Business, Management Whole Foods Market's Generic & Intensive Growth Strategies Updated Sep 16, 2015 Andrew Thompson Whole Foods Market generic strategy, intensive growth strategies, Porter model, objectives, case study and analysis Whole Foods Market headquarters in Austin, Texas. Whole Foods Market's generic strategy (based on Porter's model) complements the company's intensive growth strategies for successful strategic direction. (Photo: Public Domain) Whole Foods Market's generic strategy relates with the company's intensive growth strategies to ensure competitiveness in the industry. With more than 58,000 employees, Whole Foods Market continues to use its generic strategy to stand out against competitors. These competitors include other grocery firms and health food stores. In addition, Whole Foods Market uses its intensive growth strategies to ensure business development and expansion, now that the firm maintains overseas operations. Whole Foods Market effectively implements its generic strategy, which is supported through intensive growth strategies. This strategic combination enables the company to keep growing over time. Whole Foods Market applies its generic strategy in combination with its intensive growth strategies to meet business objectives. Based on Porter's model, Whole Foods Market's generic strategy indicates the general, common or broad strategic approach of the firm to inclusively or comprehensively define business strategic direction. The intensive strategies for growth specify the approaches that Whole Foods Market applies for continued growth of revenues and market presence. Whole Foods Market's Generic Strategy (Porter's Model) Whole Foods Market uses a broad differentiation generic strategy (based on Porter's model). In this generic strategy, the company separates itself from competitors. This separation is achieved through unique features that define Whole Foods Market's output. For instance, the company's main selling point is the organic or natural characteristics of its products. Also, in this generic strategy, Whole Foods Market targets all market segments. For example, the firm's products are suitable for all customers regardless of age and gender. The company is effective in using this generic strategy, as reflected in the popularity and continued growth of the Whole Foods Market brand. One of the strategic objectives of Whole Foods Market based on the generic strategy of broad differentiation is to maximize product quality. For example, the company always seeks products with the least possible artificial ingredients because these products stand out compared to competitors. Another strategic objective of Whole Foods Market based on its generic strategy is to expand its supply chain. This supply chain involves farmers or producers that comply with Whole Foods Market's quality standards. Whole Foods Market's Intensive Strategies (Intensive Growth Strategies) Market Penetration. Whole Foods Market uses market penetration as a primary intensive growth strategy. This intensive strategy supports the company's growth by increasing market reach and revenues. For example, Whole Foods Market opens new stores in the United States to gain a bigger market share. This intensive growth strategy uses Whole Foods Market's generic strategy to ensure profitability of new stores based on the attractiveness of natural or organic products. Market Development. Whole Foods Market uses market development as its secondary intensive strategy for growth. This intensive growth strategy applies when the firm enters new markets or new market segments. For example, Whole Foods Market entered the U.K market in 2004 by acquiring Fresh & Wild stores. This intensive growth strategy uses Whole Foods Market's generic strategy of broad differentiation by attracting new customers in new markets to high quality natural and organic products in its stores. Product Development. Whole Foods Market only uses product development as a supporting intensive strategy for growth. This intensive growth strategy involves offering new products to gain more customers or revenues. For example, in 2000, Whole Foods Market started offering fish certified as sustainable by the Marine Stewardship Council. In 2008, the company eliminated disposable plastic bags in its stores to make its retail service more attractive to environmentally conscious consumers. This intensive strategy for growth strengthens Whole Foods Market's generic strategy through product quality or uniqueness. References Gargasas, A., & Mugiene, I. (2012). Intensive growth strategy development trends in logistics services for agricultural organization providing companies. Management Theory and Studies for Rural Business and Infrastructure Development, 34(5), 47-53. Johnston, J., & Szabo, M. (2011). Reflexivity and the Whole Foods Market consumer: the lived experience of shopping for change. Agriculture and Human Values, 28(3), 303-319. Merchant, H. (2014). Configurations of governance structure, generic strategy, and firm size. Global Strategy Journal, 4(4), 292-309. Miller, D. (1992). The generic strategy trap. Journal of Business Strategy, 13(1), 37-41. Parnell, J. A. (1997). New evidence in the generic strategy and business performance debate: A research note. British Journal of Management, 8(2), 