Nov 4, 2015
Executives
Cindy McCann - Global Vice President-Investor Relations John Mackey - Co-Chief Executive Officer & Director Glenda Jane Flanagan - Chief Financial Officer & Executive Vice President David Lannon - Executive Vice President, Operations Ken Meyer - Executive Vice President, Operations Walter Robb - Co-Chief Executive Officer & Director A.C. Gallo - President & Chief Operating Officer Jason J.
Buechel - Chief Information Officer & Executive VP
Analysts
Rupesh D. Parikh - Oppenheimer & Co., Inc.
(Broker) Meredith Adler - Barclays Capital, Inc. Vincent J.
Sinisi - Morgan Stanley & Co. LLC William Kirk - RBC Capital Markets LLC David Magee - SunTrust Robinson Humphrey Mark Gregory Wiltamuth - Jefferies LLC Kenneth B.
Goldman - JPMorgan Securities LLC Edward J. Kelly - Credit Suisse Securities (USA) LLC (Broker) Renato Basanta - Sterne Agee CRT
Operator
Good day, everyone, and welcome to the Whole Foods Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode.
Later, there will be an opportunity to ask questions during a Q&A session. At this time, it is my pleasure to turn the conference over to Cindy McCann, Vice President of Investor Relations.
Cindy McCann - Global Vice President-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 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 website.
For easier comparisons, we will discuss our results excluding the asset impairment and restructuring charges. I will now turn the call over to John Mackey.
John Mackey - Co-Chief Executive Officer & Director
Thank you, Cindy. Good afternoon, everyone.
I will briefly review the quarter, focusing most of my time today on the steps we're taking to communicate our differentiation, improve our value perception and fundamentally evolve of our business. In Q4, our sales increased 6% to a record $3.4 billion.
We opened 10 stores, expanding our reach to 431 stores across 42 states and three countries. After appearing to stabilize early in the quarter, our comps moderated over the last nine weeks driven by changes in both traffic and basket size.
Our EPS miss was driven in large part by weaker-than-anticipated sales; however, we still delivered a strong EBITDA margin of 8% and healthy cash flow from operations of $132 million in our seasonally slowest sales quarter of the year. In the face of increasing competition, we are not standing still.
As highlighted in our press release, we made measurable progress on many of our strategic initiatives over the past year, including using technology to deliver an improved shopping experience. For the fiscal year, we produced industry-leading sales per gross square foot of $970, over $1.3 billion in EBITDA, a record $1.1 billion in cash flow from operations and a 15% return on invested capital.
Through our strong balance sheet and robust cash flows, we self-funded our new store development and strategic growth initiatives while returning close to $700 million to our shareholders through dividends and share repurchases, ending the year with approximately $582 million in cash and investments. Whole Foods Market has been a driving force in elevating food consciousness and raising the bar on quality standards for 35+ years; we have a proven track record of delivering long-term shareholder value, and our tremendous success has bred increased competition.
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.
Later, I will outline the decisive steps we are taking to enrich the customer experience and gain efficiencies in our overall cost structure. Promotions and price investments are an integral part of our conversation, but we are not participating in a race to the bottom.
Some would say that increasingly everyone is selling the same food and that price is all that matters. The reality is Whole Foods Market sells the highest quality food in the world, our standards lead the industry and our selection and in-store experience cannot be matched by the competition.
Yes, we're going to be competitive on price where we need to be, but, first and foremost, the Whole Foods Market brand stands for the highest quality, selection, and service. We believe values matter.
It's what our customers tell us they love most about us, and we're not changing that. One of the things we are doing is launching 365 by Whole Foods Market, a complementary brand that will broaden our reach to new customers and new markets.
Guided by the same industry-leading quality standards, our 365 stores will allow us to address the value-quality proposition in a new way, while maintaining the integrity the Whole Foods Market brand represents in the marketplace. There's never been a time where customers have had more interest in what they eat, where it comes from and who's growing it.
I believe we'll look back on 2015 and recognize it as the tipping point of a food revolution in this country, about the direct connection between what you eat, and your health and well-being. 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. Going forward, we envision a fusion of the store experience and technology, with the customer at the center.
