Whole Foods Market's (WFM) Co-CEO Walter Robb on Q1 2016 Results - Earnings Call Transcript

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Whole Foods Market, Inc. (NASDAQ:WFM)

Q1 2016 Earnings Conference Call

February 10, 2016 17:00 ET

Executives

Cindy McCann - VP, IR

A. C. Gallo - President, COO

John Mackey - Co-CEO, Co-Founder

Walter Robb - Co-CEO

Glenda Flanagan - CFO, EVP

Jason Buechel - EVP, CIO

David Lannon - EVP, Operations

Ken Meyer - EVP, Operations

Jim Sud - EVP, Growth and Business Development

Analysts

Vincent Sinisi - Morgan Stanley

Renato Basanta - Sterne, Agee CRT

Chris Mandeville - Jefferies

Kelly Bania - BMO Capital

Ken Goldman - JPMorgan

Bill Kirk - RBC Capital Markets

Meredith Adler - Barclays

Stephen Grambling - Goldman Sachs

Chuck Cerankosky - Northcoast Research

Rupesh Parikh - Oppenheimer

Marisa Sullivan - Bank of America/Merrill Lynch

Mark Siegel - Canaccord Genuity

Andrew Wolf - BB&T Capital Markets

Operator

Good day, everyone, and welcome to today's Whole Foods First Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during a Q&A session. [Operator Instructions] Please note today's call is being recorded and I will be standing by should you need any assistance.

It is now my pleasure to turn the conference over to Cindy McCann, VP of Investor Relations. Please go ahead.

Cindy McCann

Good afternoon and thank you for joining us for our first quarter conference call.

On today's call are John Mackey and Walter Robb, Co-Chief Executive Officers; A.C. Gallo, President; Glenda Flanagan, Executive Vice President and Chief Financial Officer; Jim Sud, Executive Vice President of Growth and Development; David Lannon and Ken Meyer, Executive Vice Presidents of Operations; and Jason Buechel, Executive Vice President and Chief Information Officer.

As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in our company's most recently filed Form 10-K. Please note our press release and scripted remarks are available on our Web site.

I will now turn the call over to Walter Robb.

Walter Robb

Thanks, Cindy, and good afternoon everyone.

For the quarter, our sales and gross margin results were largely inline with our expectations with slightly better leverage and salaries and benefits and a lower tax rate. Our sales increased 3% to a record $4.8 billion. We opened three stores including our first store in Huntsville, Alabama; a new flagship store in downtown Los Angeles.

For the quarter, comp store sales declined 1.8% against a 4.7% increase in the prior 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. We continued to be a destination for the holidays with comps for Thanksgiving and Christmas week showing a nice lift over prior run rates.

For the first five to -- from the first five to the last 11 weeks of the quarter, traffic in basket trends on both the one and two year basis showed improvement. 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.

Cost savings and SG&A primarily salaries and benefits were more than offset by investments in value and technology as well as deleveraging areas such as occupancy and depreciation resulting in a 58 basis point decline in OM. We produced an 8.3% EBITDA margin, $0.46 in diluted earnings per share, $53 million in free cash flow and 14% adjusted return on invested capital.

In keeping with our new, capital allocation strategy, we returned $679 million to our shareholders through dividends and share repurchases ending the quarter with $1.4 billion in total available capital and $1.0 billion in total debt.

Last quarter, we outlined our nine point plan to fundamentally of all the business including active steps to improve our price perception and further differentiate and enhance our shopping experience. We are on track with that plan and would like to share some highlights for the progress we are making in several areas.

We continue to open innovative retail stores such as our downtown LA store, which broke regional records for opening day and first day sales and -- first week sales and has already established itself as a full service grocery store and culinary destination. Featuring exciting venues such as acclaimed chef, Roy Choi second Chego outpost in our very own Eight Bar offering daily specials brunch as well as signature craft cocktails and beers. This store offers a fun and compelling in-store experience and is representative of how we continue to evolve for our customers.

We welcome Tien Ho as our Global Vice President of Culinary and Hospitality. Tien has worked with some of the most recognized chefs and hotel brands in the world and we look forward to his leadership in elevating our $3 billion prepared foods and bakery business to even a higher standard.

