Whole Foods Market sales down, will close nine stores
Staff Writer |
Last year, Whole Foods said it saw potential to add more than 1,200 stores in the U.S.
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The company abandoned that target as executives said they would wait to see how a round of about 100 stores that have opened recently, or are set to open, perform before making growth commitments.
Whole Foods Market reported results for the 16-week first quarter ended January 15, 2017. For the quarter, total sales increased 1.9% to a record $4.9 billion. Comparable store sales decreased 2.4%.
Net income was $95 million, or 1.9% of sales; diluted earnings per share were $0.30; and earnings before interest, taxes, depreciation and amortization (EBITDA) were $360 million, or 7.3% of sales.
Results included a non-cash charge of $34 million, or $0.06 per diluted share, related to store and facility closures and a charge of $13 million, or $0.03 per diluted share, associated with Mr. Robb’s separation agreement.
Excluding these charges, net income was $123 million, or 2.5% of sales; diluted earnings per share were $0.39; EBITDA margin was 7.6%; and return on invested capital was 12%.
The company expects to incur an additional charge in the second quarter of approximately $30 million, or $0.06 per diluted share, related to these closures.
During the quarter, the Company produced $284 million in cash flow from operations, invested $245 million in capital expenditures, and returned $43 million in quarterly dividends to shareholders. The Company ended the quarter with $1.1 billion of total debt and $1.2 billion of total available capital.
On a call with investors Wednesday, CEO John Mackey said Whole Foods is taking steps to adapt in a food-retail market where "the more conventional, mainstream supermarkets have upped their game... the world is very different today than it was five years ago."
"Over the last two years, we have moderated our lease signings, ending square footage growth, and capital expenditures as a percent of sales. We have terminated four leases in development to date and are continually evaluating our pipeline.
"We are also continually evaluating stores on a case-by-case basis, balancing the age, size and performance trends of the store with the potential returns from additional capital investments, monitoring lease renewals, and taking into account how each store fits into our longer-term strategy for that particular market."
The stores slated for closure include two each in Colorado and California, along with outlets in Chicago, New Mexico, Utah, Arizona and Georgia.
Whole Foods has closed stores in the past but hasn't announced such a large number at one time.
Mr. Mackey said the stores set to close primarily are older, smaller locations that Whole Foods had acquired. Many were located near a larger, more modern Whole Foods or occupied space with leases that were due to expire.
The moves come during a tumultuous time for Whole Foods and the food retail business. Mainstream supermarkets and other retailers have greatly expanded their natural and organic offerings, an arena that Whole Foods long dominated since its founding in 1978.
The company operates 469 stores in the U.S., Canada and U.K. It opened 13 stores in the first quarter and expects to open six in the second quarter. Roughly 80 new stores are in the pipeline.
Mr. Mackey said Whole Foods will expand at a more moderate rate and be "a more disciplined growth company than we have been in the past." Whole Foods said it would take a $30 million charge in the second quarter related to the store closings.
The company will look to use data and promotions to encourage its dedicated shoppers to buy more as a means of stabilizing its profit, Mr. Mackey said. Whole Foods began lowering prices aggressively last year to draw customers back. ■