Whole Foods FY 2Q17 Earnings Call Notes

John P. Mackey – Whole Foods Market, Inc.

Rethinking labor scheduling

“I mean, the main thing we’re going to do be doing is we’re going to be rethinking the way we do our labor scheduling. I mean, Whole Foods Market is in the early stages of labor scheduling technology and where we’ve applied it so far, it’s been amazingly successful with getting the right people, the right number of hours scheduled in, say our customer service area. As we extend that through the whole company, we can get, we think we can upgrade our service while significantly reducing our cost. So that’s going to be one of the major initiatives that we think is going to help reduce our labor cost in our stores, not through laying people off, but just through attrition over time and the appropriate scheduling.”

Gabrielle Sulzberger – Whole Foods Market, Inc.

Five new directors to the board

“First, Ken Hicks. Ken brings an impressive record of successful leadership at Foot Locker and other companies in the retail sector. As the former Chairman, President, and CEO of Foot Locker, he is credited with developing and executing a highly successful turnaround plan. Joe Mansueto is the Founder and Executive Chairman of Morningstar. Joe grew Morningstar from a start-up to a global organization that is one of the most recognized and trusted names in the investment industry. Sharon McCollam is the former CFO of Best Buy and Williams-Sonoma. Sharon has more than two decades of experience as a senior leader in the retail industry. Scott Powers brings an important long-term shareholder perspective to the board. Scott was the President and CEO of State Street Global Advisors and brings decades of experience engaging with the investing community. And finally, Ron Shaich. Ron is the Co-Founder, Chairman, and CEO of Panera Bread Company. The results during Ron’s tenure have been impressive, with Panera delivering total shareholder return of more than 5,000%.”

Whole Foods FY 1Q17 Earnings Call Notes

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. “

Whole Foods FY 4Q16 Earnings Call Notes

Whole Foods Market (WFM) Q4 2016 Results
John Mackey

Expecting EPS of $1.42 in 2017

“Turning to our outlook for fiscal year 2017, we expect sales growth of 2.5% to 4.5% and earnings per share, excluding potential future buybacks of $1.42 or greater.”

365 results have been mixed

“We just still think it’s really too early to give long-term projections on 365. Our results have been a little bit mixed. Some of the results have then absolutely blown us away and others have been a little bit less than we had hoped for. So we’re still incredibly bullish. We’ve got 19 stores in development and we’re evolving the 365 concept. David said we’re in a pause right now, so when we open our fourth store, it’s going to be kind of 365 2.0 and we’re taking the things that have worked better and we’re putting more capital into them. Things that haven’t worked, we’re phasing out and so I think the – our next store opens in Cedar Park, is that correct? We’re opening our next store in Austin.”

It’s a very competitive environment

“yes, maybe a little bit but it’s a very tough market out there. There’s a lot of – I mean if you think about it, you not only have strong conventional supermarkets like Kroger and H-E-B and Wegmans, but you’ve also now got more of the discount natural food operators like Sprouts and Fresh Thyme and Lucky’s and they’re all growing. And then you’ve got more delivery fresh stuff like Amazon, and then you’ve got these meal kit operators like Blue Apron and HelloFresh and Plated. And so it’s a very competitive market out there. And I like Whole Foods’ positioning. I like our positioning frankly better than anybody else’s, but I think everybody’s feeling it. You’ve got this macro environment of deflation that people are trying to deal with plus competition everywhere. Everybody’s feeling that. I’m seeing everybody’s comps go down everywhere. And it’s just a very competitive environment. ”

A little Ulysses S Grant

“Thanks. It makes me remember a famous quote from the Civil War when Ulysses S. Grant took over the Union Army. He was always getting criticized. He was always hearing from his generals about what Robert E. Lee was going to do. Robert E. Lee is doing this. What are you going to do about that? And one day Grant said, you know, I’m so sick and tired of hearing what Lee is going to do. Well, Lee needs to worry about what we’re going to do. And I think that’s how I feel about our competitors. They need to worry about what Whole Foods is going to do.”

Walter Robb – Whole Foods Market, Inc.

Robb stepping down

This is Walter, and how about them earnings. But I would say, I’ve also been here a few years and I think that – I think we have – life’s not a straight line, but I think we have as a team, John and I and the team here that’s around the table, we have really worked hard the last year to work through kind of the changes of the environment, the structural changes in retail. And I think you all know we’ve gone here or we’ve gone there trying to figure out exactly the right places to land. I think you can see in the coherence of the script today how it’s really come together in a very thoughtful and strategic manner in terms of how we go forward.

Glenda Jane Flanagan – Whole Foods Market, Inc.

CFO leaving

This is Glenda. I’ll go first. For me, I’ve been with Whole Foods or I will have been with Whole Foods 29 years next year when I retire. I’ll turn 63 this year, so that’s almost half of my life. It just feels like time for me and excited about the opportunity to be here and assist with the thorough search for a new CFO and have plenty of time for a smooth transition. So we will probably start the search process sometime in January.

A.C. Gallo – Whole Foods Market, Inc.