Our exclusive brand sales increased to over $725 million or 15% in total sales, 150 basis point increase over the prior year. Notable product launches over the past year include a collection of body care products for babies, organic Greek yogurt, animal welfare rated organic sliced deli meats and an expanded assortment of seasonal and holiday items.

Our insta-card 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.

Our new labor scheduling program is now active across a majority of our customer sales teams. While still in the early innings, we are pleased with the labor savings we are seeing. We expect to have the program substantially in place across all U.S. customer service teams by the end of Q2 and introduce the program to two additional teams in Q3

We are close to completing the pilot phase of our new point of sale system rollout, which is now being tested in select stores in 10 regions. We expect to complete the pilot phase over the next month after which the rollout will accelerate and we are on track to be in all of our U.S. stores before the end of the calendar year.

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. 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.

Over the coming months, we will expand and improve our offers as well as launch our national digital sales flier bringing our customers great savings on what they love to their fingertips. In addition, we have committed to expanding our Affinity test to a new market in Q3. Our newly designed rewards program builds on the best elements of our initial test but with lower costs.

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.

Turning now to our updated outlook for the year, we are raising our EPS outlook to reflect our slightly better than expected Q1 results. We saw an improvement in traffic trends over the course of Q1 and while we have seen some negative impact from weather events in the first three weeks of Q2, we are hopeful that comps improve going forward as comparisons get easier and our sales building initiatives gain traction. We note that, however, that there could be some offsetting impact from the ramp-up in price investments and promotions through the year.

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.

We expect our gross margin investment to be partially offset by a sequential increase in SG&A leverage. And excluding $0.02 to $0.05 per share in estimated net accretion related to debt financed buybacks, we expect fiscal year EPS of $1.53 or greater or $1.07 or greater for the remainder of the year.

In closing, we are making measurable progress on our strategic plan to fundamentally evolve our business and will continue to do so over the remainder of the year. We believe we are taking the right steps to grow and improve our company and produce strong results and returns for our shareholders over the long-term.

We will now take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Vincent Sinisi with Morgan Stanley. Please go ahead.

Vincent Sinisi

Hey, great. Good afternoon everybody. Thanks very much for taking my questions and good start to the year here.

Just wanted to ask, Walter, you had mentioned on the last part there about the commentary for the rest of the year. I know that in the release you put a bit different commentary than you have in the past. Can you just give us maybe a little bit more color in terms of kind of the margin puts and takes, what you've done so far in the first quarter and then you say expected to be a bit greater in the following quarters, kind of how that cadence we can maybe expect that.

Walter Robb

Yes, certainly. Let me say first of all thanks for your acknowledgement of the start to the year. So AC, you want to give some detail on that?

A.C. Gallo

Sure. In Q1 as we mentioned, we started ramping up our margin investment with more promos. We had the big love fest promo that lasted through much of the quarter. We had a big 365 weekend promo and then a big three day sale in supplements. And we also -- those types of promos we're going to continue. We announced we just launched digital coupons. We're going to be really continuing to increase our promo activity throughout the year. We also started to do additional investments in perimeter departments in Q1 and we plan on continuing that and focusing even more in those as the rest of the year goes on.

Vincent Sinisi

Okay.

Walter Robb

So wrapping that into the big outlook for the year, just confirming what we're saying is we expect the investment Q2 to Q3, Q3 to continue to be incrementally greater than what we saw in Q1.

Vincent Sinisi

Okay. That's helpful, guys. Maybe if I could slide one follow-up quickly here. Just to make sure that we all heard it correctly. In terms of the loyalty program, so in the mobile app digital coupons now available to everyone, in terms of the full scale test rollout, today it's still in the one Philly market. It will be in a second in 3Q. And any further thoughts on when we could see that expand the rest of the way?

Walter Robb

We do have thoughts about that but we're not prepared to share those today. But I think what we wanted to let you know is that we've kind of finished the testing as a group. We've kind of evolved to where we'd like to see the new model and we're launching that -- we have the markets selected. It will happen in Q3. And you I hope in the very new future we'll be able to update you as our plan to take it company-wide.

