Whole Foods Market, Inc. (NASDAQ:WFM) Q1 2016 Earnings Conference Call - Final Transcript

Feb 10, 2016 • 05:00 pm ET

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Whole Foods Market, Inc. (NASDAQ:WFM) Q1 2016 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good day everyone and welcome to today's Whole Foods' First Quarter Earnings Call. [Operator Instructions]

It is now my pleasure to turn the conference over to Cindy McCann, VP of investor Relations. Please go ahead.

Executive
Cindy McCann

Good afternoon and thank you for joining us for our first quarter conference call. On today's call are John Mackey and Walter Robb, Co-Chief Executive Officers; A.C. Gallo, President; Glenda Flanagan, Executive Vice President and Chief Financial Officer; Jim Sud, Executive Vice President of Growth and Development; David Lannon and Ken Meyer, Executive Vice Presidents of Operations; and Jason Buechel, Executive Vice President and Chief Information Officer.

As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in our Company's most recently filed Form 10-K. Please note our press release and scripted remarks are available on our website.

I will now turn the call over to Walter Robb.

Executive
Walter Robb

Thanks, Cindy; and good afternoon, everyone. For the quarter, our sales and gross margin results were largely in line with our expectations with slightly better leverage in salaries and benefits and a lower tax rate. Our sales increased 3% to a record $4.8 billion. We opened three stores including our first store in Huntsville, Alabama; a new flagship store in downtown Los Angeles.

For the quarter, comp store sales declined 1.8% against a 4.7% increase in the prior year. In addition to headwinds from a tougher comparison in a highly competitive environment, the negative impact from cannibalization increased for the third consecutive quarter. We continued to be a destination for the holidays with comps for Thanksgiving and Christmas weeks showing a nice lift over prior run rates.

From the first five to the last 11 weeks of the quarter, traffic and basket trends on both the one and two year basis showed improvement. We stepped up our value offerings to customers primarily through more and deeper promotions such as our customer appreciation, love fest and three-day sale in supplements, which were supported through social media, digital ads and select radio ads. Over the remainder of the year, we plan to continue our promotional strategy including more personalized offers and increase and broaden our price investments as well.

Cost savings and SG&A primarily salaries and benefits were more than offset by investments in value and technology, as well as deleverage in areas such as occupancy and depreciation, resulting in a 58 basis point decline in OM. We produced an 8.3% EBITDA margin, $0.46 in diluted earnings per share, $53 million in free cash flow and 14% adjusted return on invested capital. In keeping with our new capital allocation strategy, we returned $679 million to our shareholders through dividends and share repurchases, ending the quarter with $1.4 billion in total available capital and $1.0 billion in total debt.

Last quarter, we outlined our nine-point plan to fundamentally