Going to be more strategic with our price investments

Hi, Kelly, A.C. here. As John just mentioned a few minutes ago, we want to be a lot more strategic with our price investments. We realized two things over this past year. One is that our customers really are – the most important thing for us is to maintaining quality both in our products and our experience. So it’s very clear that we’re not going to lower our quality in order to get lower pricing. The second thing that we realize is that we do a lot better with our promotional activity than just lowering regular pricing. So we have maintained our – as I said earlier, we’re going to continue to really push our promotional activity.

Whole Foods FY 3Q16 Earnings Call Notes

Whole Foods Market (WFM) Walter Robb on Q3 2016 Results

Value continues to negatively impact comps and GM

“While our value strategy is continuing to negatively impact comps and gross margin, we are seeing a broad-based lift in items per basket and are encouraged with improving traffic trends in certain key departments, particularly produce.”

Greater than expected health care costs resulted in SG&A deleverage

“greater-than-expected healthcare costs and lower-than-forecast sales resulted in SG&A deleverage. Our catastrophic claims and costs for certain new prescription medicines were above forecast and, while we are working to reverse these trends, these higher costs are expected to continue in the short-term.”

Expecting EPS of 23c for 4Q

“If comps are in line with the negative 2.4% we have reported quarter to-date and healthcare cost continue – the trends continue, we would expect sales growth of approximately 2% and diluted earnings per share of $0.23 to $0.24 for the quarter.”

Strategy is to adjust our operating model to a lower margin model

“our strategy is to adjust our operating model to a lower margin and lower cost structure. Every major conversation we’ve had about investments in pricing, technology and marketing is accompanied by a conversation about lowering our cost structure through enhanced technology tools, labor restructuring, and work process changes.”

David Lannon – Executive Vice President, Operations

Customers have accepted 365 design as a new brand

“customers have really accepted kind of this new design. It’s a fresh look. It’s a fresh feel. They’re kind of accepting it as a brand new brand. And just lots of kind of – even though it’s a value brand, it’s still a really fun place to shop.”

John P. Mackey – Co-Chief Executive Officer, Co-Founder and Director

Happy about our initial start with 365

Yeah, thanks Walter. I think we’ll have a lot more to say about 365 when we get into our Q4 call in November. We’re very happy with the initial start of the first couple of stores. We’re very happy with the way it came out. We think we’ve created a very successful new business model, which we’re going to expand rapidly. And we’ll have more information about that next quarter.

It’s not a secret that there are a lot of competitors out there

” competition, I mean it’s not a big secret, is it? There’s a lot more competitors in the marketplace and there’s a lot of new formats in the marketplace, from home meal replacement to meal kits, fast casual restaurant growth. More entrants in the natural and organic food space. The mainstreaming of natural organic, which has been well reported. These are all factors.”

People aren’t driving as far to get to WFM

“Whole Foods Market being the leader, having very high sales per square foot. We probably feel the brunt of it, as there’s a bit of a regression to the mean as we lose customers from a convenience standpoint. People don’t drive as far as they used to drive, because there’s good enough alternatives in many cases close by to them. So people may not be driving as frequently as far as they used to, because they can stop by a Kroger or an HEB or a Wegmans to get products that they can use to only be able to get Whole Foods. Now there’s some overlap in our product base and other competitors. So, I think there’s no sense in denying it. Competition is bigger and we’re responding to it as we think an intelligent measured way. And we still remain very bullish about our future prospects.”

We keep opening stores

“I mean, one thing’s probably continues to be underreported is we keep opening a lot of great stores. Just yesterday, we opened up two flagship stores that are just kicking butt. They’re just amazing stores. They’re awesome stores that are doing huge sales and they’re going to be very profitable for us.”

A.C. Gallo – President & Chief Operating Officer

Overall slight deflation in costs

“Hi. A.C. here. Absolutely. I’d say overall, we were pretty flat to slight deflation in costs this quarter. And where we saw the most deflation in terms of our retail prices were in produce. As we mentioned, that’s where our biggest investments have been. In meat, we saw a little bit of deflation as well. A little bit of deflation in beef costs and a little deflation in our actual retail prices mainly due to an expanded promotion strategy that we were doing. Those are the two biggest areas. I’d say we’ve definitely seen also a little deflation in our bulk products, things like almonds and other prices like that really dropped off the cliff and we’ve lowered our prices pretty significantly in a couple of major commodities there, too.

Whole Foods (WFM) Co-CEO John Mackey Interview

Whole Foods (WFM) Co-CEO John Mackey says the optimal business result is a “win-win-win-win” relationship with all key stakeholders

“I just think that you should think about the business in such a way that you are simultaneously create strategies where all your major stakeholders are winning.  And if you’re not doing that, you’re not creating very good strategies.  But once you take on the framework that your responsibility as a leader is to find strategies where you’re not making stakeholder trade offs but you’re actually creating stakeholders synergies, then you’re on the right track.  We’re continuing to learn, we’re evolving faster right now than anytime in our history.  It’s exhilarating and you better be able to move quickly.”

