Whole Foods Market, Inc. (NASDAQ:WFM) recently reported its third quarter earnings and discussed the following topics in its earnings conference call.
New Store Productivity
Stephen Grambling – Goldman Sachs: Maybe, can you just address the new store productivity on our calculations. It looked like it was a little bit softer in the quarter. Just wondering if there is something unusual there in terms of timing? And then, if I can squeeze in a follow-up, I will.
Walter Robb – Co-CEO: Why do you think it was softer, Stephen? I’m not understanding the question, where do you see the softness?
Stephen Grambling – Goldman Sachs: I’m Just saying in the current quarter on our calculations, it looks like it was a little bit softer than where it had been trending more like the 60% range rather than it had been more consistently in the 75% to 80% range?
Walter Robb – Co-CEO: We don’t know what you are talking about.
Cindy McCann – VP, Investor Relations: I do. This is Cindy. The way we are reporting the results for new stores is on a rolling eight-quarter average now and we’ve seen very consistently strong trends in average weekly sales, sales per square foot and store contribution which is driving really strong ROICs. So, we don’t see any big changes in trends. The reason we started doing that rolling eight-quarter average was to try to even out or smooth out any fluctuations, you know that you can sometimes get on a just a one-quarter basis. So, I’m assuming you are looking at kind of the sales productivity on just a one quarter basis. Is that right?
Stephen Grambling – Goldman Sachs: Correct? That’s correct.
Walter Robb – Co-CEO: Just little bit of color here, Stephen, I just have to say one of the real bright lights here is the performance of the in-stores (at the gate), they have consistently been performing, generating good sales per square foot, and as you can see the 5% contribution number for the group of 26 stores, so our take on of here on this end is that it’s really a strong positive.
Stephen Grambling – Goldman Sachs: No, I mean that’s great to hear. I appreciate the color there. I guess, as another follow-up just changing gears, I mean, you referenced the diversity in the store size and locations, can you maybe talk about how the model has maybe been changed or altering as you move into these more unique locations?
Ken Meyer – EVP, Operations: This is Ken here. I think one of the things with this new store growth is that every store is different and it reflects the (NYSE:KEY) really well. So the size depends on what we are able to get in the marketplace but also fits for the community. So a variation results, two stores that aren’t the same. So they vary quite a bit and are very reflective of each community that we go into.
David Lannon – EVP, Operations: This is David. Our Boston market we are opening up the Johnnie’s Foodmaster that we acquired last year, we go from 8,000 square feet in Brookline all the way up to close to 50,000 square feet in Melrose and we are opening those store every two weeks for the balance of the summer. So those are all locations that were already supermarkets. So we are just taking their size and turning them into Whole Foods…
Walter Robb – Co-CEO: We don’t really have a – we don’t have different models. I mean we don’t have like some retailers have like all they have their small, medium or large sized model. I mean we really do put the – get the store and it’s really going to fit right into the community and we are very flexible. We can do small stores as David said, as small as 8,000 square feet and we can do big stores 60,000 square feet plus and we continue to look for all those different opportunities and we think going forward (year end) we will just see – we are going to see a very wide range of stores. Now some quarters it may look like we are opening up smaller stores. So just kind of how they fall but on average our stores are still going to average up there closer to 40,000 square feet when you put them all together.
David Lannon – EVP, Operations: I think part of being able to get to that 1,000 is just that flexibility to take these different opportunities. So you want to add anything John.
John Mackey – Co-CEO: Well regardless of the size of the store they all have to pass our five year EVA hurdle in the real estate communities. So we have to evaluate each store based on the competition in the marketplace we are in and we just had a real estate meeting yesterday, and I think we approved eight new sites and rejected one. So, we have our disciplines in place and I think it’s paying off. Our new store performance is so much better today than it was just a few years ago and it seems to be getting better all the time. That’s why we were a little confused by you saying it seemed to be soft. From our perspective, we’ve never done better with new stores. Thanks a lot, Steven.
Jason DeRise – UBS: I wanted to ask about two things somewhat together. There was very – it was better than consensus expected gross margins, but then I think when you back out some of the adjustments for the quarter maybe the sales were a little bit light. So, I wanted you to maybe talk about that, if maybe you are taking a little bit more pricing and that’s driving the gross margins up and does that explain why maybe sequentially through the quarter, things slowed ex the Double Discount Day at ex the 4th of July shift?
