Good afternoon. My name is Marcella and I will be your conference operator today. At this time, I'd like to welcome everyone to the Whole Foods Market Q2 2017 Earnings Conference Call. Thank you. Ms. Cindy McCann, Vice President of Investor Relations. You may begin your conference.

Good afternoon and thank you for joining us. On today's call are John Mackey, Chief Executive Officer; 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. Also, joining the scripted portion of our call is Gaby Sulzberger, our new Chair of the Board. 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. In addition, our remarks include references to non-GAAP measures. For a reconciliation of our non-GAAP measures to the GAAP figures, please see the tables in our earnings release. Please note our press release, scripted remarks, and an investor presentation are available on our website. I will now turn the call over to John Mackey.

Thank you, Cindy. Good afternoon, everyone, and thank you for joining today's call as we provide an update on the change underway at Whole Foods Market. We also have some significant new initiatives that we expect will substantially enhance value for all of our shareholders. Our Board of Directors and leadership team have a long history of listening and responding to feedback from shareholders and believe today's actions, which include adding a fresh perspective and greater sense of urgency, clearly demonstrate our continued commitment to seek opportunities to enhance value for all of our shareholders. We also recognize the importance of providing greater visibility and transparency into the shareholders return we expect to achieve over the next one to three years as we further transform our business in this rapidly changing retail environment. As we enter the next phase of our evolution, we have significantly strengthened our team, including five outstanding new directors, and a terrific new Chief Financial Officer, Keith Manbeck. Gaby Sulzberger, our new Chair, is joining us today and will have more to add. We understand that we need to do much more, and faster. Our competitors are not standing still. We need to ensure our company remains a leader in this fast-growing sector. The initiatives and operational improvements we're undertaking will drive sales, EBITDA, and EPS growth, and shareholder value. Our business is strong with record revenue of $15.7 billion and over $1 billion in operating cash flow in 2016. I will give more color on the quarter a little bit later in my comments, but here are the highlights. Sales increased 1% to a record $3.7 billion, and we continued to see stability in our comps. While there is noise in the quarter due to the Easter shift, we saw some early signs of our…

Thank you, John, and good afternoon everyone. Whole Foods Market's evolution naturally extends to our Board of Directors. It is on us to ensure we have the right mix of skills and experience necessary to support the company's leadership team and our business strategy. Since I took the role of Chair of the Nominating & Governance Committee last December, we embarked on an aggressive search for the very best people to add to our board. We recognized that significant and urgent change was required, and we listened to shareholder perspectives regarding board and governance issues. On page 12 you will see why I am so excited about our five new directors. Today, we are very pleased to announce the appointment of Ken Hicks, Joe Mansueto, Sharon McCollam, Scott Powers, and Ron Shaich to the Whole Foods Market Board of Directors. These new directors are value creators and recognized leaders in their respective areas of expertise. They have transformed, led, sold and driven businesses and have created substantial shareholder value. First, Ken Hicks. Ken brings an impressive record of successful leadership at Foot Locker and other companies in the retail sector. As the former Chairman, President, and CEO of Foot Locker, he is credited with developing and executing a highly successful turnaround plan. Joe Mansueto is the Founder and Executive Chairman of Morningstar. Joe grew Morningstar from a start-up to a global organization that is one of the most recognized and trusted names in the investment industry. Sharon McCollam is the former CFO of Best Buy and Williams-Sonoma. Sharon has more than two decades of experience as a senior leader in the retail industry. Scott Powers brings an important long-term shareholder perspective to the board. Scott was the President and CEO of State Street Global Advisors and brings decades of experience…

Thank you, Gaby. Page 14 of our presentation shows why we are so excited to welcome Keith Manbeck as our new Chief Financial Officer. As I mentioned, Keith's time at Kohl's was marked by the significant role he played in the company's transformation initiatives, including e-commerce. Additionally, he has extensive operational experience in retail from his time at Nike, where he delivered more than $1.7 billion of revenue growth in the Direct to Consumer business in just three years. Most importantly, he is an independent thinker, believes in our core values and is eager to support our company culture. Keith's record retail growth is impressive and he's an absolutely incredible valuable addition to our team. Looking further at our financial results and updated outlook, while the operating environment remains challenging, we continue to produce healthy EBITDA margin and free cash flow. Our updated fiscal year outlook reflects additional costs of approximately $0.03 per share related to our accelerated rollout of affinity, as well as the engagement of a consulting firm related to our cost reduction efforts. Turning back to our accelerated path to delivering shareholder value and to page 18 of the presentation, we want to recap. We have a clear timetable to deliver strong results and the right initiatives to get there. On page 19 of the presentation, I want to leave our shareholders with an important promise from all of us at Whole Foods Market. We have covered a lot of ground today, so I just want to underscore that this board and leadership team is laser focused on doing all that we can to maximize value for all of our shareholders. We will continue to execute on our plan to evolve our company for the future while ensuring that we retain our business strengths and differentiated culture. As we make progress on these initiatives, we will provide transparency and regular updates. Our best-in-class board will provide valuable oversight and deliver accountability as we aggressively seek and incorporate feedback to ensure that we're always acting in the best interest of all of our shareholders. Thank you for your continued support. At this time, we'll turn the call over for questions to our leadership team. Thank you. Operator, we're ready to take questions.

We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Ken Goldman from JPMorgan. Your line is open.