175-181. Varadarajan, P., & Dillon, W. R. (1982). Intensive growth strategies: A closer examination. Journal of Business Research, 10(4), 503-522. Whole Foods Market (2015). Sustainability and Our Future - Whole Foods Market. Full Description Whole Foods Market, Inc. (Whole Foods Market), incorporated on August 15, 1980, is a retailer of natural and organic foods and grocer. The Company has one operating segment, natural and organic foods supermarkets. As of September 29, 2013, Whole Foods Market operated 362 stores in the United States, Canada, and the United Kingdom. The Company's offices are supported by its headquarters, regional offices, distribution centers, bakehouse facilities, commissary kitchens, seafood-processing facilities, meat and produce procurement centers, and a specialty coffee and tea procurement and roasting operation. Whole Foods Market offers a selection of natural and organic products with an emphasis on perishable foods. The Company's product selection includes grocery, meat, seafood, bakery, prepared foods and catering, coffee, tea, beer, wine, cheese, nutritional supplements, vitamins, body care, and lifestyle products including books, pet products, and household products. The Company's 365 and 365 Organic Everyday Day Value brands account for approximately half of its brand items. Additional brands include the Whole family of brands, such as Whole Foods Market, Whole Catch, Whole Fields, Whole Pantry, Whole Living and Whole Paws, Allegro Coffee, Engine 2, Wellshire Farms, and Nature's Rancher. Health Starts Here is an approach to healthy eating rooted in four simple principles to build better meals: Whole Food, Plant-Strong, Healthy Fats, and Nutrient Dense. Whole Foods Market is dedicated to promoting animal welfare on farms and ranches. Case Analysis - Whole Foods Market Comfy Shoes Don Meador, Mike Britton, Paige Phillips, Andrew Howery I. II. Introduction: By 2006, Whole Foods Market had evolved into the \"world's largest retail chain of natural and organic foods supermarkets.\" Their rapid growth and success is primarily due to being highly selective about what they sell, as well as being dedicated quality standards and core values. Whole Food's stated mission statement was to \"promote vitality and well-being for all individuals by offering the highest quality, least processed, most flavorful natural and naturally preserved foods available.\" Situational Analysis a. Firm Analysis (Internal Strengths and Weaknesses) (Based on Appendix A). i. Current strategy and strategic position in industry: Whole Food's strategy since 2002 has been to open its own large stores, 50,000 square feet and larger, rather than acquiring small chain stores ranging from 5,000- 20,000 square feet. The driving concept behind their merchandising strategy was to create and \"inviting and interactive store atmosphere that turned shopping for food into a fun, pleasurable experience.\" Whole Food's wanted customers to think of the store as a \"third place\" outside of home and work, where they could relax as well as interact with others in a colorful environment. Financials Analysis: After reading the case and reporting the financial numbers the profit margins from year 2005 have been decreasing each year. The costs of goods sold are on the rise over the past three years and debt over the past three years has risen dramatically to all time highs. Compared to the competitors Whole Foods Market has extremely low revenues and also low EPS. (www.hoovers.com) Assessment of Marketing: In 2005 sales were 1.3 million and rose to 1.7 million in 2007 showing for a increase in sales over the three year time period. As stated in the financial analysis the profit margins have been decreasing each year. According to yahoo financials the market capitalization has been on the rise. Assessment of Finance: Stock price according to yahoo financials is 33.69 but has drastically reduced since 2005. The P/E ratio in comparison is well above the industry average. The prices of whole foods are well above the industry average. Assessment of physical resources: The company's stores some can be up to eight years of age which is fairly young for the grocery industry. These stores average about 30,000sq.ft. As of 2006, 113 of the company's 180 stores were 30,000sq.ft. or larger. The stores only get newer as the company looks to build new large stores in the larger metropolitan areas. Over the next five years the company will need to continue to match the competition with stores that fit what the consumer market is looking for at the current time. Assessment of human resources: The employees are very well trained, knowledgeable and experienced in the grocery industry products making for a better customer experience. The payroll, bonus and other benefits increased from 2004 to 2005 almost $26,000,000 but if well below the competitor's payroll. Kroger is 571million in 2004 and dropped to 547million which shows one of two things there are more employees and possibly better pay for the workers. The management believed its team members were inspired by the company's mission because it complemented their own views about the benefits of a natural and organic foods diet. In management's view, the team members feel good about their job because they feel like that contributes to the welfare