Whole Foods reports poor Q1; remains committed to UK

US-based Whole Foods has reported that comparable sales declined 4.0% in the first quarter of 2009. Sales rose 0.4% to USD2.5 billion while EBITDA amounted to USD147.8 million. “The difficult strategic decisions we made last August to contain costs and cut capital spending are helping us successfully manage through this challenging economic environment,” said Whole Foods CEO John Mackey. “Despite flat sales in the first quarter, our EBITDA was approximately equal to last year; we produced strong cash flow from operations, and we generated USD31.8 million of positive free cash flow. We are demonstrating we can operationally adjust to lower sales volumes and believe that this flexibility, combined with our improved balance sheet, will enable us to emerge stronger and better positioned over the long term.” Mackey added: “With fewer than 300 stores today, we remain very bullish on our long-term growth prospects, as demand for natural and organic products continues to grow and as our company continues to evolve. We are committed to producing positive free cash flow and are confident we will produce operating cash flow in excess of the capital expenditures needed to open the 68 stores in our development pipeline over the next five years.”

The company also confirmed its commitment to the UK, after rebranding its Fresh and Wild stores to the Whole Foods banner, exclusively revealed by Planet Retail earlier in the month. “We believe there is great growth potential in the UK, and we are taking proactive steps to improve our operations there,” said Mackey. “Our overall operating cash flow in the UK on a currency-adjusted basis improved to negative USD1.7 million in the first quarter from negative USD3.3 million in the first quarter last year, and we believe that dedicated and focused executive leadership will drive further improvements in our financial performance, resulting in strong returns over the longer term.”

Mackey added that future growth in the UK will be pursued with a much smaller-box format than the Kensington store (which is 80,000 square feet). “That store is too big and its biggest challenge is the scale is immense, and I think we’ll probably be in the 25,000 square foot range. 25,000 square feet to 30,000 square feet will probably be the sweet spot for us initially in the UK going forward.” AC Gallo, Whole Foods COO, added that executives from the US have been in the UK recently looking for new sites. However, he noted that future growth will be “slow and steady”. “We’re really thinking long term. We’re not going to turn around next year and open up five new stores over there… And despite the fact that it’s really tough over there right now, the economy is not great and people are definitely being very cautious, we still feel really good about what we’re doing in the Kensington store.” Whole Foods also announced a new division for its UK operation, which was previously grouped within the North Atlantic region. Jeff Turnas, former President of the North Atlantic region, will move to London to head up the new division. “Additional headcount will be minimal as there is already a team in place, and as with other regions we have split, certain functions will continue to be shared until the new region can fully take them on,” Mackey added.

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