 

 

 

Source: Milliken Conference Video Interview https://www.youtube.com/watch?v=ZphjRARjXig&list=PLwJK8JzK8C_fr-qVhEg7dt14JNOwxFe3L&index=128

Whole Foods (WFM) Fiscal Q2 2016 Earnings

Whole Foods (WFM) Co-CEO John Mackey said the company’s grocery delivery partnership with Instacart makes them one of the largest grocery delivery companies that delivers to the home in the US

“Instacart has recently expanded to Orange County, Baltimore, Charlotte, and San Antonio, with additional markets coming soon. Collectively, Whole Foods and Instacart deliver fresh groceries to more households in the United States than anyone else.”

Whole Foods (WFM) CEO John Mackey said their new 365 store offering is focused on lower prices but still maintaining the high quality of food

“Created to complement our Whole Foods Market stores, our new 365 format will offer our same industry-leading standards and dedication to food transparency, delivered in a new way. The streamlined format is designed around affordability and convenience and will be supported by enhanced digital experiences. We believe there is customer demand for both formats, and as a second growth vehicle, 365 allows us to attack the value-quality proposition in a new way, while maintaining the integrity the Whole Foods Market brand represents in the marketplace. We are excited to get our first three stores open and to learn and evolve from there.”

Comparable store sales continue to decline

“Turning now to our updated outlook, we expect to be at or below the low end of our prior sales and earnings per share ranges. While we beat our bottom line expectations in the first half of the year, primarily through better and projected leverage in salaries and benefits, our comp trends have yet to stabilize. We’re hopeful that comps will improve over the course of the year as our sales building initiatives gain traction and our comparisons get easier.”

Saw continued user engagement with their app

“We’ve significantly increased the number of users for our app, so in addition to both using the coupons, we have a more engaged customer is now leveraging our app for the other utilities that we’re providing. Our intention at this point is to continue to add features to our app, inclusive of the digital coupons leading up to our affinity rollout, which we will be piloting our next city up in Dallas, and then doing our national rollout following that test.”

Whole Foods (WFM) Co-CEO Walter Robb said they are trying to reimagine the story experience from beginning to end

“I think if we look at our business, we say we were the ones that put a lot of energy and time into the customer experience, into the retail experience, into the store experience. And we had such a pretty strong regional structure and I think were, as a result of this crossroads and transformation we’re going through, we’re looking at all the systems that supports the processes on how we do work and how we’re structured, everything from soup to nuts, really, looking at everything in terms of how we can simplify, eliminate redundancies, do work differently, find more savings through just streamlining the organization.”

They believe their commitment to the culinary experience is a competitive differentiator

“I also want to share the fact that our commitment around culinary is really what separates us compared to the competition, and so we have the leadership now in the company to bring that focus and that commitment to really developing new programs. We have the friends of Whole Foods Market, which are bringing really great restaurant concepts into our stores. And having these partnerships that create a unique experience from a culinary standpoint. That really is, by far, above anything that we’re competing against right now. So we really feel like the renewed focus on culinary in our stores is a big, big differentiator for us as a company.  Our stores are very different than our competitors, and we’re not standing still.”

Think their core customer remains loyal to the brand

“I would say very pleased that the core shoppers continues to stay with us, and is staying pretty consistent frequency and also basket. Where the erosion has happened, it simply has, and the comeback will happen, is also what we more broadly call the occasional shoppers who come in at different frequencies and for different amounts. And that’s where I think folks may be perhaps where we’ve seen a little bit more inconsistency. So that’s the answer.”

JS Earnings Call Transcript 2.18.2016 – Express Scripts, Brookfield Asset Management, Trupanion, Axalta, Arch Capital, iRobot, Whole Foods

Express Scripts (ESRX) CFO Eric Slusser said they are focusing on reducing costs

“As a management team, we are focused on improving healthcare outcomes for our patients while reducing costs. We are driven to create efficiencies across the organization. For example, working hand in hand with Chris Houston, who leads our core operations, we are simplifying operating complexities, eliminating redundancies and reducing our cost to fill. We are focused on a common goal to reduce costs within the organization while enhancing the service we provide to our patients and clients.”

Express Scripts (ESRX) President Tim Wentworth highlighted the increasing costs of drug prices as an area of focus

As we look to the future, we see many more ways for us to improve healthcare. When we deliver on the two things our clients need most, controlling costs and achieving better patient outcomes, it is both a growth opportunity for us and a testament to our business model of alignment. We have a strong financial and operational foundation to build upon and we are differentiated with unique solutions that are in high demand and we will always lead, even if it means taking actions others cannot or will not.  While our clients face a challenging environment with rising drug prices and increasingly complex regulations, we stand with them, working together to find innovative ways to strengthen the pharmacy benefit while improving care.”

Express Scripts (ESRX) President Tim Wentworth says the company will grow alongside clients

“We are well-positioned for the short- and long-term for two important reasons: first, the value we provide clients has never been greater, and second, there is a growing appreciation for our unique business model of alignment.”