of society and to the company's customers by selling clean and nutritious foods. ii. What are the key Strengths and Weaknesses? One of Whole Food's strengths is their passion for food and high standards for quality products. They guaranteed 100 percent satisfaction on all items purchased. They have a competitive advantage when it comes to the size of their stores. Very few natural foods stores have stores larger than 20,000 square foot. Each Whole Food's store had a customized layout to fit the particular site and building to show off particular products for their target customers in that area. Another strength within the Whole Foods corporation is that they offer an economic value added management and incentive system for employees. This system worked well for team members to use in finalizing decisions that created sustainable shareholder value. One of Whole Food's weaknesses would have to be their high prices. The costs of growing and marketing organic foods are about 25-75% more than conventionally grown items. iii. Complete the IFAS matrix Internal Strategic Factors Strengths Weight Rating Weighted score Passion for high quality products. Large size stores. Customized facilities. 0.40 0.10 4 2 1.6 0.2 0.20 3 0.6 High prices Large store size. 0.20 -3 -2 -0.6 -0.2 Total 1.0 Weaknesses 0.10 1.6 b. Environmental Analysis (External Opportunities and Threats) (Based on Appendix B) i. How attractive is the market? The organic foods market is very attractive and continuing to increase in attractiveness. Whole Foods holds a very strong position in the market and could potentially position themselves in an even stronger and more profitable position. Health and organic foods have become very popular and show no signs of slowing in demand. The processes by which organic foods are made will only become less expensive as new technologies and continuing knowledge of the industry grow. ii. What are the key Opportunities and Threats? The key opportunities for Whole Foods include: increasing attractiveness of the health/organic food industry, growth through acquisition, and enhancing their brand image/loyalty through community service. Whole Foods has already bought its largest competitor, Wild Oats, which has shown to be profitable. By promoting organic foods Whole Foods can increase sales and attract new customers by introducing them to the Whole Foods experience. Whole Foods would benefit not only by promoting itself but the industry in general. In addition to promoting organic foods, they could enhance their brand image and loyalty by continuing their community service efforts. If the industry continues to grow and they continue to bring about brand awareness and loyalty, Whole Foods could strengthen its market share and profitability. The key threats that Whole Foods faces include: local grocers increasing their organic food options, the size of Whole Foods stores deterring customers, and the price of organic foods. Local grocers could potentially take away from Whole Foods sales by stealing the customers that want to get in and get out. If customers can get the organic foods they want at a smaller grocery store, some customers may switch to them. This is where the size of Whole Foods' stores becomes a threat to themselves. If they continue to buy and build large stores they could potentially deter some of their consumers to the smaller grocers in the area. Also what is a threat now is the high price of organic foods. Consumers must pay a premium for these items because they cost more to produce. Whole Foods must keep the customers they have now loyal or they could lose them to non-organic foods that are cheaper. iii. Complete the EFAS matrix External Strategic Factors Weight Rating Weighted score .20 .20 4 4.5 .80 .90 .15 3.5 .525 .15 -3.0 -.45 Opportunities Growth through acquisition Increasing attractiveness of health food industry Brand image through community sponsored events Threats Local grocers increasing organic food options Large store size deterring \"in and out\" consumers Economy troubles: customers switching to lower cost products Total III. .15 -2.0 -.30 .15 -2.0 -.30 1.0 5.0 1.175 Summary of Strategic Position: Based on the IFAS and the EFAS we feel that Whole Foods has a high competitive strength and they are competing in a highly attractive industry. IV. Issue Identification Based on the Generic Strategy Matrix, what is the key strategic question? V. How can Whole Foods Market continue their success by attracting nonusers, (consumers who don't normally purchase natural and organic products) convince current customers to buy extra and more often, as well as gaining customers from competitors. Strategy Formulation: Given their position on the Generic Strategy Matrix, Exploit competitive position, Whole Foods needs to focus their strategy on market penetration. VI. Evaluations of Alternatives: a. 1. Increase the brand awareness, image, and loyalty through various forms of advertising and public relations. i. Advantages: Not only promoting the Whole Foods brand but organic foods in general to increase sales of current customers and continue bringing in new customers. Whole Foods already holds a strong position in the market, and by increasing the awareness and demand for organic foods they will inevitably increase their market share and