No one delivers the dynamic and compelling in-store experience that we do. We will keep innovating and creating environments where people can connect and find a sense of community in our stores and in the digital world.
Our strategy revolves around leading a race to the top in terms of a differentiated customer experience, continuing to raise the bar on quality and selection, providing new levels of transparency and accountability, and leveraging technology to deliver an improved shopping experience. As the consciousness about fresh, healthy foods is awakening, and the ways in which people want to buy their food evolve, the market opportunity is continuing to expand.
There will be more than one winner. It's not a zero-sum game.
Our company mission, commitment to transparency, and culture of innovation are more relevant and timely than ever, and where our company is today is just a fraction of where we think we'll be 20 years from now. As I highlighted earlier, while we're making progress on many of our initiatives, in this dynamic marketplace we recognize we need to move faster and go deeper to rebuild traffic and sales and create a solid foundation for our long-term profitable growth.
These are the steps we are taking to communicate our differentiation, improve our price perception, and fundamentally evolve our business. One, we are committed to a fundamental restructuring of the cost side of our business and have already taken steps in this direction.
We have a plan to reduce expenses by a $300 million run rate by the end of fiscal year 2017. We are systematically looking at every aspect of our business to eliminate costs that do not produce value for our customers.
We recently eliminated more than 2,000 positions, are transforming our purchasing operations to allow us to function more productively, to be more competitive and better leverage our growing size and scale, and are looking for similar opportunities in other key areas. We have also introduced a new labor-scheduling tool to our customer service teams, with plans to expand to additional teams over the next year.
Number two, 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.
Totaling close to $5 billion, or one-third of our sales, our exclusive brands and prepared foods are key differentiators for us, and we plan to partner with our suppliers to widen our competitive advantage in these areas. As part of this initiative, we have created a new Global Vice President of Culinary and Hospitality position, which we expect to fill in the coming months.
Number three, we will improve our value perception through increased promotional activity and selective and strategic price reductions. We will utilize new talent, tools and systems, as well as consumer insights, benchmarks, and KPI progress reporting, to better track how our promotions and investments resonate with customers and impact our results.
Number four, we will support our differentiation and value strategies through enhanced external marketing efforts. We will use media to support our pricing efforts across all major markets, clearly communicating not only our pricing investments but our quality as well.
We will holistically address the way in which we communicate our value and values to our customers at every touch point, including our online, digital and social platforms. Number five, we will invest in digital strategies to convert the strong traffic we generate online into sales.
We have integrated Instacart into our app, will soon launch a national sales flyer, and will continue to make upgrades to provide more functionality and streamline our customers' digital experience. We have been very pleased with our affinity pilot, in terms of the information we are gathering and the sales lift it is generating.
We are committed to the program and have plans for tests in additional markets to further enhance the customer experience and refine the economics, before rolling it out nationally. Number six, we will invest in our technology platforms to provide a better shopping experience and enable us to run our business more efficiently.
We will replace our disparate core legacy platforms with unified scalable solutions. The rollout of One POS system to all U.S.
stores by the end of calendar 2016 will provide faster checkout times, improved labor productivity, and better data visibility across all channels. In addition, it will enable us to provide personalized offers and new experiences at checkout via our mobile app.
We also just launched our groundbreaking partnership with Infor to co-create a next-generation cloud-based retail, merchandising and supply chain management platform. Admittedly behind in this area, this new retail platform will be unlike anything available today and will bring us many new capabilities such as perpetual inventory, replenishment, retail space planning and price optimization.
Number seven, we will launch our second growth vehicle, 365 by Whole Foods Market. With eight leases signed to date, we plan to open three stores in fiscal year 2016 and up to 10 stores in fiscal year 2017.
The time is right to take the high quality standards we have developed over the last 35+ years, and make them more broadly accessible through a streamlined, value-focused format and serve communities we would not be able to reach with our larger Whole Foods Market stores. Number eight, while we remain confident in our long-term growth potential, we will increase our square footage at a more moderate pace this year.
Having consecutively accelerated our store openings over the past six years, we plan to grow our square footage at a more moderate pace in fiscal year 2016, which will lessen the negative impact of cannibalization on our comps and allow us to focus on the other areas we have outlined. Number nine, we will continue to affirm our culture.
