Good day, and welcome to today’s Third Quarter Earnings Conference Call. All lines are currently in a listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer session. It is now my pleasure to turn the conference over to Cindy McCann, Vice President of Investor Relations.

Good afternoon, and thank you for joining us. 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 & Development; and David Lannon and Ken Meyer, Executive Vice Presidents of Operations. 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 website. We will discuss our Q3 results excluding LIFO for easier comparisons. The $10.5 million LIFO charge negatively impacted Q3 results and year-over-year comparisons by approximately 30 basis points, or $0.02 in diluted earnings per share. This impact was partially offset by our stock buyback which we estimate positively impacted earnings per share by less than $0.01. I will now turn the call over to Walter Robb.

Thank you, Cindy. Good afternoon, everyone. I will briefly review the quarter and our outlook, focusing most of my time today on our strategic initiatives. Year-over-year, our quarterly sales grew $320 million to a record $3.4 billion. We increased operating square footage 10% to 14.6 million, expanding our reach to 386 stores across 41 states and three countries. We produced average weekly sales per store of $736,000, translating to another quarter of record sales per gross square foot over $1,000. Our 3.9% comp increase reflects continued headwinds from our value efforts, cannibalization, competition, and the economy. Our comp increase was driven by approximately equal increases in transaction count and basket size. Our average price per item growth was approximately 2%. We continue to see signs of trading up, and inflation remains a factor. On the cost side, we saw spikes in some categories, however, our overall cost increase was in line with last quarter. Reflecting our ongoing value efforts, this was the 10th consecutive quarter in which our retail price increases were less than our cost increases. Our value efforts were also reflected in our gross margin results. The 31 basis point decrease from our record 36.6% result last year was driven primarily by an increase in cost of goods sold as a percentage of sales. As we continued to invest in growth, value, and technology, we maintained our expense disciplines, resulting in near record results of 11.1% store contribution and 7.5% operating margin. We produced a 16.4% return on invested capital and strong operating cash flow of $240 million. While the current environment is very dynamic and competitive, we are managing and growing our business for the long term with five primary strategic initiatives now underway to build momentum. I will walk through those now. First and foremost is…

(Operator Instructions) We’ll take our first question from Vincent Sinisi with Morgan Stanley. Please go ahead.

Wanted to ask you guys about -- any further color you can give around your price reductions versus our estimates for this particular quarter, while sales were a bit lighter versus our forecast, margins were a bit better. So is it a fair assumption to say that from what you are doing from a pricing perspective, maybe we’re still in that earlier stages of that?

Hi, this is A.C. We made a -- starting about this time last year, we started to make price investments first in a lot of center store categories, and then about half way through the year, we made some adjustments, did some experiments with price adjustments in seafood, particularly with farm-raised salmon. Through the course of the year, we studied the results carefully and we saw - learned a lot from it, we saw that certain of our adjustments worked well, others were -- particularly with the salmon, we saw a huge lift in the amount of pounds of salmon we sold when we reduced our price. We’re really happy with that experiment and plan to expand on that some more this coming year. Some of the - we saw mixed results in some of our center store categories, we saw pretty good lift in some grocery categories and not as much in others, so after studying that, we decided that some had worked and some hadn’t worked as well as we expected. We’ve taken some dollars that were applied in certain places and we redeployed them to other places and particularly in the perishable departments, and we are looking to do our next round of investments this coming year primarily in our perishable departments where we think we see the best lift from those investments.

And A.C. just with that -- is that going to be also skewed more toward - you started to talk about introducing some more lower and mid-level price points and kind of riding the depth of the assortments, is that going to be a large focus of that?

When we look at that, we definitely think that - I mean there’s several parts to that strategy, and one is definitely making sure that we have a good range of prices, everyday prices throughout the department. Like, for instance, if you come into the produce department and you look at a big category like apples, we want to make sure that there is always good price points for really good value apple and then mid-tier and then some of the higher-end like Honeycrisps. So, we definitely make sure that the categories have a nice range of prices, but we also want to make sure that we are doing some very good regular promotions, ongoing promotions in each of these categories, which usually creates a lot of real excitement and the kind of prices that people remember.