profits. Whole Foods can continue to increase their brand image through their community service in the local operation areas to enhance the brand loyalty. Disadvantages: Whole Foods traditionally relies on word of mouth advertising and also their continuing customers, an increase in the advertising costs would initially affect the bottom line. If the large scale advertising plan does not generate the projected sales, it could have a very detrimental affect on the company's long term performance. ii. Attractiveness score (EFAS) 1.2 iii. Ability to compete score (IFAS) 1.8 2. Determine the most effective and efficient store sizes for each market location i. Advantages: Determining the best store size to better serve the area they are operating in. This could help Whole Foods attract and keep the \"in and out\" shopper that they could miss out on with the larger facilities. Another advantage would be reducing overhead costs by reducing store sizes where necessary. Whole Foods could become more efficient in customer service by improving their employee to shopper ratio. Disadvantages: Conducting the analysis of the appropriate store sizes would be very costly. Surveying the market area and determining a precise answer would be extremely difficult. Reducing future store sizes would limit the volume at which they operate and could limit the assortment of products offered. ii. Attractiveness score (EFAS) 0.7 iii. Ability to compete score (IFAS) 1.2 b. Use the EFAS and IFAS scores to plot each alternative on the Strategy Matrix Alternative 1: is very attractive and Whole Foods has a great ability to pursue this alternative. Whole Foods would be penetrating the market through advertising, promotions, and increasing their brand image/loyalty through community service. Alternative 2: is a medium attractiveness, and a medium ability to achieve. It would be difficult for Whole Foods to overcome the obstacles in place to succeed in this venture. VII. Conclusion a. Increase the brand awareness, image, and loyalty through various forms of advertising and public relations. This will help Whole Foods further penetrate the market and continue to increase market shares and profits. b. Whole foods should implement 95 % of available resources to alternative 1 and the remaining 5% could be concentrated on determining store sizes and locations for the highest customer acquisition. VIII. Implementation a. Short term implementation: Whole Foods could hold radio station promotions for the local community to gain new customers. Use billboard ads to grow the Whole Foods name to grab customers that might not have a awareness of the local areas b. Long term implementation: Launch national advertising promotions by sponsoring a large health related event and gain statistics on the target market TV shows and advertise in or on these channels at the given time of the target markets attentiveness. c. Assumptions: The demand for organic and health foods are going to continue to increase therefore the market share and profits will also continue to increase with the demand rising in this market. d. Identify critical success factors: The consumer continues to view Whole Foods as the best and primary provider of organic and health food. e. Identify key risks: Devoting to much of the resources to advertising and losing focus on company operations. Whole Foods Market Reports Second Quarter Results Wednesday, May. 4, 2016 Download this Press Release (PDF) Company Produces Record Sales and Operating Cash Flow; Delivers EBITDA Margin of 9.5% and EPS of $0.44; Updates Outlook for the Fiscal Year AUSTIN, Texas, May 04, 2016 (GLOBE NEWSWIRE) -- Whole Foods Market, Inc. (NASDAQ:WFM) today reported results for the 12-week second quarter ended April 10, 2016. For the quarter, total sales increased to a record $3.7 billion. Comparable store sales decreased 3.0%. Earnings before interest, taxes, depreciation and amortization (\"EBITDA\") were $353 million, or 9.5% of sales, diluted earnings per share were $0.44, and adjusted return on invested capital was 14%. During the quarter, the Company produced $343 million in cash flow from operations and invested $159 million in capital expenditures, returned $44 million in quarterly dividends to shareholders and repurchased $100 million or 3.5 million shares of common stock. The Company ended the quarter with $1.1 billion of total debt and $1.3 billion of total available capital. Subsequent to the end of the quarter, the Company repurchased $50 million or 1.7 million shares of common stock. \"We produced record sales and operating cash flow, and returned $144 million of capital to our shareholders. Through our improved cost structure and expense disciplines, we delivered strong EBITDA in a challenging sales environment,\" said John Mackey, co-founder and co-chief executive officer of Whole Foods Market. \"Food retailing is evolving at an incredibly fast pace, and consumers have more options than ever before. In addition to becoming more competitive on price, we are making measurable progress in fundamentally evolving our business and providing an enhanced experience for our customers across all platforms before, during and after their visit.