hubris12000,

You are the one who is both foolish and naive. Yes, of course Whole Foods paid the special dividend to increase their EVA. As incomprehensible as it may be to you, Whole Foods management doesn't manage the business in terms of the short-term stock price. I doubt they even look at it more than once a month or so. You would know this is true if you had been following this company as I have for the past 14+ years. This company is being managed for the benefit of the long-term investors, not short-term speculators like yourself. Whole Foods entire leadership team from store manager on up has their bonuses calculated based on the increase in EVA that they produce. The higher the EVA the higher all of their bonuses are. Whole Foods uses a 9% cost of capital in their EVA calculations which is equal to about 15% on a pre-tax basis. Therefore any cash on their balance sheet is being charged against their NOPAT (net operating profits after tax) at 9% clip while earning only about 3% after tax. That is a 6% spread between the cost of capital and the earning power of the cash if it sits idle. The bottom line is that excess cash lowers EVA which lowers management bonuses. Mackey has said over and over and over on Whole Foods conference calls that excess cash beyond their growth needs will be returned to the shareholders either through dividends or stock buybacks in order to increase EVA. The special dividend and announced stock buyback is merely walking the talk.

hubris, you seem to believe that you are a better expert on Whole Foods future cash flow than company management is. What is that based upon? Whole Foods needs to produce about $400 million in cash to open 40 stores--$10 million per store. They produced $410 million in operating cash flow in 2005. As they open more stores their operating cash flow is going to increase at about a 20% clip, therefore doubling to $800 million in about 3.5 years. Let's see now--they need about $400 million to open 40 stores while they'll be producing $800 million in operating cash flow in 3.5 years. Do the math, Einstein. They are producing much more cash than they need. They don't have any debt. The excess cash is going to drive EVA and management bonuses down. The solution is obvious--return the excess cash to shareholders.

Your analogy with Warren Buffett is deeply flawed. Berkshire is an investment vehicle similar to a mutual fund. Excess cash will not sit idle for long at Berkshire because Buffett keeps investing it. In contrast, Whole Foods is simply a rapidly growing food retailing company. They aren't going to invest their excess cash in Coca Cola or Geico Insurance.

Whole Foods has been competing against all the companies you've named for over 25 years now and they've been winning for over 25 years now. These are the simple facts which you continue to ignore. Let me know when Wal-Mart, Safeway, or Kroger actually begin winning this competition with Whole Foods. It hasn't happened at any point for the past 25 years. It isn't going to happen this year or next year or the year after. Whole Foods had 13% same store sales last quarter and I predict they continue producing double digit comps or close to them for the rest of this decade.

The game has indeed changed and Whole Foods is winning it. Open your eyes hubris. Look at the facts with unbiased eyes if you are capable of doing so.

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