This is David also, A.C., and the buying team is really pushing for more space in the stores to bring in different tiers of value products so on the operations and we’re really focusing some of our remodel money on expanding things like freezers and dairy cases and size of produce departments, so we can actually have larger selections, that’s what the customers want.

Thank you. We’ll take our next question from Kelly Bania with Bank of America.

Hi, this is Kelly Bania from BMO Capital. Just a follow up on the pricing actions, just curious if you could talk a little bit more about how much of those are essentially managed and how much of those are more regionally managed, and if you have any color inside into how the regional teams might respond to some pricing actions or even the marketing campaign or affinity program that sounds like there may be more directed from the central organization? Thanks.

Hi, A.C. again. It’s really a combination of both. We have certain programs that are directed globally like, for instance, I mentioned the seafood program. That was something that we decided at a global leadership level that we really wanted to try. We involve the global seafood purchasing team, we involve the regional presidents and vice presidents and got everybody. People agreed to do the experiment, and that was something that we thought was more direct from global because one of the reasons you do something like that is that you can - when you have a program like that, your purchasing team can really work on maximizing the efficiency of purchasing and distribution to make that work well. So there is programs like that that we definitely are working on. But there is also, where the regional teams have a lot of say and is in tailoring the programs, the global teams give the regional teams a lot of opportunities and it’s up to the regional teams to kind of pick and choose a little bit about what they want to use and take advantage of. So, each regional team tailors a lot of the global programs, what they think works well, and we want to do it that way because we have unique competitors and unique competitive situations in the different regions. We want a region, say, for instance, a region, the North Atlantic region in Boston, they may have different - want to tailor their program differently than the region in Southern California, because it’s different competitors, and some will go deeper on prices in certain categories where another one will feel that is important, so it’s really kind of like a - it’s really working with both of them together and we work really hard to try to help that system really work well together, and we think it’s a very strong system to do it that way.

This is Walter, just to tag on is, tying back to the earlier question, even though we’ve been doing the value investments for a while, particularly with our 365 line, which has been out, I think it’s fair to say we’re in an early innings, we’re really learning and growing and how to do this and do it well, and we’re going to apply that, as we say, going forward and particularly focusing on the perimeter. Thank you for that question.

Thank you. We’ll take our next question from Chuck Grom with Sterne Agee. Please go ahead.

Good afternoon. This is actually Renato Basanta on the line for Chuck. Thanks for taking my question. Just a follow up on some comments earlier, was hoping you could provide a little bit more detail around your advertising and messaging around what differentiates Whole Foods and what you are doing both in and out of stores to improve the value perception here. It seems like you are starting to focus a little bit more on that in conjunction with your price investments, so maybe you could just provide some examples of what you are doing here and what we should look forward to on a go-forward basis?

This is Walter Robb, I’ll step out there and then maybe David you could finish off. I think the main thing we are communicating today is that we recognize that we can do a better job communicating to the customers who either have lapsed or customers who are - that we would like to acquire that are not currently customers. The principal thing we’re showing today is our first ever national marketing and branding campaign that we’re going to launch this fall, and that campaign will really all be about what is different about Whole Foods than the other folks in the marketplace because we believe there is real and substantive differences in the company and in the values in the foods that we sell and offer. So that will kind of be the backdrop for being able to communicate that message against which the regions will carry that forward and translate that into different opportunities, so do you want add to that David?

Yeah, talking to regional presidents and the regional marketing folks, they are very fired up about this large global marketing campaign and kind of weaving that into their regional programs. As you know, we have such a very robust social media between Twitter, Facebook, Instagram. Our social media is super active, in addition to we do regional advertising radio, print, et cetera, et cetera, that’s more tactics, pricing items, things like that, but this is overlapping program that everybody is fired up about weaving that into their overall program.

Thank you. We will take our next question from Kate Wendt with Wells Fargo. Please go ahead.

So wanted to talk about delivery, it’s great to see you guys getting ahead of the game there. I was curious who you are partnering with for home delivery, if you are planning to maybe re-launch the website for pickup and delivery? And then, I would assume hopefully that the expense associated with that is faster than your guidance but perhaps not any sales improvement that could be associated with it?