\" \"We are very excited to be just three weeks away from opening our first 365 by Whole Foods Market store on May 25 in Silver Lake, California. Created to complement our Whole Foods Market stores, our new 365 format will offer our same industry-leading standards and dedication to food transparency in a streamlined format designed around affordability and convenience and supported by enhanced digital experiences,\" said Walter Robb, co-chief executive officer of Whole Foods Market. \"We believe there is customer demand for both formats, and as a second growth vehicle, 365 allows us to attack the valuequality proposition in a new way, while maintaining the integrity the Whole Foods Market brand represents in the marketplace. Our Silver Lake opening will be quickly followed by openings in Lake Oswego, Oregon and Bellevue, Washington. We are excited to learn from these first three stores and evolve from there.\" The following table provides information on the Company's comparable store sales trends for the second quarter and for the first three weeks of the 12-week third quarter. Results for the three-week period reflect the most recent data available but represent a short period of time and may not be indicative of results for the full quarter. Sales of a store are deemed comparable commencing in the 57th full week after the store was opened or acquired and are presented on a constant currency basis. Companies define comparable store sales differently; thus, growth rates across companies may not be comparable. Comps Change in Transactions Change in Basket Size Q2 ended April 10, 2016 (3.0 )% (2.1 )% (0.9 )%* Q3 through May 1, 2016 (2.6 )% *Reflects sequential moderation from Q1 of 80 basis points in average price per item growth Gross margin declined 103 basis points to 34.9% of sales due primarily to an increase in cost of goods sold as a percentage of sales. LIFO was $2 million versus no charge last year, a negative impact of five basis points. Results in the prior year included a non-routine supplier credit of $7 million, or 19 basis points. SG&A improved 39 basis points to 27.8% of sales due primarily to a 96 basis point decrease in salaries and benefits, which was partially offset by higher depreciation, technology and marketing expenses as a percentage of sales. Comparable store sales growth by age class for the trailing four quarters is provided in the following table. Trailing Four-Quarter Comps # of Stores % of Square Footage Average Age (s.f. weighted) > 11 years (2.0 )% 187 38 % 17.6 years 5 to 11 years (2.1 )% 104 33 % 8.0 years < 5 years 2.8 % 120 29 % 2.8 years All comparable stores (1.1 )% 411 100 % 9.9 years Year-to-Date Results For the 28-week period ended April 10, 2016, total sales increased 2.5% to $8.5 billion. Comparable store sales decreased 2.3%. Average weekly sales per store were $698,000, translating to sales per gross square foot of approximately $940. EBITDA was $752 million, or 8.8% of sales, and diluted earnings per share were $0.90. Year to date, the Company has produced $575 million in cash flow from operations, invested $338 million in capital expenditures, returned $90 million in quarterly dividends to shareholders, and repurchased $734 million of common stock. Growth and Development In the second quarter, the Company opened eight new stores, expanding into two new markets. In the third quarter, the Company has opened five new stores and expects to open seven additional stores, including the first 365 by Whole Foods Market store in Silver Lake, CA on May 25. In the fourth quarter, the Company expects to open five additional stores, including two 365 stores in Lake Oswego, OR and Bellevue, WA. The Company recently signed nine new leases for six Whole Foods Market stores and three 365 stores. In addition, the Company has renegotiated three leases in development, converting them from Whole Foods Market stores to 365 stores. The three lease conversions average 29,000 square feet and are located in Bloomington, IN; Akron, OH; and Toledo, OH. The Whole Foods Market leases average 49,000 square feet and are located in Santa Monica, CA; Miami, FL; Vernon Hills, IL; Jersey City, NJ; Commack, NY; and Nashville, TN. The new 365 leases average 30,000 square feet and are located in Long Beach, CA; North Hollywood, CA; and Decatur, GA. The Company sees potential for 1,200 Whole Foods Market stores in the United States, with the new 365 format expanding the growth opportunity beyond 1,200 stores. The following table provides additional information about the Company's new and acquired stores and development pipeline for Whole Foods Market and 365 stores scheduled to open through fiscal year 2021. Current Leases Signed: New Store Information FY15 FY16 YTD WFM 365 Total Number of stores (including relocations) 38 Relocations 6 1 16 93 19 112 16 0 16 Percentage in new markets 11 % 31 % 16 % 26 % 18 % Total square footage 1,653,000 692,000 4,165,000 557,000 4,722,000 Updated Outlook for Fiscal Year 2016 Sales growth of up to 3%, reflecting comps of up to -2% Square footage growth of 7% or greater EBITDA margin of approximately 8.5% Capital expenditures of 5% of sales ROIC greater than 13.5% The Company now expects to be at or below the low end of its prior sales and earnings per share ranges, reflecting recent sales trends and additional investments in marketing and technology in the second half of the year. While the Company is hopeful that comps will