A.C. Gallo

We are going to take it company-wide. So sometime during this year we will announce when it will be company-wide. But we are not prepared to do it today.

Ken Meyer

Also, the digital coupon and the app platform is the same as the Affinity program. So it is in essence the same thing. So with more bells and whistles with Affinity as we roll out the second test. So download the app, check it out that's essentially the future.

Walter Robb

It's definitely part of the future.

Jason Buechel

We really want to get it right before we launch it across the whole company. We think we're very close to that now, so hang in there. We will -- probably next quarter or the quarter after we'll be able to give you something more definitive.

Vincent Sinisi

That's very helpful. Best of luck.

Walter Robb

Thanks, Vince.

Vincent Sinisi

Sure.

Operator

Thank you. We'll go next to Charles Grom with Sterne, Agee CRT. Please go ahead.

Renato Basanta

Hi, this is actually Renato Basanta on the line for Chuck. Good evening and thanks for taking my question. So I guess first, can you just talk a little bit about the decision or sort of the thought process on investments in promotions versus just price reductions, sort of what are the areas of the store you're being more promotional in versus where you're just reducing prices and again how you think about the puts and takes of each tactic as you think about investments over time.

Walter Robb

We need both of them and we're going to stay general because of the competitive landscape but AC maybe you could provide some details.

A.C. Gallo

Sure. We are doing both. 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 -- we're 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. But we've also found that we have always been a kind of -- our company's always had a strong high, low strategy, that's what our customers respond to. And so we feel that the best way to show our customers value is to ramp up on the promotional side.

David Lannon

Yes. This is David. I would also say that we're encouraged by activating our customers digitally with some trip driving promotions in the last few months, $0.25 cup of coffee with our friends at Allegro, $0.09 green smoothies, $0.25 cookies. Those are things that get people up off the couch, into the store. And hopefully they'll continue to buy other things when they come in.

Renato Basanta

Okay. Thanks. And then just a follow-up. Was just hoping you could drill down a little bit on your expense cuts. Clearly, you're seeing some nice leverage in SG&A. Can you just give us a better sense of what are the major buckets of expense savings that you're sort of pulling from to you achieve that, specifically if you could just try to quantify or compartmentalize the savings, particularly when it comes to your $300 million savings target that would be pretty helpful?

A.C. Gallo

So, first of all, we just want to affirm that we're on track with that target we set out for ourselves. We made good progress. We're where we expected to be. I think that's reflected in the numbers. I don't think we're going to break out the components of that in particular just because in the last quarter we've moved back the SG&A which contains the [SCs] [ph], those are all together. But fair to say that the biggest bucket in there is the labor and benefits. That is the biggest expense in the company and that's where we've gotten significant improvement. So do you want to add anything to that, David or Ken?

David Lannon

I would just say that one of the things that we're doing is really looking at where we cannot have less service but have smarter service in our stores and that is the process and also looking at the back of the house, where are areas that we can streamline and create more efficiencies to consistent of practices and develop standard operating practices in our stores. And that's really where we're seeing ourselves driving the savings from labor standpoint in the stores

Ken Meyer

I would also say as we're building the labor model for the new 365 stores we're learning a lots of really good lessons and we're applying them to Whole Foods Market in terms of again, smarter service, just in time labor scheduling and we are applying those things now and realizing the savings over the course of this year and next year.

Walter Robb

As you know, we said to you this was going to take us a couple of years to work our way through this to get to that run rate and that's exactly what we are doing. Thanks for the question.

Renato Basanta

Okay. Thanks.

Operator

Thank you. We'll go next to Mark Wiltamuth with Jefferies. Please go ahead.

Chris Mandeville

Hi. Thanks for taking my call. This is actually Chris Mandeville on for Mark. Walter, you mentioned something in regards to cannibalization having worsened for the third consecutive quarter. I think in the past few quarters it had worsened by 20 to 30 basis points or so. Can you speak to the magnitude in this quarter and when you expect things to improve from that standpoint?