Hi, Kate, this is Walter. It’s in the numbers already. We’re not announcing this, but we are already in partnership with a couple of companies out there that we’ve spoken about previously, but we’ll have a much bigger announcement to make shortly, but this is being accomplished through partnership and it is a new feature and your question was around the delivery or around the pickup, which one was it?

I know that you’ve partnered with Instacart in some areas for delivery, I’m not sure if that would be a separate one for a broader effort or through them? And then, whether or not you would be launching a new website versus your current one that you have for pickup?

I’d prefer to wait a couple of weeks to give you the details on all this, because - but they are - we do have the partnerships in place, and the answer is we’ll have both the branded - the partnership website as well as our own website to accomplish both of those purposes. So, there’s going to be a lot more details on next several weeks about this. We actually expect to make the major launch by September 1.

And just as a follow up to the last question, I was curious how much the focus on the marketing campaign is going to be on the differentiation of your concepts and how much on value, I mean hopefully it’s both obviously, but just wanted to make sure that value message comes through as well, and then, how you are thinking about the reach of the campaign in terms of getting to both shoppers and non-shoppers?

John here, the national campaign is going to be focused more on our differentiation, our values. We’re going to remind our customers and also people who don’t know Whole Foods very well, what we really stand for and how we’re different and better than many of our competitors, so that’s going to be the focus of that campaign. A lot of the value promotions will be done since we’re not going to be - a lot of the value that we’re going to be doing in the fall will not be uniform across the company, some will be focused more in certain regions, some will be focused more in certain markets maybe a doing a number of experiments. The value marketing will be, therefore, driven more on a local regional basis than on a national basis, so the national campaign will be focused more on branding and our values and our differentiation.

Thank you. We’ll take our next question from Mark Miller with William Blair. Please go ahead.

Two part question. The first is, the slowdown in comps looks like it’s been sharper on the older stores, and so why do you think that is? And then, second on all the stores that are in the pipeline, when those were originated, presumably the company was seeing a stronger comp outlook than you had in your vision and are seeing today, so might those stores be coming in with a lower ROI or can you do something to them while they are in process to get down the costs, lower the CapEx, something so that the future ROI is not impacted?

I’ll answer the first part of the question, which is - this is Glenda. If you look at the stores by age category and take out the impact of shift, so if you look at the same stores in each category in Q3 compared to Q2, there is actually no significant differences, we saw the same moderation, approximate impact across all the age categories except the stores in the under two years of age category, and actually those same stores picked up in their comps from Q2 to Q3, but because of the impact of stores coming into the category, we had six stores enter the category this quarter, whereas we only had two stores enter the category last quarter. And those six stores actually comped better than the two stores did last quarter, but the impact, the negative impact was greater just because there were more of them. So the overall conclusion is really there is nothing significant to be gained by looking at the comps per age category. Once you take out the impact of the shifts, there is no one thing that’s impacting any of those age groups, it’s really the broader impact that’s impacting all of them.

Glenda, I was looking at it not quarter-to-quarter, but say compared to a year ago, it looked like there was a bigger step-down in the old stores.

I mean there is a lot of factors, I mean for one thing, our big - our new stores are smaller, so in some ways they are affected more by new entrants, new competition. And secondly, we’re going to be launching in those, a lot of those older stores, a lot more refreshes that we think are going to help those stores in particular. Also, there is sales per square foot, we averaged $1,000 across the company, but a lot of those smaller older stores are doing significantly better than that, and in a lot of cases they are challenged for how much more volume they can do given the parking constraints and the size of the store. So, we’re hoping that our refreshes will help there, but that’s always been a challenge for us. I’ve always been amazed at our older, smaller stores have comps as high as long as they have.

This is David. This past year in Southern California again some of our older stores in the company, because part of that region was acquired from Mrs. Gooch's. We had targeted refreshes in the stores where we had done our décor, painting, lighting, it really worked with the communities to kind of give the stores a new look. If we go to a store like West Hollywood, which is one of the older stores, the comp sales in some of our older stores in the company in Southern California has been very encouraging over the last year once we’ve added things like juice bars, some of our new taprooms, active lifestyle like areas like Whole Body, so we’ve used that as a blueprint where we’re going to touch up to 200 stores next year across the company with refreshing, remodeling and we’re really targeting the older stores in the company. I was just talking to Omar, our Regional President in the South region, he is at our new Hilton Head store which just opened today, and he was talking about a couple of stores that they had refreshed in North Carolina that have gone from a negative 4 to a positive 4, so that’s just one example, but we see - we’re really encouraged by that, and we actively are looking to do these refreshes in the first half of this new fiscal year.