improve over the course of the year as comparisons get easier and sales-building initiatives gain traction, there will be some ongoing offsetting impact from a ramp up in price investments and promotions throughout the year. Including $0.02 per share in net accretion from year-to-date stock buybacks, the Company expects diluted earnings per share for the fiscal year of up to $1.53, implying up to $0.63 for the remainder of the year. The Company has $603 million in remaining buyback authority and is committed to repurchasing stock on an opportunistic basis. The Company expects a decline in operating margin for the fiscal year of approximately 70 basis points from the 6.1% reported last year excluding fourth quarter charges. Reflecting increased value efforts as the year progresses, the year-over-year decline in gross margin, excluding LIFO, in Q3 and Q4 is expected to be greater than the 98 basis point decline in Q2. Given the lower sales projections, the Company now expect SG&A leverage to be more in line with the 19 basis points produced year to date. This reflects the positive impact of cost savings initiatives, net of higher depreciation and other costs, including the additional marketing and technology investments approved for later in the year. For the remainder of the year, interest expense is expected to be approximately $25 million, and the effective tax rate is expected to be 39.0%. Seasonality The Company notes that average weekly sales and gross profit as a percentage of sales are typically highest in the second and third fiscal quarters, and lowest in the fourth fiscal quarter due to seasonally slower sales during the summer months. Gross profit as a percentage of sales also is typically lower in the first fiscal quarter due to the product mix of holiday sales. The Company notes Easter falls in the second quarter in both this year and the prior year. About Whole Foods Market Founded in 1978 in Austin, Texas, Whole Foods Market is the leading natural and organic foods supermarket, the first national \"Certified Organic\" grocer, and uniquely positioned as America's Healthiest Grocery Store. In fiscal year 2015, the Company had sales of approximately $15 billion and currently has 446 stores in the United States, Canada, and the United Kingdom. Whole Foods Market employs approximately 86,000 team members and has been ranked for 19 consecutive years as one of the \"100 Best Companies to Work For\" in America by Fortune magazine. For more information, please visit www.wholefoodsmarket.com. Disclaimer on Forward-looking Statements Certain statements in this press release and from time to time in other filings with the Securities and Exchange Commission, news releases, reports, and other written and oral communications made by us and our representatives, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are often identified by words such as \"anticipate,\" \"believe,\" \"estimate,\" \"expect,\" \"continue,\" \"could,\" \"can,\" \"may,\" \"will,\" \"likely,\" \"depend,\" \"should,\" \"would,\" \"plan,\" \"predict,\" \"target,\" and similar expressions, and include references to assumptions and relate to our future prospects, developments and business strategies. Except for the historical information contained herein, the matters discussed in this press release are forward-looking statements that are based on the Company's current assumptions and involve risks and uncertainties that may cause our actual results to be materially different from such forward-looking statements and could materially adversely affect our business, financial condition, operating results and cash flows. These forward-looking statements may include comments relating to, among other things, future earnings per share and the Company's intention to obtain additional debt in the near term and to make planned share repurchases, some of which are subject to risks and uncertainties relating to general business conditions, conditions in the credit and capital markets, changes in overall economic conditions that impact consumer spending, including fuel prices and housing market trends, the impact of competition and other factors which are often beyond the control of the Company, as well other risks listed in the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 2015 and Quarterly Report on Form 10-Q for the first quarter ended January 17, 2016, and other risks and uncertainties not presently known to us or that we currently deem immaterial. We wish to caution you that you should not place undue reliance on such forward-looking statements, which speak only as of the date on which they were made. We do not undertake any obligation to update forward-looking statements. The Company will host a conference call today to discuss this earnings announcement at 4:00 p.m. CT. The dial-in number is (877) 876-9176, and the conference ID is \"Whole Foods.