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    Whole Foods Q4 Disappoints; Execs See '07 as 'Transitional Year'

    AUSTIN, Tex. -- Once again, Wall Street's super-high expectations of leading supernatural retailer Whole Foods Market here worked against it, as Whole Foods shares fell more than 14 percent, following c.e.o. Mackey's forecast of slower sales growth expectations for next year.

    AUSTIN, Tex. -- Once again, Wall Street's super-high expectations of leading supernatural retailer Whole Foods Market here worked against it, as Whole Foods shares fell more than 14 percent, following c.e.o. Mackey's forecast of slower sales growth expectations for next year.

    "After producing such strong growth over the last three years, we believe fiscal 2007 will be a transition year for us," Mackey said during yesterday's earnings conference call. "As we revert back to our historical comparable store sales growth range, without yet producing a fully offsetting increase in sales from new stores, we believe our total sales growth will be impacted. However, having opened six new stores over the last two months, we believe we are just beginning to execute on delivering an acceleration in store openings that will be a driver of strong sales and comps in the not-so-distant future. We remain confident in our ability to achieve our goal of reaching $12 billion in sales in fiscal 2010."

    The chain's top exec also admitted that challenges to its primacy as a natural and organic specialist are getting tougher. "The conventional markets have become more competitive," Mackey said during the conference call. "Competition is tougher. No question about it."

    Sales for the 12-week quarter ended Sept. 24, 2006 increased 16 percent to $1.3 billion. Comparable store sales jumped 8.6 percent, but paled against a 13.4 percent increase in the prior year. Identical store sales (excluding two relocated stores and one major expansion) increased 8.4 percent.

    For the quarter, adjusted net income increased to $42.2 million, and adjusted diluted earnings per share increased to $0.29.

    For the 52 weeks ended September 24, sales were up 19 percent to $5.6 billion. Comparable store sales grew 11 percent, versus a 12.8 percent increase in 2006. Identical store sales (excluding five relocated stores and one major expansion) increased 10.3 percent.

    Year over year, Whole Foods reported a 10 percent increase in ending square footage and a 14 percent increase in weighted average square footage, reflecting the company's front-end loaded new store openings. Adjusted net income increased to $201.8 million, and adjusted earnings per share increased to $1.39.

    "In fiscal 2006, we produced strong operating results, reporting our third consecutive year of double-digit comparable store sales growth, and an increase in adjusted earnings per share to $1.39," said Mackey. "We returned $358 million in cash dividends to our shareholders and are pleased to announce today a 20 percent increase in our quarterly dividend to 18 cents per share."

    Mackey noted that Whole Foods' fiscal year 2007 will be a 53-week year, with the extra week falling in the fourth quarter making it a thirteen-week quarter. For fiscal year 2007, on a 52-week to 52-week basis, the company now expects total sales growth of 13 percent to 17 percent. The retailer has produced three consecutive years of double-digit comparable stores sales growth. In fiscal year 2006, it saw 11 percent comparable stores sales growth, ranging from 13 percent in the first quarter to 8.6 percent in the fourth quarter. For the first five weeks of fiscal year 2007 ended October 29, comparable store sales increased 6.8 percent on top of a 13.6 percent increase in the prior year.

    Based on recent results, current sales trends and the continuing difficult comparisons, particularly in the first half of the year, Whole Foods expects comparable store sales growth of 6 percent to 8 percent for fiscal year 2007. Thus far in fiscal 2007, the company has opened two stores representing approximately 108,000 square feet, and all of its13 currently tendered stores, representing approximately 691,000 square feet, are expected to open this fiscal year. In addition, five additional stores are planned for openings in fiscal 2007.

    Whole Foods said it recently signed eight new store leases averaging 57,000 square feet in the following cities: San Jose, Calif.; Boise, Idaho; Kildeer, Ill.; Indianapolis, Ind.; Nashua, N.H.; Cary, N.C.; Dallas; and Salt Lake City, Utah.

    In other Whole Foods news, the retailer said yesterday its board of directors has approved an increase in the company's salary cap for 2006 and future years from 14 times to 19 times the average pay of all full-time team members employed during the applicable year. For 2006, this means the salary cap will be approximately $608,000.

    The salary cap is a limit on total cash compensation paid to any team member in any calendar year. Employee benefits, stock options and non-cash 401(k) contributions are not counted in determining and applying the salary cap.

    This is the third time Whole Foods has increased its salary cap since the cap was created 20 years ago.

    "We are raising the salary cap for one reason -- to make the compensation of our key executives more competitive in the marketplace and help ensure their retention," said Mackey in a statement.

    Additionally, the company announced that Mackey, who is 53 years old, will reduce his salary to $1 beginning Jan. 1, 2007 and forgo any future stock option awards. Mackey will continue to receive the same benefits that all team members receive, including the food discount card and health insurance.

    "I continue to work for Whole Foods not because of the money I can make, but because of the pleasure I get from leading such a great company, and the ongoing passion I have to help make the world a better place, which Whole Foods is continuing to do," said Mackey.

    In lieu of Mackey's compensation, Whole Foods' board said the company will contribute $100,000 annually to a new Global Team Member Emergency Fund, which will be distributed to team members as needed when disasters occur. Meanwhile, the board will donate all stock options Mackey would have been eligible to receive in the future to Whole Foods' two foundations -- The Whole Planet Foundation and The Animal Compassion Foundation.

    Whole Foods operatess 188 stores in the United States, Canada, and the United Kingdom.

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