Mark, I understand the first part of your question has to do with the capital invested in the new stores, and we did, we have already proactively gone and adjusted our processes by relooking at the sales and the assumptions with respect to the pipeline (technical difficulty) to make sure that we are continuing to be if there was any adjustments that we need to make sort of to improve the ROIC or improve the projected outcome. So, we’ve taken those steps already, is there something more specific about that area?

Those projects were being originated when the company had a higher level of comps, and so rolling forward here, the comps are going to be less, unless something changes, presumably the return would be less than you envisioned when they were initiated. So just trying to understand you get the operating costs down or you can do something to reduce the outlay of those stores?

This is Jim Sud, regarding our pipeline, about 10% of the stores in the pipeline were projected using comps higher than our current trends. So we feel like - we’ve been very conservative on our comp assumptions for quite some time now, and even more recently, we’ve been more conservative on our gross margins. Overall, the pipeline indicates a cumulative EVA, reaching cumulative positive EVA in less than five years and our sales projections are coming in about 10%. Our actual sales are coming in about 10% higher than our sales we use for projections. So, I think that we’re in very good shape again, 90% of the pipeline was projected using comps that are in line with our current trends. Sales are coming in above projections and the overall pipeline is estimated to be less than five years, so I feel really good about the pipeline.

And we’ll take our next question from Jason DeRise of UBS. Please go ahead.

Hoping to understand a little bit more about the comps, can you quantify exactly how much is coming out of the comp from self cannibalization, I think last quarter there was a sequential comment, but I guess I’m hoping more for a year-over-year understanding of that. And then, maybe also understanding how many competitive openings you’ve had on a year-over-year basis to understand the comp impact?

What we can say is that, while we don’t quantify the impact, at this time last year, about 20% of our store base we thought was being significantly impacted by competition or cannibalization, and this time this year, that’s a significantly higher number, so we don’t give the impact, but we do think -- I mean in Q3 it was definitely significantly higher than prior year quarter. It is getting a little better in Q4 as we did.

One of the things I don’t think people fully understand, so your question gives me an opportunity to articulate it, is that when our stores anniversary either our own cannibalization of our own new stores or competitive opening, those stores tend to comp extremely strongly, often times back in double digits. So, we have had a lot of headwinds in terms of both our own rapid growth, cannibalizing ourselves as well as unusually higher number of competitive openings, but what will happen as we anniversary those, as we come back around, we’re comparing the new stores that have already been hit. We’re going to see significant increases in sales, that’s what we always see in the past and I don’t think it’s going to be any different this time.

A good example of that is the Boston market where we just started cycling over the acquired Food Masters and as each one of those stores cycles over a year, two have already cycled and the rest will cycle over the course of the summer. Both of those stores will go into comp base and hopefully very good comps, as well all the cannibalized stores will be cycling over that opening event as well, so that’s just an example of what John is talking about.

I think we did say last time it was 164 competitive openings last year, so about one every other day, it’s that or little bit more now. So it’s not any one competitor per se, it’s just the - it’s the changing landscape which we’ve all talked about is and there really is silver lining in all that is that you look at a market opportunity that continues to grow and grow and grow, and so if people use a number sort of $50 billion for natural and organic sales right now, people are saying by 2018 it’s sort of $225 billion an opportunity and that’s why we are continuing our growth prospects and even though there maybe some short-term surfeit of these different openings, I think we’re going to find a way through this and out the other side and continue to lead the market.

It’s not like when a competitive opening occurs, we self cannibalize ourselves, but that continues to bleed indefinitely into the future, it happens, it impacts us, we do our thing, we make improvements, we innovate, time passes, the year passes, and that store is right back on its growth track again. So I think that’s part of the narrative that about what’s going on with Whole Foods, I just don’t think people will understand.