Express Scripts (ESRX) President Tim Wentworth said they may enter the healthcare information technology segment if they found the right acquisition

I think HCIT, there’s a lot of fragmentation there. We obviously have a lot of internal capabilities that we can invest in, but as we look out both from a payer and a provider standpoint, there may be some interest there.”

Express Scripts (ESRX) CEO George Paz said they’ve been able to save clients money by shifting how they buy their pharmacy drugs

“The savings in that are significant for our clients. So, one of the biggest things you can do to manage your cost is by really focusing your buying on the most efficacious, best-priced products and driving into those areas. I think it’s there that the savings are quite substantial. And there’s other things such as driving mail order and doing Specialty Management properly.”

Express Scripts (ESRX) CEO George Paz discussed the company’s relationship with pharmaceutical manufacturers as it relates to drug inflation

“First of all, just at a macro level, the way Inflation Protection works is that we’re able to go out, we contract with the pharma manufacturers who make commitments around sort of the maximum pricing that they will take above which they will, through us, create value that we can then build back into the programs for our clients. So in essence, we go out, we don’t reinsure because we’re not taking true risk in an insurance sense. What we’re doing is we’re sort of out there contracting with pharma and then passing that back through the program that we’ve got. So it’s a very – it holds pharma accountable, and at the same time, it puts our clients in a great position to the extent that inflation is higher than what we were able to cap it in these contracts.”

And described it as a mutually beneficial relationship

“In effect, we provide an excellent way for those manufacturers to get to market in a way that is responsible, that creates maximum access for their innovative products, that ensures that there isn’t wasteful behaviors taking place”

Express Scripts (ESRX) CEO George Paz says they can still drive out costs from their business as a result of recent mergers

We still have an awful lot of inefficiencies in our mail order service that we can still go after and we think that there’s still a significant room to run there, so I do believe that this is going to be an annual exercise for us. It always has been and it will remain an exercise to focus on costs. What’s adding value to our patients and whatever isn’t, get rid of it. And that will stay our goal.”

 

 

 

 

 

Brookfield Asset Management (BAM) CEO Bruce Flatt says the company is benefitting from client’s increased interest in real assets

Our institutional and sovereign fund partners continue to increase their allocation to real assets.  With each of the funds at least 50% larger than their respective predecessor, this sets us up well for continued growth in the business. To answer the question, many have asked us, we continue to see very strong allocations from institutional clients for real assets from every market in the world, some with large increases to the sector.”

And he sees attractive investment opportunities now in specific emerging markets

With respect to investment opportunities, we’re seeing significant numbers of investment opportunities that meet our investment criteria across the board. This is the result of the accentuated macro themes over the last few years that we’ve been focused on namely, number one, the lack of capital in the emerging markets.”

Also seeing value in the high yield market after recent sell off

Specifically to the U.S. high-yield market, we’ve been and are investing significant amounts of dollars into high-yield bond positions today across most of our funds at what we see as exceptional yields to maturity and some which may turn into further opportunities in those funds.”

Brookfield Asset Management (BAM) CEO Bruce Flatt says the company is benefitting from negative interest rates in Europe as clients look to make investment in real assets that will hold their value

The European market will exhibit very slow growth for a long time and real assets may be the only place to find yield in a market where trillions of dollars of government bonds have been forced to negative yields by quantitative easing.  We’ve been finding exceptional assets to acquire and we’re able to finance them with very long-term low rate financing, generating strong cash yields to equity and we hope to continue to do this.”

Brookfield Asset Management (BAM) CFO Brian Lawson said they are being opportunistic about deploying capital in the oil & gas sector

Probably the biggest [area] that has changed is the oil and gas markets, as you know, have deteriorated very significantly in the last six months and that’s caused a lot of stress in a number of areas, and commodity prices have changed a lot.”

Brookfield Asset Management (BAM) CEO Bruce Flatt discussed the differences between the European credit market and the US credit market

The thing I would say is, there are opportunities around the world. They come in different forms in different places in different types. What the U.S. capital market has versus every where else, is the widest and deepest market. And secondly, most of its credit is listed in trades with CUSIP number. And therefore you can buy it in the second-hand market easily as opposed to as you mentioned in Europe, it’s mostly in a bank market. So they’re just much more accessible opportunities in the short-term versus some opportunities you might otherwise find from a banker something else in Europe. They are just more difficult to access.”

 

 

 

 

Trupanion (TRUP) CEO Darry Rawlings said American consumers are spending more on pets regardless of the economic environment

“Pet owners in the United States love their pets. In fact they spent more than 60 billion on pet products and veterinary care last year.  Their spending level has been increasing even through recessionary periods. As the costs of veterinary care continues to increase, so will the need for our product. There are more than 160 million cats and dogs in the United States and only about 1% currently have medical insurance plans.”