Our 91,000 team members are the heart and soul of our company and the not-so-secret ingredient in creating our customer experience. We believe our full time ratio is among the highest, and our turnover is among the lowest in the industry.
And we will continue to invest in our team members' development and growth, including creating thousands of new jobs over the coming year. I will now turn to our outlook for fiscal year 2016, which reflects the impact of these initiatives.
We remain focused on metrics we believe are key to the long-term health of our business and for this fiscal year we are targeting: sales growth of 3% to 5%; approximately 30 new stores, including two to three relocations and three 365 stores; square footage growth of 7% or greater; EBITDA margin of approximately 8.5%; Capex of approximately 5% of sales; and ROIC greater than 13.5% Our results are highly dependent on comps, which have been particularly difficult to predict in this competitive landscape. While we have seen some stabilization in our two-year comp trends since the end of the fourth quarter, it has only been five weeks.
We're hopeful that our comps will improve over the course of the year, given our toughest comparison is in the first quarter, and many of our sales-building initiatives are still gaining traction or are planned to roll out later this year. The higher end of our sales outlook reflects a 2.8% two-year comp, in line with the current run rate, and implies flat comps for the year, improving from negative 2% in Q1, to relatively flat in Q2 and Q3, to 3% positive by Q4.
The lower end of our sales outlook reflects the possibility that comps could get marginally worse before they get better, with an inflection point later in the year. Primarily reflecting our value efforts, we expect the decline in gross margin, excluding LIFO, to be greater than last year's 45 basis points decline.
While we have identified SG&A improvements of approximately 60 basis points, including the impact of the recent restructuring, we expect these savings to be more than offset by the cost of initiatives to drive traffic and sales, as well as higher occupancy, depreciation and other costs. Therefore, we expect a decline in operating margin of up to 75 basis points from the 6.1% we reported last year, excluding charges.
As we announced today, our board approved an additional $1 billion in stock buyback authority, and our intent is to spend the majority of that in the first half of the year. 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.
We will be facing our toughest comp and earnings comparisons in the first quarter and estimate approximately $0.01 per share in costs associated with the recent restructuring. I know that we have shared a lot of information with you today, but before we open it up for questions, I want to underscore that we recognize we have our work cut out for us.
We believe we are taking the necessary steps to regain our sales momentum, fundamentally evolve our business model, and produce the returns that the investment community expects from us, and that we expect from ourselves. We will now take questions.
Our call will end at 4:45 Central Time today so, to allow more time for questions. Please limit yourself to one question at a time so that everyone has an opportunity to participate.
Thank you.
Operator
Thank you. We'll go first to Rupesh Parikh with Oppenheimer.
Please go ahead.
Rupesh D. Parikh - Oppenheimer & Co., Inc. (Broker)
Thanks for taking my question. So my one question has to do with share buybacks.
I just wanted to understand the rationale for taking on debt and buying back shares right now maybe instead of waiting until maybe comp trends stabilized. So if you could maybe help us with your thought process.
John Mackey - Co-Chief Executive Officer & Director
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.
Glenda Jane Flanagan - Chief Financial Officer & Executive Vice President
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.
John Mackey - Co-Chief Executive Officer & Director
And also that we structured the debt in this way, the debt buyback in this way, where we have the flexibility over time to use it as we want to use it, when we want to use it.
Rupesh D. Parikh - Oppenheimer & Co., Inc. (Broker)
Okay. Great.
I'm going to ask one more question quickly. You laid out a number of sales initiatives in your prepared comments.
So if you look out the next couple of quarters, what are the key sales initiatives you believe can help to drive traction? Especially on your top line as the fiscal year progresses?
John Mackey - Co-Chief Executive Officer & Director
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're going to upgrade our customer experience. We're re-examining our business, and we're systematically working, basically, to cut costs that aren't going to create value for our customers.
And then we can invest a lot of that in promotions and into strategic lower prices. So part of it'll be pricing, part of it is going to be marketing.
We're going to support our strategic price investments and promotions with marketing around the country, so we're upping our marketing spend this year. And, you want to add some more color to that, Dave?
David Lannon - Executive Vice President, Operations
Yeah. Operations, I would say, this is David.