Walter Robb – Co-CEO: I think they were light based on our guidance.
Cindy McCann – VP, Investor Relations: Jason, are you referring to the first three weeks versus the last nine weeks?
Jason DeRise – UBS: Sure. It sounds like – yes, I mean I guess what I’m saying – yes exactly. So, if you forget the 200 basis points benefit for the first three weeks you say 7% for the IDs and then…
Cindy McCann – VP, Investor Relations: Correct.
Jason DeRise – UBS: Obviously, you guys reported a number that included the 45 basis points benefit, but also I guess, if you could quantify the 4th of July shift, I think that would help people, but even when I try to back into that, it just seems like there was a deceleration intra-quarter on an underlying basis. I mean, if you could share any color on that, the second part is really the gross margins were embedded, are they two tied together in some way?
Cindy McCann – VP, Investor Relations: The numbers are actually consistent. I want to reiterate that the 200 basis point impact was on the three weeks. It’s only a 45 basis impact for the quarter.
Jason DeRise – UBS: Right, that makes sense.
Cindy McCann – VP, Investor Relations: But your ID was 7% for the first three weeks which is a 15.2% on a two-year basis excluding the team member Double Discount Day for those first three weeks. And that’s totally in line with the two year in the last nine weeks.
Jason DeRise – UBS: So you guys are looking at more on the two year and that that’s what you are comfortable?
John Mackey – Co-CEO: You got to look at the two year because you got tougher comparisons, so you can never ignore that. We think that our results were pretty consistent with what we’ve been doing and we reiterated our guidance for Q4. So, we hate for people to project too much into the first three weeks and we’re going up against a difficult comparison. But, I mean, as you look at all of these markets for long-term track record for both comps and idents, it’s amazingly consistent, really other than the economic downturn. It’s been amazingly consistent and so, I guess we feel really confident right now.
Walter Robb – Co-CEO: I guess the read through we’re given you is just we’re reaffirming the guidance for the quarter which is 6.5% to 7% which is again fairly consistent on a one-year and a two-year basis. And with respect to your question on gross margin, if you ex-out those one-timers, you are back at 36.4% which is very consistent with Q2. So, I’m not sure I understand your question there. But again it looks to us like we’re steady as she goes, pretty consistent here quarter-to-quarter…
Jason DeRise – UBS: If I could ask one more, the gross margin, obviously there is that comment about 34 to 35 long-term, but you know we’re still not seeing pressure here. So, I guess is there – do we need to think about a new range for long-term gross margin. Are you able to get your price points down and grow your gross margin long-term?
Walter Robb – Co-CEO: I sometime feel like I am the boy who cried wolf. We really are making price investments. So far we’ve been able to offset it on the buy side plus really get better shrink control than we have had, but as we are working through our plan going forward we really are beginning to see the – we will begin to see some of these price investments maybe nipping gross margins a little bit but hopefully helping our comps. Obviously these are strategic decisions that we think will produce in the long term greater profits for our shareholders. So we haven’t seen that in gross profits yet but I think that we will probably begin to see that at some point. That’s why I say, I feel like I am the boy crying wolf, because I have been saying that for a few quarters and so far it hasn’t happened yet. But I feel certain it’s going to happen.
David Lannon – EVP, Operations: This is David, just to add a little more. I mean when Ken and I were working on the shrink discipline it’s huge with all the stores in the regions. We just had the new Addison store in Dallas and we have added refrigerated doors for almost all of our produce in that store. So not only is that energy reduction but it’s also a shrink reduction. So we are starting to see those disciplines across all stores and there is a lot of money to be saved. So we think for this year we have been able to offset any price investments by shrink control.
Walter Robb – Co-CEO: Yes. I mean it’s an artful balance, not a scientific balance. One another interesting number was the days on hand went to 16.5 which is our best result so far in terms of really managing inventory and you put that with these operating disciplines of shrink control, inventory management, helping the balance and as A.C. has often said it’s an art not a science. So this is where we are right now.