Glenda Flanagan

Hi, this is Glenda. That was about the same in Q2 as it was -- I mean Q1 as it was in Q4. Q2 ought to be our worst quarter for the -- at least the Chicago cannibalization and as we open most of the Dominic stores in the middle of the year last year and -- but it won't fully -- the Chicago part won't fully go away until the end of Q4.

Walter Robb

Yes. We just cycled our first, the Streeterville store just about three weeks ago, I think. So the first of the seven in Chicago.

Ken Meyer

And Miami's are going to start getting better this quarter, Q2 right now, so I think we're near the worst of that and by Q3 we'll be seeing noticeable improvements.

Chris Mandeville

Okay. That's helpful. And then on the 365 format, really appreciate you laying out some of the timing on the store openings in the pipeline for the leases. But can you speak to the competitive dynamic around actually obtaining the desired locations and how rates have been trending given kind of the low vacancy levels that we've seen of late and maybe just provide some color in regards to the cities that were actually chosen and why that was the case. Thanks.

Jim Sud

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.

Walter Robb

That was Jim Sud.

Chris Mandeville

Thanks, Jim.

Walter Robb

Just introduced him.

Operator

Thank you. We'll go next to Kelly Bania with BMO Capital. Please go ahead.

Kelly Bania

Hi, good evening. Thanks for taking my questions. Was curious about the digital coupon launch, if you were able to test that in any market, if you have any color you can share on usage or just customer feedback and then how much of the coupons are vendor funded versus funded by Whole Foods.

WalterRobb

Well, just -- I will add and then will give to Jason. It's been out a week and I just looked at the usage over the first week and it's as expected a lot of it was in the Philadelphia market where people have already used to using their app when they shop. But the usage is pretty darn encouraging and so Jason, you want to add some more color to that.

Jason Buechel

Yes. We did a soft launch on January 28th. We've had new downloads of the app have increased 43%. We hit a high of active users which was a 50% increase since the end of January and I think for us the most exciting part is customers that are registering. We're up 260% folks registering us with the app. So thus far we've gotten lots of favorable reviews and as you might notice if you take a look, we have both supplier funded offers as well as Whole Foods funded offers.

Walter Robb

I just wanted to add we also replaced our CRM or e-mail platform and in the last six months we have doubled the number of users, registered users on that platform to be able to -- so we'll be able to reach more customers and to reach them digitally with the messages. So these things are working in constant together.

David Lannon

And then Don Clark, our GVP of Non-Perishables is working closely with the supplier community and offering them opportunities to do coupons with us. So it's on our pallet of ways, our suppliers can play with us in this area.

Walter Robb

I think she asked how much the suppliers are participating in that. Do you want to answer that or too early days.

Jason Buechel

Too early days.

Walter Robb

Too early days evolving, yes. There's a lot of interest though. Thanks for the question.

Operator

Thank you. We'll go next to Ken Goldman with JPMorgan. Please go ahead.

Ken Goldman

Hi. Question on comps from me. Prior guidance, I think called for around negative 2% in the first quarter, then flat the next two, and then plus 3 in the fourth quarter. You did as expected in 1Q but you've reduced the outlook for the year a little bit. So as you think about the cadence of the rest of the year, is there any quarter in particular you're I guess a bit less or on is that pacing you talked about previously that still generally what you're looking for?

Glenda Flanagan

Just to clarify, we didn't guide to those quarterly comps. What we said was if our two-year comps remained stable, then that's what you would see. So but we're not in the business of predicting comps. So --

Walter Robb

On the other hand, we did affirm -- we affirmed our annual guidance of 3% to 5% sales growth. We're continuing to you affirm that today.

Ken Goldman

Okay. Maybe I'll follow up after the call on that. One other one from me. Last year at this time you were I guess in the midst of a pretty big advertising push. At the time you were pleased with the ROI in that spend. Really haven't seen at least as far as I can tell the same level of advertising since. And I'm just curious, the reason as simple as you're getting a better return from other investments or is there some other driver behind that? I'm just curious why the campaign didn't really get sustained or at least what I'm seeing.

