to Unify. They don't even -- they just heard about the deal probably the same time you did so -- we have -- we will have probably more, maybe a little more color on that next quarter but no comment on it today. -------------------------------------------------------------------------------- Andrew Wolf, BB&T Capital Markets - Analyst [95] -------------------------------------------------------------------------------- Okay, and I can understand that. When do the acquired stores typically enter the comp base, 12 or on the 13th month? -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [96] -------------------------------------------------------------------------------- Yes, we treat them as -- we don't treat them as new stores. We treat them as -- it's a good question. We hadn't actually thought about whether we will break out the Wild Oats stores for reporting purposes on comps. We might do that. We have to talk amongst ourselves and decide how we are going to report the Wild Oats results the first two or three quarters. We -- if they're real close to Whole Foods numbers, we might just integrate them or we might break them out for awhile so that the investment community can see the trend lines in terms of comps and whatnot. But certainly by the 53rd week, they will all be in the comp base. So we'll have to figure that one out. That's a good question, thanks. -------------------------------------------------------------------------------- Andrew Wolf, BB&T Capital Markets - Analyst [97] -------------------------------------------------------------------------------- And in terms of the schedule that you guys put out which is a terrific schedule for investors, by age and how the stores are comping and other statistics, their size and so on, do acquired stores, the Wild Oats stores, that go into the comps base do they enter the base as to when they were opened or will they all be two years or less. -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [98] -------------------------------------------------------------------------------- Another good question. I don't know. -------------------------------------------------------------------------------- Glenda Chamberlain, Whole Foods Market - EVP, CFO [99] -------------------------------------------------------------------------------- What we have done historically like with Harry's, if we put them into their actual age category. We didn't put them into the new store category. And what we will probably do, what we will attempted to do, is take our historical results and to the extent we can, we will move them -- we will put some information on our website with the combined historical results in those categories so that it helps to give a perspective on the going forward numbers. -------------------------------------------------------------------------------- Andrew Wolf, BB&T Capital Markets - Analyst [100] -------------------------------------------------------------------------------- Thank you very much and congratulations. -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [101] -------------------------------------------------------------------------------- Thanks. -------------------------------------------------------------------------------- Operator [102] -------------------------------------------------------------------------------- Thank you. This does conclude our Q&A portion of today's call. I would like to turn it back over to our moderators for any closing remarks. -------------------------------------------------------------------------------- John Mackey, Whole Foods Market - Chairman, CEO [103] -------------------------------------------------------------------------------- Okay, thanks for listening in. Visit our website for a transcript of the scripted portion of this call. A recording of the call will also be available online through a link on our website at www.wholefoodsmarket.com. We will talk to everyone next quarter. Take care. -------------------------------------------------------------------------------- Operator [104] -------------------------------------------------------------------------------- Thank you. This does conclude today's conference call. We appreciate your participation, and you may now disconnect.