And there is a bit of a nuance I guess also to make sure we understand is, is going forward there will be self cannibalization, but will it be at the same rate, faster or slower, because obviously that will cause a delta in what we see in the comps?

What happens is, is that we are accelerating our growth, and so as we do that, that does result in more self cannibalization, which lasts again a year. On the other hand, as time passes the base of stores gets larger and larger and larger, so question is, are we going to grow faster than our base, and I think it will probably be less than you’ve seen this year because over the last two years, we’ve had significant acceleration in our new store growth. We don’t anticipate that same rate of acceleration. So you will see some moderating going forward, I think actually probably beginning in 2015.

I think part of the other rest of the story too is remember that we’re still expanding into new markets, so in Q4, for example, more of our stores will be in new markets than existing markets, so that number moves around depending on that. We intend to - we have a lot of frontier space out there to continue to expand Whole Foods Market into it that doesn’t have any cannibalization.

We have a lot of great new stores in the fourth quarter, Palm Desert, Lafayette, Ottawa in the fall. (technical difficulty)

So I think one of the first things we really wanted to talk about today was just reminding the investment community how strong the growth pipeline is for Whole Foods with 116, we’ve got almost 2.5 years of growth signed in the pipeline and a lot of that is in new markets, so thanks a lot for that question.

Thank you. We’ll take our next question from Mark Wiltamuth from Jefferies. Please go ahead.

I think one of the debates coming out of the last call was as you look at that long-term growth model you laid out, how do you really get from that gross margin decline to the operating margins improving modestly? Is there a certain comp you need to deliver or is there a built-in SG&A control that you are going to have to drive that margin up?

I mean what we’re going to do is we’re going to cut our expenses at least as quickly, if not, slightly more quickly than we’re going to reduce our gross margins, so that’s how we’ll get, over the long-term, we think operating margin improvement. Now, those are based on certain comp assumptions. So, if we deliver lower comps, then that will put pressure on, even more pressure on gross margins because our shrink will be higher. If we get higher comps, then that will put - we’ll have better shrink control and that will help gross margins. So, the comps are kind of a wildcard in all those projections and how we do in comps will affect both our gross margins and our operating margins, however, what we do know is we are going to make continued progress in lowering our expenses, you can take that one to the bank.

And is there a certain comp number that generates operating leverage for you, if you just held steady with SG&A?

I was just going to say, even in low comp number, we’re able to leverage our fixed costs. Obviously, the higher comp number the easier it is and the more expenses that we can leverage.

In terms of the comps, I just think that again part of what we wanted to really share with you today are these five areas that we’re working on to continue to really the build comps and hopefully you can see the value in each of those and all of them working together to produce a continuing sales effort.

And last question, what’s the timing on the Chicago stores and their remodel progress?

This is David, just talking with Michael Bashaw, the Regional President there, all the Dominick stores have been designed to start rolling out in January. Streeterville is 01/28, January, 28 and DePaul and West Loop and Edgewater month at a time, and then Elmhurst, and then Evanston and Willowbrook, so all Dominicks are set and will start rolling in January once a month for the next six or seven months after that.

Thank you. We’ll take our next question from Karen Short with Deutsche Bank. Please go ahead.

Walter, in your prepared remarks you made comments about an affinity club launch for the holiday season. My first question is just was that for this year’s holiday season or was that for calendar 2015 holiday season? And then, a little color on what that will entail exactly. And then, the follow-up on that is maybe an update on where you stand on your point-of-sales system and the roll out, and can you really have an effective program without a common POS system?

The question is - what we said is the affinity pilot starts next month in a single store. From there, we move to a regional pilot before the holiday 2014, so, yes, this year with a goal to complete the rollout across the company by the end of - before holidays of 2015. So they do move simultaneously in terms of having that with the one POS, but the one POS is now underway, and so we’re on our way with that. So they are kind of moving hand-in-hand, the pilot works off of the area where we have that system already in place, and so I hope that kind of shows you how they are going to sequence, but you’re right you got to have that - that one POS for us is really foundational for all the things that we are doing with the affinity, the mobile app, some of these other services as well, so that’s the timing on it.

We are in the implementation phase, so we already started to implement putting the POS system store by store to the process that we started. So, hardware and software.