Trupanion (TRUP) CEO Darry Rawlings highlighted the company’s mission driven culture as a competitive advantage

“We talk a lot about competitive advantages but one aspect that we don’t mentioned often enough is our mission driver culture probably because it’s difficult to quantify.  Borrowing from a book that often gets quoted back to me, the plain truth is that talented people work the hardest when they are proud of what they do. When their jobs are interesting and meaningful, and when they and their team members are recognized for their contributions in share and benefits. At Trupanion, we are seeing that in action.

Trupanion (TRUP) CFO Mike Banks said customers continue to see value in the product as evidenced by the high retention ratio

Subscription revenue were up 28% year-over-year, driven by 27% growth in subscription pets and by continued strength in our average monthly retention rate which was 98.64% for the fourth quarter.  Our focus on providing a superior value proposition in customer experience drives strong customer loyalty which Trupanion pet owners staying with us for an estimated six years on average.”

 

 

 

 

Arch Capital Group (ACGL) CEO Dinos Iordanou said the reinsurance business is facing a multitude of headwinds and irrational competitors

To invoke a bit of a sailing analogy, we are facing headwinds in our reinsurance group, overcapacity, pressure on ceding commissions, more excess of loss purchasing at inadequate pricing. So, that describes a bit the reinsurance market conditions. “   

In their opinion, there are too many insurers willing to underwrite policies without being compensated for the underlying risk

 The returns there are just not satisfactory. In our view, capacity is plentiful. In short, the lines of business where we are focusing our efforts still provide us with expected ROEs on allocate capital in excess of 10%, but the days of low hanging fruit are gone. Our reinsurance group net premium written has declined 26% in the fourth quarter of 2015 versus fourth quarter of 2014, led by decreased writings in our short-tailed segment.”

As a result of fierce competition, they are re-focusing on less commoditized product lines

While macro events and the interest rate environment have brought down total ROE expectations to a new normal level, we are positioning ourselves in all of our underwriting units, focusing on specialty niches that have some inherent competitive protection and for which we believe we will achieve our 15% ROE target over the cycle.”

Arch Capital Group (ACGL) CEO Dinos Iordanou said he doesn’t want his underwriters to go to the competition

Let me give you also a little bit of the strategic view that we have when it comes to expenses. I said many, many times in many calls we are not willing to par with our underwriting capability. So we are going to maintain underwriters even if the market might cause us to reduce underwritings because we are going to maintain underwriting discipline and complete commitment to our good people, especially on the underwriting side.  I am not going to give my underwriters to the competition. So, we are going to maintain that, because our view of the market is more long-term than short-term. These are the same underwriters that generated significant profits for us when the market was good for reinsurance and that market will come back again to supply and demand and at some point in time, it will readjust.”

Arch Capital Group (ACGL) CEO Dinos Iordanou said risk analytics are becoming an increased point of emphasis for the company

And if you are not willing to assess risk appropriately and price it appropriately, at the end of the day, you might be subject to adverse selection over time and we don’t want to be in that category.  This is not something that as one of our competitors says it’s just some black box that spits out. It’s a lot of effort, a lot of analytics, a lot of historical data that we have used.  Everyone we have is a quant here, except me. But I keep up with them.”

 

 

  

 

 

iRobot (IRBT) CEO Colin Angle said America & China were its strongest geographical markets during the quarter

As a result of these efforts, Home Robot revenue grew more than 30% in the fourth quarter, driven by sales in United States and China, which were up 46% and more than 70%, respectively, over Q4 in 2014.  We need to better position ourselves in China to capture an even larger share of the rapidly growing market for robotic floor care.”

New distribution channels and effective advertising helped drive sales

Exceptional domestic growth of 46% in Q4 and 25% for the full year over 2014 was driven by investment in ad media, national promotions, launch of the Roomba 980, and the addition of Target as a new channel in the fourth quarter.  Our Roomba marketing programs were highly successful in the United States and we saw significant return on investments.”

They will be spending their incremental marketing dollars in Japan

During 2016, we will focus our marketing efforts on the Japanese market where we have already kicked off several initiatives. If we are successful, we should start seeing impact on demand generation by the end of the year.”

iRobot (IRBT) CEO Colin Angle said they are launching a new home robot this year but remained elusive on what type it will be

We do plan to launch a new Home Robot product in the first half of the year, but I’m not going to provide any additional information on timing or product category at this time.”

iRobot (IRBT) CEO Colin Angle remains optimistic on e-commerce sales in China

We think that long term, China is a tremendous market that could in the relatively short term become our largest market outside of the United States.  We expect to focus primarily on e-commerce. That is the most rapidly growing path to market in China.

They divested their defense and security business to focus solely on the home category

We believe that the growth opportunities in Home are immense and accelerating. And crucial to achieving those growth rates is both product leadership within the Roomba category and the establishment of the second leg on the stool, and within Roomba that means connectivity.  And given our market share, we are scaling the connected robot business at a very, very fast rate and so we’re pushing at sort of the bleeding edge of a lot of different back office technologies for connected product and are also making investments to ensure that the information that the robots are collecting is being done in a way that we can leverage in the future for the performance of the robot and also as part of an important element of the connected homes.”

iRobot (IRBT) CEO Colin Angle addressed privacy concerns related to their home robots

The overarching philosophy that we have relative to privacy on our Home Robot is, let’s be cautious. The 980 robot as is currently architected, all the information collected stays resident on the robot. It is our expectation to slowly allow some information to flow up to the cloud but it will be done with the permission of the owner, because that owner actually wants to enjoy the benefit of that information going up to the cloud.”   