So we're really eyes on the price, focusing on execution. So looking at our in-stock position.
We have a new out-of-stock tool that we've implemented across all stores to make sure that when our customers are in a store they can always buy the products that they want. This has been very helpful with our friends at Instacart to increase our now record sales through Instacart.
So things like that. Operations with the new labor scheduling tool which we're expanding beyond customer service into our grocery department and our whole body departments.
So just-in-time scheduling to make sure we're really taking care of our customers and eyes on the prize, focusing on results, focusing on operations.
Ken Meyer - Executive Vice President, Operations
Yeah. One other point that I want to make – this is Ken – is bringing on the GDP of culinary and hospitality and recognizing that prepared foods and bakery are significant differentiation points for us, having leadership around that where we set really strong guidelines around culinary expectations, reset the expectation on hospitality in our stores, really develop partnerships with restaurateurs that are going to create differentiation for us.
We really feel like that's going to be an incredible sales driver for us and a differentiation point for us over the next year.
Rupesh D. Parikh - Oppenheimer & Co., Inc. (Broker)
Thank you, and good luck with your efforts.
Ken Meyer - Executive Vice President, Operations
Thank you.
John Mackey - Co-Chief Executive Officer & Director
Thank you.
Glenda Jane Flanagan - Chief Financial Officer & Executive Vice President
Thank you, Rupesh.
Operator
Thank you. We'll go next to Meredith Adler with Barclays.
Please go ahead.
Meredith Adler - Barclays Capital, Inc.
Yeah, thanks very much for taking my question. I would like to talk a little bit about the changes you're making in the cost structure, especially you talked about procurement, but other areas.
You've had a very successful model of being regionalized. And I'm just wondering, how do you maintain the creativity, the great shopping experience, the localization, if you centralize certain things to take cost out?
John Mackey - Co-Chief Executive Officer & Director
Meredith, that such a good question. And there's very few questions that Whole Foods Market is thinking about deeper than that and continuing to dialogue about it because we know we need to evolve our business model.
And we know in many cases such as purchasing we want to take advantage of our scale. We have a redundancy built into the system.
So the art of what we're trying to do is we want to evolve the structure in such a way that we take out redundancy and waste, and at the same time though, we're not diminishing the culture, the empowerment efforts that make Whole Foods Market special. And that just means we have to proceed very thoughtfully, very carefully, and we have to be very inclusive in making the decisions so the voices are heard.
That means Whole Foods does move, sometimes it can move a little bit slowly, but it means often times we'll make better decisions because of the inclusive nature of it. But it was a good question because we are thinking deeply about it.
And I think the fact that we're so conscious of it means that we're less likely to just do something inadvertently to screw it up. But we are determined to evolve.
So we are going to evolve, but we're going to take our culture with it.
Walter Robb - Co-Chief Executive Officer & Director
Yeah, this is Walter. Just to add to that is you asked which areas.
We're looking at every single functional area across the company. Obviously, at this point we've grown to be close to $16 billion a year in sales.
All those functions have evolved over time, as you see, in different ways and in different regions. And so I think the company as a whole has come to a place now recognizing that there are some of those things that don't need to be done in that way anymore, that are best done together in one way, and then still identifying clearly those areas where – close to the customer where the innovation and where the freedom remains that makes a lot of sense to do.
So that's the nature of the conversation. So in answer to your question, we're looking at TMS, HR.
We're looking at marketing. We're looking at purchasing.
We actually have a very evolved plan for exactly how purchasing is going to unfold. And I think trying to capture the best of both worlds in making those changes to pick up the savings, to pick up the advantage of our size and scale, to function more efficiently and productively but still maintaining that wonderful freedom, empowerment at the store level for team members to serve customers.
David Lannon - Executive Vice President, Operations
David, just a couple of examples to think about. Its also we have the ability to eliminate some positions because we no longer need it based on technological things we've put in our stores.
For example, the new labor scheduling tool, in the big stores, one of our big New York City stores, you might have somebody working 40 hours a week on the labor schedule just for the customer service team, just the cashiers. Now we have – our new system actually predicts the scheduling so we probably can reduce that to 20 hours instead of 40 hours.
So that's just cost we can take out of the system without radically changing our culture at all.
