for those who may have missed it, mackey (CEO and co-founder of WFMI), was on squawk box yesterday (7 a.m. PT). here's the transcript and url to the aud & vid.
mktnews.nasdaq.com\\www\nasdaq\news\msnbc\1998\11\13\NASDAQ_0950_15992.htm&usymbol=WFMI&logo=True&companyname=Whole+Foods+Market%2C+Inc%2E
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CNBC - SQUAWK BOX
WHOLE FOODS MARKET CHAIRMAN AND CEO JOHN MACKEY
NOVEMBER 13, 1998
ABSTRACT: Mackey announces Whole Foods will enter 10 new locations. He says supermarket companies across the board are performing well. Mackey believes the company has insulation against Wal-Mart invading the supermarket business.
Mark: Investors were gobbling up shares of whole foods market yesterday. The stock gained over six points, to close at 40 and change, after the company calmed investors' fears, which ranged from an industry slowdown, to missed quarterly numbers. In fact, whole foods surprised fans and foes, posting numbers in line with estimates of 40 cents, and up 21% from the year-ago quarter. The company also announced plans to open 29 more stores, cementing its position as the nation's largest chain of natural-food supermarkets. Here to tell us what else is going on at his company is John Mackey, chairman and CEO at Whole Foods Market. Mr. Mackey, good to see you.
Good morning.
Mark: The numbers speak for themselves. You made the estimates. I don't know what happened to your stock leading up to it, apparently, maybe some kind of concerted effort to drive them down, but you came in with a number. That was that. So, let's look at what happens from here on out. If you go back to last August and your third-quarter conference call there, was talk about delaying opening new markets for zoning reasons and things like that. Can you bring us up-to-date on your schedule for new openings and where it stands?
Well, we had a few stores that were delayed due to --.
Mark: I think you had some zoning issues, didn't you? And then that delayed things.
Well, we do complex urban sites. And a lot of times you get into local politics and building codes and approval processes that delay it. And that's what's happened for a few of our sites that slipped back a quarter or two. Yesterday we announced that we'd signed 10 new locations. We now have 29 stores in development, which was a record for us in terms of backlog of sites that we're going to be bringing on-line in the next two years.
Mark: The reason I raised the issue is that it may sound arcane to some people, but an analyst at BT Alex Brown last August lowered his estimates on your company, partly because of what he called a shift in timing of new store openings. It's a valid point to bring up. Another valid point to bring up is your profit margin, which is about double that of your nearest competitor and it's also double that of a typical supermarket.
Are you referring to the net profit margin?
Mark: Your profit, yes you're working on 2%, 2 1/2% margins, I believe.
One of the myths, of course, is that supermarkets operate on a 1% market. If you look at a company like Albertson's and Safeway, they're making net profit margins very comparable to our own right now. So, I would kind of reject the idea that we're making twice as much as the other competitors out there. I don't think that's true.
Mark: Fine. Then what's to differentiate you.
Well, hold on, no, but you have pretax margin at over 5%, which is high in the grocery business.
Again, that is very good, but I'm saying that the best supermarket operators now are bring in those kinds of profits similar to us.
Mark: Okay.
Check your numbers.
Mark: The supermarket business is undergoing to some dramatic changes with the invasion of Wal-Mart, people like that. It's forcing consolidation among the big chains.
Do you see that impacting you or are you in a sufficiently insulated niche that it's not going to be a factor for you?
That's a very good question. I think we are in a niche. So, we do have some insulation from Wal-Mart invading the supermarket business, but, part of what happens is that as Wal-Mart comes in and the supermarket chains looking around for a place they can make a competitive stand. And they see how well whole foods is doing and they tend to ping more of our products. Again, I think we killed the category. And that gives us some sense of competitive advantage versus the supermarket chains that are just picking up some of our SKUs, but don't have the complete selection.
Mark: When you bought -- what's the name of the company? Amrion, a vitamin-making company, part of vertical integration strategy, you remark on the fact that their margins were ridiculously high and we should not expect those margins to stay at those levels.
Had you experienced a margin erosion there which you, yourself, said we should expect?
We haven't experienced it yet. However, the vitamin, nutritional supplement industry has really gone into a deep bear market in the last several months, due to the perception that there's going to be significant price competition. And when that happens there was a major sell-off of stocks like GNC, Rexall, Sundown, Nature's Bounty, Whole Foods also went down partly in sympathy to that, although that's not a huge portion of our sales or profits. We're not a vitamin company.
Mark: Yeah.
We haven't yet experienced that margin pressure on our direct marketing. We probably will some day, but haven't felt it yet.
Mark: I wish we had more time to talk. It's been such a busy morning, but we don't.
Mr. Mackey, we appreciate you talking to us and you hit the number. No one can ask more. Thank you, sir.
Okay.
Mark: That was John Mackey is chairman and CEO at Whole Foods Market. |