Walter Robb

I think we're -- it's interesting you mentioned that because just this week we started our radio campaign in 12 markets across the country, promoting our produce and our produce price investments and our produce quality. But I think as a group we've kind of gone back and rethought exactly how we want to bring the brand forward and we're starting with your our efforts in promo and price as AC outlined, onto the digital platforms like David and Jason were talking about. And I could see a brand campaign in our future. But I think, we are doing the work on our brand by getting our message out in these different platforms and ways and I think it will evolve from there.

A.C. Gallo

What's different and what you're really referring to is that we haven't launched a big national television campaign and that's been a conscious decision on our part. It's not to say we won't do one in the future but we decided we had better priorities or better opportunities or better strategies for trying to promote our new lower prices and we've got our 365 launch and we've got a lot of marketing dollars being spent out there, perhaps not in as visible a way on a national basis.

Ken Goldman

Okay. Thanks so much.

A.C. Gallo

Thank you.

Operator

Thank you. We'll go next to Bill Kirk with RBC Capital Markets. Please go ahead.

Bill Kirk

Hi. Thank you for taking the questions. On the quarter to-date trend, how big of an impact did the East Coast snowstorm have? Have you quantified that?

Glenda Flanagan

We have not quantified it. It's a difficult thing to do, not quite as scientific as you might think. On one hand, we had 59 full days of lost sales this year versus 26 days last year, which also had some significant weather events. And there was a lot of volatility within the three-week period. We also saw the two-year comps decelerate in the non-weather regions as well as in the weather affected regions. So essentially it's just too short a period of time to draw very many conclusions. We have the trends from before the storms but we don't have much information about trends after the storms, so it's difficult to do.

We also had the Super Bowl shift from week to week, although it was within the three weeks so it didn't really affect the year-over-year number, but it did affect our ability to really quantify the impact of the storm. That's why we haven't put a number to it.

Bill Kirk

Okay. Thank you. And then, on the guidance, it looks like there's less accretion from the debt funded buybacks than you had last quarter. Am I seeing that right?

Glenda Flanagan

Well, the $0.02 that we put at the bottom of the range is the accretion -- the net accretion that we will have if we don't do any additional buybacks for the year and the $0.05 is if we spend the rest of the $324 million that's remaining out of the $1 billion that we borrowed. So it's just an update based on actual rates, actual timing of the bond and actual timing of the buyback so far.

Bill Kirk

Okay. Thank you for clarifying that for me. That's all.

Glenda Flanagan

Sure.

Walter Robb

Thank you.

Operator

Thank you. We'll go next to Meredith Adler with Barclays. Please go ahead.

Meredith Adler

Thank you very much. I was hoping you could talk just a little bit, but you did a great job on expenses, congratulations. Just maybe talk a little bit more about how far along you think you are in terms of some of the efficiency enhancing initiatives you had planned and does that include more centralization?

Walter Robb

Well, I think we touched on a couple of them, labor scheduling being one that we outlined in the script that is showing tremendous promise and Ken just spoke a little bit about the efforts around relooking at you how work is done. Do you want to add to that, Ken?

Ken Meyer

I would just say that we've really done a lot of work on developing SOPs that we're going to launch throughout the company this year.

Walter Robb

Standard operating procedures.

Ken Meyer

Standard operating practices which are focusing on a lot of our production teams and high volume teams in our stores. The work around the labor schedule, can't underestimate the power of that technology advancing in terms of matching up our schedule to our customer flow as well as implementing that into the other teams within the store to improve the scheduling relative to the work flow as well. So those two in itself are significant advancements for us in terms of streamlining and advancing the productivity in our stores.

A.C. Gallo

I'd also say that our regional presidents have really taken a leadership position on this and are actively working on all aspects of both labor reduction in the store and large reductions in expenses through common buying on packaging and supplies.

KenMeyer

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.

Walter Robb

I would also add one more bucket, which is, we're also looking across all the functions in Whole Foods Market to see how we can do the work differently, whether it's team member services or marketing or any one of the functional areas we've been doing deep dives on, thinking through how we're doing the work, where the resources are allocated and where savings can be found. As we've said to you last quarter, we're going to just fundamentally look at our business and see how we can evolve it to be -- eliminate redundancies and be more cost effective. And I feel like the whole company has really embraced that effort and we're making progress.