John Mackey - Co-Chief Executive Officer & Director
And one more thing I'd like to add specifically to purchasing. I do believe that there's been great strength in the decentralization that we've had in our purchasing teams, especially in the perishable areas.
And at this point, we see pretty much for the perishables, for produce, meat and seafood, they will be still largely directed by the regional teams with the global teams helping them on that. So the real exciting stuff in the store is pretty much still going to be mostly run by the regional teams.
It's really in the center store where we're looking at doing a lot more – bringing a lot more responsibility for center store products to the global team. Why that makes sense is that we work with our very large center store suppliers and we feel like we can most efficiently work with them and have the best partnership with them at the global level, but there'll still be a strong regional component.
We're still going to have the regional folks very involved in those decisions but we think that we can, by improving our overall functionality in that area, we think that we can come to a lot better decisions that really work across the company.
Meredith Adler - Barclays Capital, Inc.
All right, thank you. That's very helpful.
Operator
Thank you. We'll go next to Vincent Sinisi with Morgan Stanley.
Please go ahead.
Vincent J. Sinisi - Morgan Stanley & Co. LLC
Hey. Great.
Good afternoon. Thanks very much for taking my question, guys.
Maybe turning to the other margin, the gross margin, just wanted to get a little bit more sense here. I know you said that you're expecting gross margins to be down a bit further next year as compared to this year.
In the past – and I know that's, of course, primarily on value efforts – but in the past you've said that basically some things you've done have given the lift that's wanted and other things that you felt you probably didn't need to do. So could you just give us maybe a little bit more sense for whether it's by category, product, et cetera, kind of your learnings so far in several quarters now that these value efforts have been more of a focus.
What's working the best, what you need to do some more work on, and the thoughts going into next year specifically?
A.C. Gallo - President & Chief Operating Officer
Hi, A.C. Good question.
What we have found when we've looked at – we've been doing some margin investments every year for the last three years. We ramped it up a little bit in 2015 and plan on doing even more in 2016.
Where we've seen the best results is in – whatever category it's in has been through promotions. We've done experiments with lowering everyday prices and trying to set certain categories at certain places but we found, for the most part, that our customers react best to promotional activity and so that's where we really look to focus ourselves going forward.
This past year we did pick certain markets and we did a lot more produce promotions and we were happy with what we saw there so we'd love to do more this year again, and also across other teams as well.
Vincent J. Sinisi - Morgan Stanley & Co. LLC
Okay. Thanks very much, A.C.
Operator
Thank you. We'll move next to Bill Kirk with RBC Capital Markets.
Please go ahead.
William Kirk - RBC Capital Markets LLC
Hi. I guess over two years ago you talked about a common POS system and said it would take 18 months to 24 months.
And then I think you also said that loyalty card would be widely available for this holiday season. What caused those initiatives to fall behind by so much and does your current guidance for initiatives have, I guess, more conservatism around the timing?
Jason J. Buechel - Chief Information Officer & Executive VP
Hi. This is Jason.
When we gave the initial guidance we talked about what it would take to get into our initial stores. We're currently in 18 stores with our one point of sale program.
We went to that first store at the beginning of this year and so we think we've got a pretty conservative timeline that we've put in our guidance for today. As it relates to the affinity program, as mentioned, we really are very positive on the results that we've seen so far with the program.
Our opportunity here is to make sure that we've got one that has got the right cost structure in place for us and has the right win-win and value propositions for the customer. We're continuing to evolve a few more different tests and we are very optimistic on being able to bring this to all of our customers before the beginning of next calendar year as we mentioned.
William Kirk - RBC Capital Markets LLC
Thank you. That's my one question.
Operator
Thank you. We'll go next to David Magee with SunTrust Robinson Humphrey.
Please go ahead.
David Magee - SunTrust Robinson Humphrey
Hello. What percent of the stores square footage would you say right now is at an appropriate pricing level?
And then as a second part to that, didn't you all have a marketing campaign you kicked off last year at this time and I'm curious if that was pulled back during the course of the fiscal year? Thank you.
John Mackey - Co-Chief Executive Officer & Director
We don't really know how to answer that first question. What percentage of our stores is at the right pricing level?