 

 

 

 

 

 

 

Axalta (AXTA) CEO Charles Shaver said the company is benefitting from lower gas prices

We believe that refinished demand will continue to benefit in 2016 for lower fuel prices, which correlates well with increased miles driven, and accident rates as well as the purchase of larger vehicles that consume more paint.”

Axalta (AXTA) CFO Robert Bryant said increased efficiency helped improve margins

The impressive 220 basis points improvement in the adjusted EBITDA margin that Charlie mentioned reflected the volume and price tailwind noted previously, as well as savings from cost improvements and productivity enhancements offset in part by ongoing investment to support growth similar to prior periods.”

As well as increase market share

We are increasing share in global markets as we introduce new products, globalize our existing products and apply discipline and metrics based management to a business that was formally not a focus area for the previous owners. Our success is paired with a persistent focus on increasing productivity and creating a durable operating model that emphasized customer service, while definitely minimizing our cost structure to ensure we can compete effectively.  I think overall we are growing a little faster than the market.  And we are either the number one or number two market leader in most markets.

After the companies leveraged buyout away from parent company Dupont a few years ago, they continue to delever the balance sheet

Regarding our capital allocation plans, we continue to focus our free cash flow on debt reduction, targeting leverage of 2.5 to 3 times net debt-to-LTM adjusted EBITDA.  We are content to reduce our net debt leverage as the primary use of our excess capital.”

Axalta (AXTA) CEO Charles Shaver believes their raw material costs will improve from the drop in oil prices

I think when you look at the drop of oil that really started to occur in the second quarter and then you assume approximately 3 months before you would see that appear in cost of goods sold and flow through your financial statements. It’s probably at the end of the first quarter that we really start to lap some of those benefits, vis-à-vis the lag effect on a weighted average across all of our raw material baskets.”

 

 

 

 

 

Whole Foods Market (WFM) Co-CEO Walter Robb said they are discounting some of their items to broaden their appeal to customers as well as drive traffic and engagement 

We stepped up our value offerings to customers primarily through more and deeper promotions such as our customer appreciation, love fest and three-day sale in supplements, which were supported through social media, digital ads and select radio ads. Over the remainder of the year, we plan to continue our promotional strategy including more personalized offers and increase and broaden our price investments as well.”

And they now offer Whole Foods grocery delivery in 16 different markets

Our instacart sales continue to grow nicely and we now offer delivery in 16 markets with many stores seeing sales as a percentage of total store in the mid-to-high single digits and several stores averaging baskets over $100. We are in the process of expanding the service to more stores and several new markets this year.”

Whole Foods Market (WFM) Co-CEO Walter Robb said they are launching digital coupons for the first time

In our ongoing effort to better understand and offer more value to our customers we have accelerated the first component of our national Affinity program. We are excited to announce today the launch of digital coupons within our Whole Foods Market mobile app expanding the functionality beyond recipes and shopping lists.  Coupons have been the top request among users and now with a simple scan at the register preloaded digital coupons can automatically be applied to matching items in a shopper’s basket.  This is a win for customers, a win for us as well as we will gain actionable customer data on a national scale.”

By increasing their discounting initiatives, they now expect lower margins

Based on our Q1 results, we now expect a year-over-year decline in operating margin for the fiscal year of up to 70 basis points. Reflecting increased value efforts as the year progresses, the year-over-year decline in gross margin excluding LIFO in Q2 through Q4 is expected to be greater than 86 basis point decline in Q1.”

Whole Foods Market (WFM) Chief Operating Officer A.C. Gallo talked about the need to make sure their prices are competitive

I mean there are certain very important categories that we know that we need to be competitive on an everyday basis on. And so we are  working to systematically identify those and move pricing on those to make sure that we’re competitive. There’s a fair number of items we’ve lowered prices on so far this year and have plans to do more as the year goes on.”

They will be focusing on downtown stores in urban areas 

One of the things that you can expect to see going forward particularly as Whole Foods Market is in this transformational shift is you’re going to see the Whole Foods Market stores, they’re going to be larger stores. They’re going to have a lot of innovation in them. There’s going to be a lot of prepared foods. There’s going to be a lot of exciting things about those stores. That’s why when you talk about downtown Miami or downtown LA, we’re talking about fairly large stores that are really exciting, fun stores to be in.”

 

Whole Foods 4Q15 Earnings Call Notes

Walter Robb

cannibalization hurt in addition to competition

year. In addition to headwinds from a tougher comparison in a highly competitive environment, the negative impact from cannibalization increased for the third consecutive quarter.