\" A simultaneous audio webcast will be available at www.investor.wholefoodsmarket.com. Whole Foods Market, Inc. Consolidated Statements of Operations (unaudited) (In millions, except per share amounts) 12 weeks ended 28 weeks ended April 10, 2016 April 12, 2015 April 10, 2016 April 12, 2015 Sales $ 3,696 $ 3,647 $ 8,524 $ 8,319 Cost of goods sold and occupancy costs Gross profit 1,290 1,310 2,406 2,931 Selling, general and administrative expenses 2,337 5,593 5,382 2,937 1,028 1,029 2,402 2,360 Operating income before pre-opening and store closure Pre-opening expenses 18 20 31 Interest expense 241 (11 ) 255 - Investment and other income Income before income taxes Provision for income taxes Net income $ 142 493 (18 ) 5 $ 158 4 $ 299 Diluted earnings per share $ 0.44 3 6 5 10 8 259 484 185 534 208 $ 326 $ 0.44 Weighted average shares outstanding 577 526 9 101 Basic earnings per share $ 0.44 529 - 235 93 281 41 Relocation, store closure and lease termination costs Operating income 262 $ 0.90 324.7 $ 0.44 $ 0.90 360.2 $ 0.90 Weighted average shares outstanding, diluted basis Dividends declared per common share $ 0.135 331.7 360.0 $ 0.90 325.4 $ 0.130 363.7 332.7 362.9 $ 0.270 $ 0.260 A reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations follows: 12 weeks ended 28 weeks ended April 10, 2016 April 12, 2015 April 10, 2016 April 12, 2015 Net income (numerator for basic and diluted earnings per share) $ 142 $ 158 $ 299 $ 326 Weighted average common shares outstanding (denominator for basic earnings per share) 324.7 360.2 Incremental common shares attributable to dilutive effect 331.7 360.0 of share-based awards 0.7 3.5 1.0 2.9 Weighted average common shares outstanding and potential additional common shares outstanding (denominator for diluted earnings per share) Basic earnings per share $ 0.44 $ 0.44 Diluted earnings per share $ 0.44 325.4 363.7 $ 0.90 $ 0.44 332.7 $ 0.90 $ 0.90 $ 0.90 Whole Foods Market, Inc. Consolidated Statements of Comprehensive Income (unaudited) (In millions) 12 weeks ended 28 weeks ended April 10, 2016 April 12, 2015 April 10, 2016 April 12, 2015 Net income $ 142 $ 158 $ 299 $ 326 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 10 Other comprehensive income (loss), net of tax Comprehensive income $ 152 $ 151 (7 ) 10 $ 299 (7 ) $ 308 - (18 ) - (18 ) 362.9 Whole Foods Market, Inc. Consolidated Balance Sheets (unaudited) (In millions) Assets April 10, 2016 September 27, 2015 Current assets: Cash and cash equivalents $ 805 $ 237 Short-term investments - available-for-sale securities Restricted cash 125 43 155 127 Accounts receivable 230 Merchandise inventories 218 521 500 Prepaid expenses and other current assets Deferred income taxes Total current assets 198 162 108 199 2,084 1,544 Property and equipment, net of accumulated depreciation and amortization Long-term investments - available-for-sale securities Goodwill 710 63 77 79 710 Intangible assets, net of accumulated amortization Deferred income taxes Other assets - 3,297 49 Total assets $ 6,362 145 144 38 $ 5,741 Liabilities and Shareholders' Equity Current liabilities: Current installments of long-term debt and capital lease obligations $ 3 $ 3 3,163 Accounts payable 299 295 Accrued payroll, bonus and other benefits due team members 397 436 Long-term debt and capital lease obligations, less current installments 1,049 Dividends payable 44 45 Other current liabilities 586 Total current liabilities Deferred lease liabilities 1,329 1,252 611 Other long-term liabilities Total liabilities 473 3,077 62 587 88 71 1,972 Commitments and contingencies Shareholders' equity: Common stock, no par value, 1,200 shares authorized; 377.0 and 377.1 shares issued; 324.8 and 348.9 shares outstanding at 2016 and 2015, respectively 2,922 2,904 Common stock in treasury, at cost, 52.2 and 28.2 shares at 2016 and 2015, respectively (1,124 ) Accumulated other comprehensive loss Retained earnings 2,227 Total shareholders' equity (28 ) (28 ) 2,017 3,285 3,769 Total liabilities and shareholders' equity $ 6,362 Whole Foods Market, Inc. Consolidated Statements of Cash Flows (unaudited) $ 5,741 (1,836 ) (In millions) 28 weeks ended April 10, 2016 April 12, 2015 Cash flows from operating activities Net income $ 299 $ 326 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 259 Share-based payment expense LIFO expense 4 28 225 37 3 Deferred income tax expense (benefit) 5 (17 ) Excess tax benefit related to exercise of team member stock options Accretion of premium/discount on marketable securities Deferred lease liabilities Other 1 18 1 (1 ) 10 18 3 Net change in current assets and liabilities: Accounts receivable (12 ) Merchandise inventories (16 ) (25 ) (39 ) Prepaid expenses and other current assets Accounts payable 4 (54 ) 9 21 Accrued payroll, bonus and other benefits due team members Other current liabilities 76 127 Net change in other long-term liabilities 11 Net cash provided by operating activities 3 575 709 Cash flows from investing activities Development costs of new locations (197 ) Other property and equipment expenditures Purchases of available-for-sale securities (295 ) (141 ) (176 ) Sales and maturities of available-for-sale securities (163 ) (273 ) 350 306 (39 ) 8 (9 ) Decrease (increase) in restricted cash 1 (19 ) Payment for purchase of acquired entities, net of cash acquired Other investing activities (10 ) (11 ) (4 ) (4 ) Net cash used in investing activities (184 ) (452 ) Cash flows from financing activities Purchases of treasury stock (734 ) Common stock dividends paid Issuance of common stock (90 ) (90 ) 11 (90 ) 49 Excess tax benefit related to exercise of team member stock options Proceeds from long-term borrowings 999 - Proceeds from revolving line of credit 300 - Payments on long-term debt and capital lease