Does anybody else? I can't answer it.
Walter Robb - Co-Chief Executive Officer & Director
I think we look at it more broadly at our overall competitive position and as A.C. mentioned earlier, obviously laying out tracks to invest strategically and systematically this year through both promos and lower prices, but I think for competitive reasons we would leave it more general than that.
A.C. Gallo - President & Chief Operating Officer
But also the hard – the reason that's quite a hard question is that it's really different in different markets and different competitors. You look at some markets we may feel we're completely appropriately priced in produce and in another one we need to invest more, in another one might be fine in center stores and another one – so it really varies a lot by region but the thing is that what you do is you really look and see how your customers are reacting to the particular marketplace and then you look and see what dynamics are in that marketplace and then decide how you invest there.
So it's really a varied process that goes on so I think for all retailers in that type of condition.
David Lannon - Executive Vice President, Operations
It's David, the other thing I would say from operation as well as purchasing is it's a two-pronged thing. We focus on being competitive on prices but we also focus on differentiation and press for advantage.
So we have a fully differentiated product line like our meat standards, our prepared foods where we have scratched production unlike any of our other competitors. We can press that advantage.
So we're trying to expand the amount of items that are not – we don't have to be as price competitive on because they are fully differentiated. We're looking on all other product lines right now to see what products we can add to be fully differentiated.
John Mackey - Co-Chief Executive Officer & Director
Having said, we significantly improved our price tracking tools, our competitive tracking tools. We've expanded the amount of items in there.
This team has worked to upgrade all that reporting that gives us every two weeks snapshot and exactly where we stand relative to the various competitors in the various markets as A.C. said.
We've got better tools than we've ever had to see exactly where we stand and where price relevancy where we need to move on price relevancy. And I also want to underscore David's point about the strategy here is around being a quality grocer.
We are the highest-quality grocer in the United States and that's who we are, that's what we stand on and we're going to combine that with price relevancy but we're going to stand on the fact that we sell the best stuff.
David Magee - SunTrust Robinson Humphrey
And on the marketing campaign? Is the next one going to be a lot different than what you did last year at this time?
John Mackey - Co-Chief Executive Officer & Director
Well, I think the thinking was on the campaign is the timing was off to do it. Right now we had other things to take care of and to put in order and as we think through – we've already thought through what we think that next message will be but obviously, no, it won't be the same message.
It will be building on that with a new set of messages that continue to work off of our core and our standards and our transparency and our quality but around why those really matter to the customer and our unique place in that. So we'll also have the new digital platforms available too, as well to carry those messages, not just TV but workers as I think somebody mentioned earlier we'll be launching our digital flyer next year that will be nationwide.
David Magee - SunTrust Robinson Humphrey
Great. Thank you.
Operator
Thank you. We'll go next to Mark Wiltamuth with Jefferies.
Please go ahead.
Mark Gregory Wiltamuth - Jefferies LLC
Hi. I wanted to dig in a little bit on the e-commerce front and by the way thank you for quoting from our e-commerce report at the front of your comments.
I wanted to find out how deep you are on Instacart right now. What percentage of your sales is derived from e-commerce right now?
And how many of the stores are really covered by Instacart at this point?
Jason J. Buechel - Chief Information Officer & Executive VP
This is Jason. We don't actually disclose our percentage of sales at this point.
We do have an all-time record high. We've just hit the $2.5 million mark which is the average sales of our last four weeks.
We also have over 50 of our stores right now that are part of our we call it embedded shopper program that provides in a delivery radius.
John Mackey - Co-Chief Executive Officer & Director
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.
Mark Gregory Wiltamuth - Jefferies LLC
Okay. And how do you stand on getting prepared foods rolled out?
John Mackey - Co-Chief Executive Officer & Director
So we've been doing a number of tests in that particular space. As you know, the time frames which people want those delivered are in a very immediate timeframe.
So it's something that we've been testing out in our SoMa store in San Francisco and look to scale various elements as we find success there.
Mark Gregory Wiltamuth - Jefferies LLC
Okay. Thank you.
Operator
Thank you. We'll go next to Ken Goldman with JP Morgan.
Please go ahead.
Kenneth B. Goldman - JPMorgan Securities LLC
Hi. Thanks.
