AUSTIN, Texas -- Whole Foods Market here said the 7% rise in comparable-store sales during the second quarter is closer to the company's historical average of 8% to 8.5% than the double-digit increases the company saw in the last few quarters.
"The 10% gains are the aberration," John Mackey, chairman, president and chief executive officer, told financial analysts during a conference call last week. "The fact that comps are trading back toward their historical mean is not that unusual. The 10% increases got people thinking too much, and we think coming in at 7% is pretty good vs. other food retailers.
"A year from now we will be going up against a 7% comp instead of 10%, and we could go up 10% again. But we will continue to seesaw back and forth, and we expect to average 7% to 8%, as we have since we went public 11 years ago."
Comps at Whole Foods have been trending at the low end of the 6.5% to 8.5% guidance the company previously issued, Mackey said, "and that is our best estimate of where we expect they will remain for the second half of the year [as we go] up against two years of over 10% comp sales increases in the second half of the year."
Sales rose 16.4% to $725.1 million for the 12-week second quarter and 17.5% to $1.6 billion for the half, while net income jumped 26.4% to $25.6 million for the quarter and 26.8% to $51.2 million for the half. Comps for the half were up 9%.
"With some powerful new stores entering the base next year, we expect comps to trade back up in the first quarter," Mackey said.
He said he attributed the weaker comps to several factors, including severe weather across the country, which resulted in closures of 61 stores for all or part of at least one day in the East, Texas and Colorado; sales declines of 400 basis points the week the war in Iraq started; and the shift of Easter from last year's second quarter to this year's third quarter, which negatively impacted comps by approximately 50 basis points.
He said the company's three Harry's stores in the Atlanta area also impacted comps negatively by 42 basis points during the quarter, compared with a 56-point impact in the first quarter.
In response to a question, Mackey said he sees few weaknesses in the Whole Foods model. "Almost all our stores are hugely successful, and I don't see any strong competitors harming us. The question is, can we find enough good store locations, can we maintain our real-estate discipline, can we hit the growth targets we set for ourselves and can we continue to execute at a high level?
"If we can do all that and maintain our core values, the future will be brighter than the past. We think we can be a powerful force in this industry. In fact, our goal is to be the Starbucks of the natural food industry, and we're well on our way to achieving that."
He said average weekly sales at Whole Foods are $423,000 -- "a record level" -- with 12 new stores that opened this year averaging weekly sales of $380,000.
In other comments during the conference call:
Whole Foods' transaction count rose approximately 2% during the quarter and average basket size was up approximately 5%, with about half of the increase in basket size due to increased item count and the other half due to price increases, Mackey said.
The company plans to invest "at the low end of" $180 million to $200 million this year in capital in new stores and other projects, Glenda Flanagan, executive vice president and chief financial officer, told the analysts.
Whole Foods expects to open 12 new stores this year, but that number should pick up in the years ahead, A.C. Gallo, executive vice president, operations, said, noting that the company has 27 stores, totaling 1.2 million square feet, in its development pipeline. That's more than Whole Foods had in development in three years, Jim Sud, executive vice president, growth and business development, added.