Stepped up value offerings

We stepped up our value offerings to customers primarily through more and deeper promotions such as our customer appreciation, love fest and three-day sale in supplements, which were supported through social media, digital ads and select radio ads. Over the remainder of the year, we plan to continue our promotional strategy including more personalized offers and increase and broaden our price investments as well.

Coupons have been top request

Coupons have been the top request among users and now with a simple scan at the register preloaded digital coupons can automatically be applied to matching items in a shopper’s basket. We encourage everyone to download the app today and take advantage of deep discounts on everyday staples like milk, yogurt and granola, seasonal offers like $5 off the dozen Whole Trade Roses just in time for Valentine’s Day and more. This is a win for customers, a win for us as well as we will gain actionable customer data on a national scale.

13 365s set to open

Finally, with 13,365 by Whole Foods Market leases now signed, we are pleased to share the opening schedule for our first stores. We expect to open in Silver Lake, California in late May, Lake Oswego, Oregon in July and Bellevue, Washington in August. We invite you to check out 365 by wfm.com for a taste of what’s to come.

Define competitive challenge broadly including digital platforms

I just want to add, just remind that we don’t define the competitive challenge as just a pricing challenge. We also define it much more broadly with efforts to expand our digital platforms, our reach to our customers, our marketing message all those things where we can communicate our differences and our quality. So keep that kind of in the context as you think about the competitive question.

Jim Sud

Seeing a lot of opportunities for 365 stores

Well, we’re seeing a lot of opportunities for 365 stores just like our Whole Foods stores. And we’re also finding that we’re able to acquire these stores on very favorable rents, less in general than our Whole Foods Market stores. We have quite a few of our 365 in development in Southern California and but it’s just — it’s not necessarily by design. We’re looking everywhere and we’re — the plan is to try and cluster stores, 365, where possible, and we’re doing that in Southern California. But we also have leases in other isolated markets as well.

KenMeyer

365 stores will leap frog ahead on best practices

Also, one of the things perhaps not fully appreciated is that the 365 stores are going to leapfrog ahead on many of the practices that we will be evolving in Whole Foods Market. We can put them in. There’s no culture. There’s no legacy there to overcome. So we can go radical on 365 stores and assuming those are going to work as well as we think they do. They will serve to help accelerate transformation within the mother brand, Whole Foods Market. We’re proceeding as rapidly as we think is prudent at Whole Foods Market, but with 365 stores we won’t have anything holding them back. So in some ways we think they represent the future for where Whole Foods Market will be evolving. So of course, we’re going to encourage people to take a look at those stores when they’re open.

David Lannon

Whole Foods will be larger footprint move prepared foods, more differentiated

One of the things that you can expect to see going forward particularly as Whole Foods Market is in this transformational shift is you’re going to see the Whole Foods Market stores, they’re going to be larger stores. They’re going to have a lot of innovation in them. There’s going to be a lot of prepared foods. There’s going to be a lot of exciting things about those stores. That’s why when you talk about downtown Miami or downtown LA, we’re talking about fairly large stores that are really exciting, fun stores to be in.

With the 365 stores opening now, they’re going to take the smaller footprint, be very curated product mix, very focused on creating value for customers, a convenient, quick shopping experience. So over the long run you won’t see small Whole Foods Market stores open up. That’s going to be the purview of the 365. It’s going to give 365 stores can go into a lot of markets we think Whole Foods can’t go in with these bigger more exciting boxes. We’re going to work for the Whole Foods Market Stores to be very differentiated with a much more exciting experience than our competitors bring.

So that’s kind of our basic strategy and we’re working now in real estate and we have a — it’s not going to be perfect for a while because we’re working through some stores that are in the queue, but as we go through the real estate process, the smaller stores that come through real estate now are being slotted to be 365 stores and a larger, exciting stores particularly in urban densely populated urban areas are going to be Whole Foods Market. We think we’ve got lots of growth room for both concepts and we’re particularly excited to get those 365 stores open because I think people are going to take a very different perception of our company.

Whole Foods 3Q15 Earnings Call Notes

We have to move faster in a dynamic and competitive marketplace

“Our partners at United Natural Foods estimated over 70,000 new points of retail for natural and organic products over the last three years. In this dynamic and increasingly competitive marketplace, we recognize we need to move faster and go deeper in creating a solid foundation for our long-term profitable growth.”

Food retailing is rapidly evolving

“At the same time, food retailing is rapidly evolving in new ways – from online delivery in one hour, to click and collect, to personal shoppers. Some now estimate online sales could grow from 2.5% of total food retail sales to 8%, or $100 billion, by the year 2025.”

Push differentiation with exclusive brands and prepared food

“we will innovate faster to further differentiate the Whole Foods Market shopping experience, with a focus on our exclusive brands and prepared foods. We are operating some of the highest volume restaurants in the country, and no house brand comes close to the quality standards of our exclusive brand products”

Continue to invest in digital strategies

“we will invest in digital strategies to convert the strong traffic we generate online into sales.’

Expecting $1.50 EPS in FY 2016

“Excluding an estimated $0.05 to $0.07 per share in net accretion related to these debt-financed buybacks, we expect EPS for the fiscal year of $1.50 or greater.”