John, I think you said you wanted Whole Foods to get back to basics. You talked about a lot of new and interesting initiatives today, so I wanted to figure out the balance on that.
What have you been doing that's not basics, so to speak? I don't know if that means it's been a distraction or what.
And are there efforts you'll pull back on as you build out others? Just trying to get a sense of what may go away as you start new things?
John Mackey - Co-Chief Executive Officer & Director
That's a good question, Ken. So 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.
Everything has to do with upgrading the customer experience, from signage to the way we communicate. The message is how the prepared foods taste.
It's making sure that we're executing operationally at a very high standard. So that's what I mean by getting back to basics.
That doesn't conflict with our need to evolve and to introduce all these new initiatives to evolve our business model. I think those are complementary to each other, but they have to be on the foundation of very strong operations.
It's ultimately satisfied customers who are your best form of advertising that you have. They're the ones that tell their friends, and a loyal customer comes back every week and their basket size is going up.
I'm not going to say Whole Foods neglected that. I don't think we've neglected it, but I think we need to up our game.
We're going to get better at it.
David Lannon - Executive Vice President, Operations
Working with our regional presidents who are doing a spectacular job on some of these cost reductions, they're really focusing on anything that takes the store team leaders out of the store. So we're – a big frugality push on travel and focusing on getting our store team leaders to eliminating days they're not in the stores.
And at the store level, getting those store team leaders to focus on getting their leadership and their team members on the sales floor, out of back room focus and really focusing on taking care of the customers, in-store shop conditions, and just eyes on the prize. Anything that's extra credit or a distraction, we are refocusing that back on taking care of our customers.
Walter Robb - Co-Chief Executive Officer & Director
This is Walter, and I'll just add to your question, Ken. Kind of book-ending on John's comments, is that if you're to look at the focus on the basic, but you support that by fundamentally relooking at the way you do work.
So that is the structure of jobs, it is the processes we use, the redundancies that might exist. And you say to yourself, how can we do this work?
How can we make this work simpler so that the worker really focusing on the customers and each other can continue to happen in a more efficient and productive way. And I think that's the effort of the overall looking at the business.
And I think the second thing is using technology, because clearly these 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. They're going to be ultimately supportive of having the team members to be able to focus on the customer experience and the work happen more efficiently.
So it's combining the future ideas with the core, as John said. And third, I think we all know now that the door to the store is not just at the physical, it's also a digital door.
And we've got work to do to take that same in-store experience that we have created so well over the years and take that and extend it onto the digital platforms where our customers come. We have 6 million visitors a month to our website.
That's a pretty high number for a supermarket. And relative to our – so we have opportunities to convert those and continue to build trips through that, so essentially extending experience and having a digital door to Whole Foods as well as a physical store.
Kenneth B. Goldman - JPMorgan Securities LLC
Thanks so much.
Operator
Thank you. We'll go next to Edward Kelly with Credit Suisse.
Please go ahead.
Edward J. Kelly - Credit Suisse Securities (USA) LLC (Broker)
Hi. Good afternoon, guys.
And thanks for taking my question. I'd like to just get back to a comment that you made earlier about not participating in a race to the bottom on price.
And I guess if you look at the industry, somebody like Kroger has proven over time with Walmart that you don't need to be in-line with competition from a pricing standpoint to reach an equilibrium in total value. I'm sure that applies to your model as well, but the real question here is just, how are you thinking about the appropriate level of gross margin in this business now longer-term?
You used to talk about, I think it was 34%, 35%. Where do we stand on that?
Just thoughts there would be helpful, I think.
John Mackey - Co-Chief Executive Officer & Director
A good question. That's another good question because that's something we're continually talking about and strategizing about and evolving our position on it.
But, 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. So one of the challenges Whole Foods has to do a better job at is communicating our superior quality.
The differentiation, it's there. It's definitely there in the perishables, from our animal welfare system in meat to our sustainable seafood to our responsibly-grown produce.
So we have to do a better job of connecting to our customers to get them to understand that these are not the same things. They may look like they're the same, but they're not.
And 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.
So simultaneously we have to do a better job of communicating our differentiation, and where we have price sore thumbs, we're out of line and it's not appropriate; we have to be more competitive in those areas and we are determined to do so.