Ken Meyer

We really are. A lot of this stuff is not going to be -- it's going to be seen over the next 12 months or so. But Whole Foods Market is undergoing very fundamental transformations and some of that's beginning to show up. You're going to see a lot more of it in the next few quarters.

David Lannon

One thing that's also -- this is David. They were encouraged by as many of our new stores are actually opening at the rates that we're eventually moving Whole Foods to in terms of labor and expenses and structure and service is great, hospitality is great and that gives us a lot of encouragement as we move the rest of the stores to the new program.

Walter Robb

That might have been the longest answer in a quarterly conference call but there it is.

Meredith Adler

That was really helpful. Thank you very much.

Operator

Thank you. We'll go next to Stephen Grambling with Goldman Sachs. Please go ahead.

Stephen Grambling

Good afternoon. Thanks for taking my question. Maybe I missed this but can you talk about any difference in comp trends among consumers by demographic or even by basket size and as a related follow-up do you have any insight into the type of customers who have signed up for the digital coupon platform so far that you could share?

Walter Robb

We have all that information and it's not something we're sharing today. So but actually as a result of the Affinity work we actually first ever have our sort of five customer segments and we're -- we tokenized that and we're able to track their actual movement and we're in the process of leveraging that across also through the -- when people sign up for the app and the coupons we'll have access to that data as well. So our tools are really sharpening in this regard. And so we do have some insights into that and you'll see us using those as we apply the efforts in the months ahead. But that's all we're going say today.

Stephen Grambling

I guess as a related follow-up then if I can sneak it in, do you have any third party data that you can use to actually personalize the offer right out of the gate?

Walter Robb

Yes, I mean, we do have some third party partners we work with and we're already personalizing offers in our Affinity test market in Philadelphia and intend to expand that both with the digital offers we have nation wide as well as future programs we're doing with Affinity.

Stephen Grambling

Thanks so much. Best of luck.

Walter Robb

Thank you.

Operator

Thank you. We'll go next to Chuck Cerankosky with Northcoast Research. Please go ahead.

Chuck Cerankosky

Good afternoon everybody. If you could take a look, please, at the quarter just ended and in particular if you look at the holiday period, you how would you comment on how customers were trading up or their spending behavior? Did you see any changes in that? Were they responding more to competitive promotions as well?

Walter Robb

Well, we were very excited with the holiday results. Post Thanksgiving week and Christmas week were outstanding. Customers come to us, they trust us with their holidays. Couple of anecdotes, organic turkeys were the ones that sold first, more than just our natural birds. So we're seeing lots of results there. More than a quarter of our stores were in Thanksgiving weekend, Christmas week did over $1 million in sales. So customers really trust us with the holiday. We see customers do trade up and see they trust us with their family meal.

Chuck Cerankosky

How would you compare the comps during that holiday period?

Walter Robb

Compare them to what, to last year?

Chuck Cerankosky

I should say quantify the comps during the holiday period. Were they better than the run rate for the quarter?

Walter Robb

Well, we said in that script. We said they were higher than the run rate for the quarter and that's what David just said. But we're not going to break it out in terms of by individual numbers. But you asked for the tone of it, the feel of it. It was exciting. It was enthusiastic. Our stores were humming and David gave you some of the numbers. And it set a very nice tone for the holiday season. So overall I think the tone of the quarter is we're moving forward. We're making progress step by step. I think that's the tone of the quarter.

Chuck Cerankosky

Thank you.

Operator

Thank you. We'll go next to Rupesh Parikh with Oppenheimer. Please go ahead.

Rupesh Parikh

Congrats on the progress and thanks for taking my question. So the first question I wanted to ask just on you new stores you commented in the script that you're seeing positive performance out of your LA location. If you look at your openings the last few quarters, how are they performing aggregate versus your expectations? And then, you also mentioned earlier that you are seeing better cost structures with those stores. Just wanted to get a sense of with you're still on track to meet your hurdles for store openings.