obligations Other financing activities (8 ) (305 ) 1 - (1 ) Net cash provided by (used in) financing activities 174 (123 ) Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents 568 133 Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period $ 805 237 $ 323 Supplemental disclosure of cash flow information: Federal and state income taxes paid $ 229 Whole Foods Market, Inc. Non-GAAP Financial Measures (unaudited) 3 $ 176 190 (1 ) 9 (In millions) In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, the Company provides information regarding Earnings Before Interest, Taxes, Depreciation and Amortization (\"EBITDA\"), Adjusted EBITDA and Free Cash Flow in the press release as additional information about its operating results. These measures are not in accordance with, or an alternative to, GAAP. The Company's management believes that these presentations provide useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses these measures for reviewing the financial results of the Company as well as a component of incentive compensation. The Company defines Adjusted EBITDA as EBITDA plus non-cash share-based payment expense and deferred rent. The following is a tabular reconciliation of the non-GAAP financial measure Adjusted EBITDA to GAAP net income, which the Company believes to be the most directly comparable GAAP financial measure. 12 weeks ended 28 weeks ended EBITDA and Adjusted EBITDA April 10, 2016 April 12, 2015 April 10, 2016 April 12, 2015 Net income $ 142 $ 158 Provision for income taxes Interest expense 11 $ 299 93 Operating income 101 - Investment and other income 241 353 355 - (5 ) (4 ) 255 12 752 6 Adjusted EBITDA $ 377 493 112 Share-based payment expense Deferred rent 185 18 Depreciation and amortization EBITDA $ 326 100 208 (9 ) (8 ) 526 259 225 751 12 24 $ 379 18 28 19 $ 804 $ 807 37 The Company defines Free Cash Flow as net cash provided by operating activities less capital expenditures. The following is a tabular reconciliation of the Free Cash Flow non-GAAP financial measure. 12 weeks ended 28 weeks ended Free Cash Flow April 10, 2016 April 12, 2015 April 10, 2016 April 12, 2015 Net cash provided by operating activities $ 343 Development costs of new locations (106 ) Other property and equipment expenditures Free Cash Flow $ 184 $ 116 $ 237 $ 322 (143 ) (53 ) $ 575 (197 ) (63 ) $ 709 (295 ) (141 ) (163 ) $ 251 Whole Foods Market, Inc. Non-GAAP Financial Measures (unaudited) (In millions) In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, the Company provides information regarding Return on Invested Capital (\"ROIC\") and Adjusted ROIC as additional information about its operating results. These measures are not in accordance with, or an alternative to, GAAP. The Company's management believes this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses this measure for reviewing the financial results of the Company as well as a component of incentive compensation. The Company defines ROIC as ROIC earnings divided by average invested capital. ROIC earnings and adjustments to ROIC earnings are defined in the following tabular reconciliation. Invested capital reflects a trailing four-quarter average. 52 weeks ended ROIC April 10, 2016 April 12, 2015 Net income $ 509 $ 604 Interest expense, net of tax ROIC earnings 520 11 - 604 Total rent expense, net of tax1 273 256 Estimated depreciation on capitalized operating leases, net of tax2 (182 ) ROIC earnings, including the effect of capitalized operating leases $ 611 $ 689 Average working capital, excluding current portion of long-term debt $ 584 Average property and equipment, net Average other assets 1,048 Average other liabilities $ 587 2,899 1,105 (666 ) Average invested capital 3,177 (171 ) (605 ) 4,143 3,986 Average estimated asset base of capitalized operating leases3 3,553 3,344 Average invested capital, including the effect of capitalized operating leases $ 7,696 ROIC 12.6 % 15.1 % ROIC, including the effect of capitalized of operating leases 7.9 % 9.4 % Adjusted ROIC Net income $ 509 $ 604 Interest expense, net of tax 11 - Adjustments, net of tax4 47 1 Adjusted ROIC earnings 567 605 Total rent expense, net of tax1 273 256 Estimated depreciation on capitalized operating leases, net of tax2 (182 ) (171 ) $ 7,330 Adjusted ROIC earnings, including the effect of capitalized operating leases $ 658 Average working capital, excluding current portion of long-term debt $ 584 Average property and equipment, net Average other assets 1,048 Average other liabilities Average invested capital (666 ) 4,143 3,177 $ 587 2,899 1,105 (605 ) 3,986 Average estimated asset base of capitalized operating leases3 3,553 3,344 Average invested capital, including the effect of capitalized operating leases $ 7,696 Adjusted ROIC 13.7 % $ 690 $ 7,330 15.2 % Adjusted ROIC, including the effect of capitalized operating leases 8.6 % 9.4 % 1 Total rent includes minimum base rent of all tendered leases 2 Estimated depreciation equals two-thirds of total rent expense 3 Estimated asset base equals eight times total rent expense 4 Adjustments include non-cash asset impairment charges and Q4 2015 restructuring charge - See more at: http://investor.wholefoodsmarket.com/investors/press-releases/press-releasedetails/2016/Whole-Foods-Market-Reports-Second-Quarter-Results542016/default.aspx#sthash.ItAKmgQm.dpuf