Walter Robb - Co-Chief Executive Officer & Director
And I think what we're saying in our guidance today is we are taking aggressive, smart, and strategic steps in this direction this year. We are not laying out the chapter and verse exactly where that's happening for competitive reasons, but you can see in the guidance it reflects the decline in the gross margin reflecting aggressive activity.
So obviously in your question, what we're seeing is we're moving the needle this year. We probably expect to move the needle next year, although we have to see exactly what works, how it works, how the customers respond to the particular combination of value and quality.
So I think we're focusing right now on what we're telling you for fiscal 2016 and how we see our steps taking there.
John Mackey - Co-Chief Executive Officer & Director
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.
And if you're starting in a lower base, as many of our competitors are, it's easy to show a higher comp number. The question is, can you continue to show it?
We showed 8%, 9% comps for 20 consecutive years, just about. So our challenge, and it's a big challenge, is what I started out by saying.
We have to do a better job of communicating our differentiation so the customers understand our quality superiority and at the same time where there are no significant differentiating advantages, there is no quality standard differential. Well, A, that's a challenge to differentiate and up the quality standard but in many cases it means being more price relevant and those are the two things we intend to do a better job at both definitely going forward
Edward J. Kelly - Credit Suisse Securities (USA) LLC (Broker)
Okay. Thank you.
Operator
Thank you. We'll take our final question from Chuck Grom with Sterne, Agee CRT.
Please go ahead.
Renato Basanta - Sterne Agee CRT
Hi, guys. This is actually Renato Basanta on the line for Chuck.
Thanks for taking my question. So I just wanted to flesh out the price investments here a little bit.
Can you just give us some specifics in terms of what percentage of markets or stores you currently have the permitter (44:27) price investments in. What you're planning going forward in terms of additional rollouts, maybe what kind of elasticity you've been seeing in terms of these investments?
And then finally just your thoughts on how deep or broad-based the investments may need to be to get the desired effect on the volume front.
A.C. Gallo - President & Chief Operating Officer
Hi. A.C.
here. We've made – I would say price investments, we've made across all of our stores.
We did focus, as we said, we did focus certain produce price investments this past year in certain markets, four markets in particular then we added a fifth one later in the year. And we are happy with the results in that and are looking to maintain and expand that this year in produce.
And we're also looking to do increased promotions throughout a lot of other parts of the company and specifically where we do them and really depends on as I was saying earlier, every market is different and so we'll focus produce promotions more in some markets. We'll do more meat and seafood in other markets and grocery in other ones.
It's really a very thought through careful strategy that you do, that we'll do in each market depending on the needs that we have there.
David Lannon - Executive Vice President, Operations
This is David. I guess one more thing I would just say is that one thing we have been learning over the last few months is that the more promos that we do together where promos that affect the whole company from our recent customer focus Love Fest promotion that amplified the effect because we can put out through all the digital channels the connection on price so that price is marketed across the entire company.
So we're looking at more and more ways that we can amplify by doing promotions together.
Walter Robb - Co-Chief Executive Officer & Director
I guess to close that off and just, again, reiterate what John said at the end when we opened up around, this team is really committed to rebuilding the sales momentum. Traffic and sales through these actions that we kind of laid out today and the combination of not only the price investments and the promotions that A.C.
have talked about but also the strong communication of our differences and our quality which is what sets Whole Foods Market apart which is ultimately a winning strategy I think for a company. So but make no mistake this team recognizes we're not where we want to be right now with respect to sales.
We intend to move on that and hopefully you have some more confidence from this conversation today at exactly the steps that we're going to take.
John Mackey - Co-Chief Executive Officer & Director
Okay. I want to thank everybody for listening in today.
Please visit Whole Foods Market in-store and online for the best selection of fresh healthy holiday meals and join us in February for our first quarter earnings call. We look forward to updating you on our progress on our Q1 earnings call next February.
A transcript, a descriptive portion of this call along with a recording of the call is available on our website as well. Thanks for listening in.
Talk to you next quarter. Bye.
Operator
This does conclude today's conference. We appreciate your participation.
You may disconnect at any time, and have a great day.