Walter Robb

Yes. I think we are. I just looked at that comparison of the store group in Q1 versus Q1 last year and there's good sequential improvement in both store contribution and sales per square foot. And we highlighted LA store, but there's others performing very well. So overall, good incremental improvement this year from last year. You guys want to add any color to that or --

David Lannon

New Vancouver store also opened this past quarter which actually this quarter which is excellent kind of expands our footprint of Vancouver, really got some exciting new stores. We're finally able to [re-LOE] [ph] our very small Saint Paul store. We're really excited. That opens this quarter. Central St. Louis also opens this quarter.

Walter Robb

Awesome location.

David Lannon

We've got some great new opens.

Ken Meyer

It's Ken here. We just opened our [indiscernible] Spring store. It's our third store in the Orlando market and it's very exciting opening part of our whole new design and experience in our stores. The turnout and the results of the sales were higher than our expectations. So we're really pleased with building that market in Orlando.

Walter Robb

And we all just came back from Miami, right. Share a little about that.

Ken Meyer

The exciting thing about Miami, if you haven't been into our downtown Miami store, you should go there. It is an absolutely exciting store. We've got a great partnership with fresh there, incredible raw juice provider. We also have a great partnership with Zach the Baker who is a legend in the Miami market and the overall experience in that store is really, really exciting, especially around lunchtime. You can barely move in the store.

Glenda Flanagan

If we go, we shouldn't go to the parking garage too.

Ken Meyer

The art work is amazing.

Jim Sud

And we're really proud to entrust the first 365 store opening with our Southern California region. They're on a roll with [indiscernible] downtown LA. They're also opening next week and then Irvine and then finally 365 in May.

Walter Robb

I just think both those stores, downtown Miami and downtown LA, where I was -- it just I think demonstrates again that we're continuing to evolve as a company and providing best ins class retail experience.

David Lannon

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.

Walter Robb

As you pointed out the Whole Foods Market is going to be influenced by 365 and vice versa by the way. And so what comes out of that we don't know yet.

David Lannon

We're excited about our future. We think we've got a good strategy. We're excited about our -- the nine point plan we outlined last quarter. We feel like we're executing against that. We're happy about the progress we're making. We feel we're on track and that's going to be demonstrated I think pretty clearly over the next several quarters.

Walter Robb

So again, we're happy with the new stores.

Rupesh Parikh

Okay. Great.

Walter Robb

To answer the question, yes.

Rupesh Parikh

Thank you for all the color. I'll stop there.

Walter Robb

I hope you got that out of that answer.

Rupesh Parikh

I did. Thank you.

Walter Robb

All right. Go to them. Go see them.

Rupesh Parikh

I'll go visit both of them.

Operator

Thank you. We'll go next to Robbie Ohmes with Bank of Bank of America/Merrill Lynch. Please go ahead.

Marisa Sullivan

Hi. This is actually Marisa Sullivan on for Robbie Ohmes. Just want to get a sense of inflation and deflation trends that you saw during the quarter and what you've seen to-date in the forecast?

A.C. Gallo

Hi. It's AC. In Q1, we saw an inflation of around 1%. Few things were up. Our meat costs were up slightly. Our produce costs were down slightly. But overall, about 1% which is lower than it's been. Looking forward to the rest of this year, we're estimating somewhere between 1% and 2% inflation. There's -- some of the pressure that was on inflation this past couple years with the droughts in California seems to be easing a bit. It's been raining out there. There's good snow pack in the mountains. We've already seen prices of certain commodities like almonds and cashews coming down. So we think it will be a pretty moderate inflation for the rest of the year.

Marisa Sullivan

Great. And then just quickly on the competitive environment, are you seeing anything different from your competitors regarding promotions or price investments?

Walter Robb

There's lots of them and everybody's active right now. It's a very evolving marketplace. We feel good about our tools of tracking all that and we're getting a lot more aggressive ourselves with both promos and price investment. So it's a dust-up.

Marisa Sullivan

All right. Thank you so much.

Operator

Thank you. We'll go next to Mark Siegel with Canaccord Genuity. Please go ahead.

Mark Siegel

Hi, thanks for the question. Just further drilling down on the theme of price here. Understanding that investment and promotion are both part of the plan going forward. Can you talk about how you think about the relative weighting? It sounds like the kind of preference leans toward more targeted promotion.