Buying back shares because WFM is a compelling buy at these prices

“We think Whole Foods is a compelling buy at these prices. Stock buybacks are going to be accretive in the short-term and the long-term. And it doesn’t preclude us from making further stock buybacks in the future if necessary.”

It’s a perfect situation with interest rates being what they are

“It’s sort of a perfect situation, Rupesh, this is Glenda, with interest rates being what they are and the long-term debt market being what it is and our trading metrics – stock price trading metrics, relative to history being what they are. And we have very strong cash flow and are very confident in our ability to service the debt and to continue to fund our growth out of our own cash flow.”

If we had a magic bullet to increase sales we’ve already shot it

“If we had a magic bullet we’ve already shot it. We don’t think there’s anything we can do immediately except increase promotional activity to drive sales. We think it’s basic blocking and tackling. We’re going to get back to basics at Whole Foods. ”

We have some stores with 15% of sales on instacart

“David, also I would say anecdotally we’ve had stores up to 15% of store sales are closing in on $100 basket size for Instacart. So those are individual stores, but it shows a path to where we can get to.”

Retail is detail

“by basics what I meant on blocking and tackling, I mean retail ultimately always comes down to how satisfied the customer is. So it’s about retail is detail is the cliché, and it’s a very appropriate one. Things like the level of customer service, the level of in-stocks that we have in our products, how the stores look, the overall feeling they have when they’re in the stores, the cleanliness of the stores.”

Highlighting technology investments

“these three platform decisions we’ve made, whether it’s Workday on the TMS or HR side, the One POS on the front end side, and then also the Infor on the supply and merchandising side, all three of those things are going to make work a lot easier to do with more transparency.”

People are copying our look and feel but not our quality standards

“first thing I would say is that a lot of the folks that are copying Whole Foods at this point, they are not copying our quality standards, they are copying our look and feel and our marketing. And so far, that’s a good strategy; it’s working. Many customers are not looking beneath the hood; they’re not seeing the differences.”

We don’t want to have a race to the bottom

“we don’t want to have a race to the bottom; we don’t want to compromise our quality and start cutting our quality to make us more competitive on price. Sure, if you’re in the center store and if they have exactly the same items then you’re absolutely right, we have to be price-relevant, we have to be very close or matched on those items, and we’re working on that.”

It’s harder to comp when you’re at $1k per sqft

“One of the challenges we’ve got, to be honest, is that it’s hard to comp when you’re $1,000 a square foot. It’s a lot harder to build a high comp on that than it is to build a 4% or 5% comp at $500 a square foot. Just have a lot more running room, stores are less congested, it’s just easier to do. And while we do think we can increase our comps and we do think we can increase our sales per square foot, it’s just our success has become a higher hurdle for us to jump over.”

Whole Foods FY 3Q15 Earnings Call Notes

Opened 8 new stores

“Year-over-year, our quarterly sales grew $255 million to a record $3.6 billion. We opened eight new stores, increasing our operating square footage 11% to 16 million and expanding our reach to 422 stores across 41 states and three countries.”

Negative publicity sharply impacted comps

“Comps dropped sharply in week 11, after our New York City weights and measures audit received national media attention, and averaged just 0.4% for the last two weeks of the quarter.”

The weights and measures issue was inadvertent human error

“I want to emphasize, these were not systematic, but rather caused by inadvertent human error. The audit included errors that were favorable to customers as well. These are weights and measures issues that can be found in any supermarket.”

$1B in EBITDA YTD

“Year-to-date, we have produced industry-leading sales per gross square foot of $990, over $1 billion in EBITDA, and $1 billion in cash flow from operations.’

Still see room for 1200 stores

“424 stores totaling more than 16 million square feet today, we expect to cross the 500-store mark in fiscal year 2017, and over the longer term, continue to see potential for 1,200 Whole Foods Market stores in the United States.”

First 365 store going to open in silver lake

“Our first 365 by Whole Foods Market store is scheduled to open in the Silver Lake area of Los Angeles, where we converted a lease in development from Whole Foods Market to 365.’

We’re victims here

“It’s a very small percentage of our total product. It’s just something that went viral in the media, and it has hurt our trust and yet, we do feel like we’re victims of – we don’t know exactly why the DCA went after Whole Foods like this, and we’re not sure why the media went crazy with it, but it did happen. We are taking steps to not give cause for this in the future.”

Slowed the rollout of the affinity program

“We have slowed down the rollout which we originally anticipated because we’ve gotten so much feedback from our customers about the features they like or the suggestions they have. So we’re on to a couple new markets and that’s where we are right now. We’re just going a little slower in order to get it right as we go’

We’re not going to slow down our growth unless we can’t find location that don’t produce ROICs that we’re looking for

“I think the key takeaway there is that we’re not going to slow down our growth unless we can’t find locations that are going to produce five-year EVAs on a present value basis and give us the returns on invested capital that we’re looking for. As long as we can, that’s how we’re going to continue to manage the business.”