Whole Foods FY 1Q17 Earnings Call Notes

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John P. Mackey

Setting a new strategic direction

“Thank you, Cindy. Good afternoon, everyone. As we have announced today, we are setting a new strategic direction for Whole Foods Market in order to deliver improved performance and higher returns over the long-term.”

Don’t want to be in a race to the bottom

“What has become clear is that we don’t want to compete in a race to the bottom as consumers have ever-increasing choices for how much and where they shop. Through our affinity work, we know that our core customers represent our largest customer segment and account for a majority of our sales. They are dedicated to the high-quality, fresh, healthy foods, and transparency that we offer”

Focus on serving our core customer

“While they are already highly engaged with our brand, there is still significant opportunity for growth. And if these customers add just one more item per trip, the sales potential is significantly greater than with any other segment. Going forward, Whole Foods Market will focus on serving this growing niche of customers better than ever before.”

No longer have a goal of 1200 stores

“We will continue to grow, but no longer have a goal of 1,200-plus stores. We remain optimistic about the future growth potential for our 365 format but want to see how this next round of stores perform before getting more aggressive. As we work to position Whole Foods Market for long-term success, we have carefully evaluated our portfolio of stores and have made the difficult but prudent decision to close nine stores in the second quarter.”

Going to be focused on being a more disciplined growth company

“That’s a lot of questions, and so we’ll try to take them. First, this does not mean we’re stopping growth. First of all, we’ve got 80-some-odd stores in our pipeline at this point, so we’ve got a number of stores that are queued up to open. So we’re going to continue to move through those stores. We’re probably going to moderate the number of future lease signings that you see. We are – part of the reset that Whole Foods is talking about today is that we’re going to continue to grow, but we’re going to be, I think, a more disciplined growth company than we’ve been in the past. We are going to focus a little bit less on growth and a lot more on getting our comps increasing and getting – and focused on increasing our EBITDA, our returns on invested capital, and our free cash flow.”

Change in the competitive landscape

“we were ignored for most of our history. Nobody paid any attention to us. And – but we continued to expand and grow and we got more and more successful, and then kind of the conventional supermarkets, they were – I think they were really pre-occupied with Walmart, and trying to be competitive with Walmart for a long time. And then I think they began to pay more attention to Whole Foods Market and they began to pick up more of our products. They began to study it in a more systematic fashion, and particularly as they began to see their customers begin to migrate over to doing more and more shopping with Whole Foods Market. So what it means for us is that in a lot of ways, the more conventional mainstream supermarkets have upped their game. They’ve picked up more of their products. And that has slowed the erosion of some of their business that was heading towards Whole Foods Market. One of the things that we’ve noticed, for example – and it’s also given people a good enough alternative in some cases. So one of the things we’ve noticed, for example, is that many of our stores where people used to drive long distances on the weekends and do big shops, we’re seeing a little bit of a decline on that. We’re not getting as much – some of our comp deceleration has been particularly on the weekends. We’re not getting as many people coming in on the weekends buying as bigger baskets. And we conclude that’s partly because the competitive alternatives mean people aren’t coming to us as frequently as they did previously.”

Doubling down on our core customer

“But the thing is, is that we still see that our core customer, the Whole Foodie customer, the person that’s really, really dedicated to Whole Foods Market, they are still coming to us. And so, part of what our strategy here is, is to – we’re going to double down on focusing on our best customers. We are going to create more value for them than we’ve ever created for them. “