So maybe just a little color on what type of affinity program, are you going to provide that today?

No, except to say that you’ll see that it’s going to be something that kind of aligns - is in alignment with Whole Foods Market, its values, it’s not just going to be in the basement for one sort of thing. It’s going to be something that really gives customers an opportunity, yeah, they will be rewarded for their purchases, but they’ll also be rewarded with the opportunity, different experiences, gain points through different avenues, and I’d really rather do this properly and be able to bring it to you when it’s fully baked. But it’s well on its way and has a test name, it has a number of things and we’re going to start next month and see how the customers respond and what they value in the experience.

And then, just on the refresh stores, you originally said all stores older than 10 years would get a refresh, but then the number that you gave, I think, was up to 200 stores, it seems a lot higher than what you have that would be old, I think it’s higher than what you’d have that’s older than 10 years, but can you just provide some color on what the CapEx associated with that would be, because it would seem that your CapEx probably has to ramp quite a bit next year?

Well, actually all those efforts are contained in the numbers that we have out there, but we said 70% of the stores over 10 years is what we said, and David and Ken essentially did a great job going through the whole list and picking up very specifically the stores where we thought we could really benefit from some CapEx and the find the gains there. We didn’t actually give you the actual spend number because we’re actually still finalizing the list, but I think what’s important to say is that we’re telling you, but here is one of the five things that we’re doing, we are not just focusing on growing these new stores, we are also taking - we’re taking a very targeted look at particularly older stores and saying that I’m going to put the capital in and we think we’ll seen an uptick there.

Based on our experience this past year, the older stores, some of the things our look and feel, paint, décor, those kind of things, it’s relatively small dollars within our budget, so that’s not in particular, but we are remodeling even some of our newest stores as we add new innovations and concepts. We want to make sure that even our newest stores have all the new bells and whistles.

Thank you. We’ll take our last question from David McGee with SunTrust. Please go ahead.

My question has to do with the national advertising campaign and this may be obvious, I’m curious how you are going to evaluate the success of that and whether this is something that you would anticipate having a near-term impact on traffic or is it more gradual over time?

That’s a great question. When we talk a lot about with our team and it’s just sometimes marketing spend is hard to evaluate. I think our feeling is it’s a time, many of you have raised this question about how we are continuing to communicate our differences from the other competitors and I think this is going to answer that question squarely. It’s obviously going to be focused in the larger markets, but it’s going to be across a variety of platforms. We have some excellent partners working with us on it, because we’re somewhat new to this, but I think how we’ll measure it is, we’ll start with just feeling that there is a really reaffirmation of what Whole Foods stands for in the marketplace, and we’ll partner that with an effort with our team members inside the company to kind of reaffirm what is different about Whole Foods and how we bring these different sources to our customers, so hard metrics on that, ultimately everything is going to have to flow through into sales and comps, but we expect that’s going to be right away, probably not, but will we have some incremental effect? Probably so. Do you want to add to that John or --.

We are not doing the national advertising campaign to try to drive short-term sales, so if that’s your question, the answer is it would be disappointing in that regard. What we’re trying to do is we’re trying to advertise who we are, trying to in some ways change what we think is a negative narrative about our company and we’re trying to be very clear what makes Whole Foods Market the unique special better company that we are. We know we’re a great company and we know we have great values and a higher purpose and this campaign is going to let us articulate that in a very, very clear way. What we are absolutely convinced at is that in the long term this is going to create great value for our investors. So we’re not going to measure it over what’s going to happen in Q1 or Q2, we’ll be looking at the longer-term trends, we’ll be doing some marketing surveys, how it impacts people, and how they think about that (technical difficulty) perhaps than trying to drive short-term traffic.

Yeah, I do think there is a feeling out there that some others have said that people are out there defining themselves or defining us for us and I think it’s time for us to find ourselves for ourselves and to our customers to let them know this is who we are and to affirm that. Thank you for the question and thanks a lot for listening in today. A transcript of the scripted portion of this call along with a recording of the call is available on our website as well, and we look forward to speaking with you again in November for our Q4 earnings call. Thanks so much.

This concludes today’s conference, you may now disconnect your lines, and have a wonderful evening.