And then just as a follow-up on an earlier question around centralized procurement or move towards more centralized procure machine, can you talk about efforts around center of the store versus the perimeter. Are those efforts unfolding together in lock step or does perhaps the center of the store occur first and the perimeter follow? Thanks.

Walter Robb

Why don't you take that second part of the question, AC, on the --

A.C. Gallo

Sure. As I said earlier, our focus in Q1 and going forward this year is largely in the perimeter departments. In center store, we're in the process right now you with our new global device President of Non-Perishables, Don Clark, of developing a category management strategy beyond what we've done here in the past and through that strategy we're going to be identifying, looking carefully at all the different categories in center store and deciding where specifically strategically we want to do price investments, promotions, things like that and we'll be doing those in very close cooperation with our suppliers. So we see that as something that will be -- we're going to be testing this year and it will be an emerging -- it will be emerging for you as the year goes on and into next year.

Walter Robb

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.

Operator

Thank you. It appears we are ending our time for questions. We'll take our final question from Andrew Wolf with BB&T Capital Markets. Please go ahead.

Andrew Wolf

Good afternoon and thanks for squeezing me in. AC, so I guess you guys have a little inflation as I'm sure you know the conventional side of the business has a lot of deflation, particularly in meat. You have a little inflation. They're down probably double-digit. Is that kind of -- is that limiting, or do you expect it to limit in any way your guys' ability to pass through some of this inflation, with the conventional world deflating and I know there is some sort of spreads that I think in the past you've talked about sort of trying to maintain.

A.C. Gallo

Let's get an example. Like for instance, in beef, there's been -- the conventional, commercial meat market has seen deflation. We're not seeing it a as much because the unique antibiotic-free meat that we sell and organic meat we sell are pretty locked in with contracts to ensure supply. So over the course of the year, we'll see some of that ease down, but what we think is when you've got a differentiated product you have a certain -- it's going to sell -- you can sell it at a different price than the conventional market. I agree with you, there's a certain relationship that needs to happen, but what we see there, we see the same thing in organic dairy. We see the same thing in organic produce that the demand is high in those categories and so there isn't the kind of deflation in those categories that there is in some of the conventional product categories. So everybody is -- everybody's paying a similar -- everybody's affected by that. And so we don't see where we sell so much organic product that there's really deflation in there. So it's not really affecting our ability to be competitive in large categories of what we -- of where we do business.

Andrew Wolf

And just one more follow-on. I don't know, Glenda, if you -- I think you mentioned that the non-weather impacted markets also had a little slowing in the two-year stack.

Glenda Flanagan

Yes, in the three weeks. It's one of our toughest comparisons. This three weeks was really strong comps last year.

Andrew Wolf

I notice that.

Glenda Flanagan

That's part of it.

Walter Robb

And cannibalization and the capitalization.

Andrew Wolf

This might you have discussed that -- is it the same 2.3 roughly or was it a little better or little worse?

Glenda Flanagan

In the -- oh, in the non-weather regions.

Andrew Wolf

You cited weather in the release. I'm just wondering what it would with be for the non-weather impacted markets.

Glenda Flanagan

No, I'm just -- I just wanted to make the point that we saw it in the non-weather regions as well as in the weather regions. So as an example of why it's not as easy to quantify the impact of the weather as you might think.

A.C. Gallo

Three weeks is such a short period of time.

Glenda Flanagan

It's very hard to draw a conclusion.

A.C. Gallo

-- conclusions without much data. So we're trying to --

Glenda Flanagan

What we will say is what we saw in the two year comp trends for the last 11 weeks of the quarter was very stable.

Andrew Wolf

Okay. Great. I'll leave it there. Thank you.

Walter Robb

Okay. Thanks everybody for listening in. We hope you'll download the app and schedule a trip to downtown LA or Miami. We look forward to updating on our progress on our Q2 earnings in May. And the transcript of the scripted portion of this call along with the recording of the call is available on our Web site as well. Thanks very much. Take care.

Operator

This does conclude today's conference. We appreciate your participation. You may disconnect at any time and have a great day.

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