Hi. Thank you for taking my questions. I wanted to first ask about your margin guidance. You're looking for an increase in the EBITDA margin of 90 basis points over the next few years, decrease in SG&A of about 150. So just quick math, assuming all else equal, more of a modest gross margin investment, more like 60 basis points, than I think some of us were expecting. So first I'm curious, is that generally accurate? And if I'm missing something, please let me know. And second, if it is, I'm just curious why the investment doesn't have to be any larger? Maybe it's related to the comments in your press release about the upgraded purchasing program. Perhaps that's a little bit more of a driver than what I was realizing. Just any help there would be very much appreciated.

Thanks. That's a good question. I think the thing it's not being shown there is we are expecting to gain significant savings in category management on the purchasing side. And we're going to – all of the money that we're going to save through category management, we're going to turn around and invest in lower prices. So there's actually going be a significant reduction in prices while maintaining similar gross margins. So I think that's the answer.

Okay. I know others have, I'm sure, eager to get on. I'll pass it along. Thanks, John.

Your next question comes from the line of Rupesh Parikh from Oppenheimer. Your line is open. Rupesh Parikh - Oppenheimer & Co., Inc.: Thanks again for all the details. Curious on what gives you confidence in getting back to positive comp growth later next fiscal year? And is there anything you can point to currently – it sounds like affinity has gotten off to a good start from what you guys have seen with your pilot test, but just trying to get a sense of what gives you guys confidence in getting back to positive comp growth. If you could maybe provide a little color there?

Actually that's a bottom-up. We did a lot of work on this. And we factored in the sales gains we believe we're going to get from affinity based on our test as well as the sales gains we're going to get from our initial category management tests that we've been doing. So we've seen strong sales lifts in the area – in the pilots for category management and in our pilots for affinity. So we basically have just extended that through the entire company. And those were the two major drivers. Plus, we think our marketing initiatives, particularly our advertising, is going to compound over time. So these – we actually think these are realistic and probably slightly conservative comp projections. But they're based on the internal calculations.

Yeah, this is Jason. On the affinity side, we've taken sort of our proven results with the pilots as well as talking with our strategic partners in implementing this to make sure that the guidance we're providing there matches what's seen in other programs as we rolled it out. And we're just, quite honestly, really excited about the results we've seen across all three of our tests and are taking the very best of those parts of those programs and rolling it out companywide.

This is David. The other thing I would add is our order-to-shelf initiative as we roll out that across all of our stores, each store as we go online with order-to-shelf, we see a significant reduction in out-of-stock. So again, customers can't buy it if it's not on the shelf. So we feel that's also going to help us with our comp growth. Rupesh Parikh - Oppenheimer & Co., Inc.: Okay, great. Best of luck with your efforts.

Thank you.

Your next question comes from the line of Chris Mandeville from Jefferies. Your line is open.

Yeah, hi. Good afternoon. Just to jump back to the three-year guidance. I may have missed it given all the information out there, but what's your expected unit growth for the next three years if you want to hit that $18 billion in sales? And if you have to potentially pull back on the planned unit growth or possibly close some stores, how does it affect your ability to reach that 27% SG&A as a percentage of sales number?

I missed your last question, but this is Glenda. The answer to the number of units, we didn't give a specific number of units but we did say square footage growth. We do expect the square footage growth to be less than 5% for the years between now and then.

And.

Sorry.

And those stores growth is going to basically fall into three buckets. We're going to be relocating smaller stores to bigger, more flagship type locations because we've had such tremendous success with those stores like we've done recently in Philadelphia, Chicago, New York. Those stores do outperform and do extremely well. Secondly, we will be having more 365 stores. We just opened a store a couple of weeks ago in Austin, Texas, our 365 2.0 initiative. We're very encouraged with the initial results. Sales have been very strong there. And as we continue to test and refine our 365 model, can anticipate growth in there beginning to accelerate over time. In terms of closing more stores, I mean it's possible in the future we may close a few stores, but almost all the stores that we currently have operating have positive EBITDAR. So there'd be no cash gain from closing stores that are making cash for the company. And what was your secondary question?

Yeah, the second part of it was just if in fact do you have to augment that unit growth over the long term, does this affect your ability to reach that 27% SG&A as a percentage of sales number?

If we grow faster, we'll reach it quicker because we'll have more sales leverage. And that will take our expense, like G&A, and some of the other fixed expenses, depreciation and whatnot, will end up leveraging better if we have better comp growth. So if we grow faster, we'll probably have bigger result, decreases, but we are quite committed to – we know that we're going to restructure some of the things that we do in the company. We're going to do a zero-based budgeting approach pretty much to all of our operations. We're making a significant investment with consultants to help us think through everything we're doing and we're committed to cutting these cost out.

All right. Thanks again guys.

Your next question comes from the line of Stephen Tanal from Goldman Sachs. Your line is open. Stephen Tanal - Goldman Sachs & Co.: Thanks for taking the question. I guess I just wanted to ask about the additional $300 million of cost savings. What areas will this come from generally? How does it differ from the $300 million that you're doing kind of this year? And do you think that the incremental $300 million drops to the bottom line or does that largely get reinvested?

Well, it's going to come from a variety of places. I mean, the main thing we're going to do be doing is we're going to be rethinking the way we do our labor scheduling. I mean, Whole Foods Market is in the early stages of labor scheduling technology and where we've applied it so far, it's been amazingly successful with getting the right people, the right number of hours scheduled in, say our customer service area. As we extend that through the whole company, we can get, we think we can upgrade our service while significantly reducing our cost. So that's going to be one of the major initiatives that we think is going to help reduce our labor cost in our stores, not through laying people off, but just through attrition over time and the appropriate scheduling. And then of course, with the help of the consultants as we rethink everything we're doing, when a company's been in rapid growth, like Whole Foods has been for so long, you inevitably pick up certain parts of your business, in your business model that aren't necessary. They don't create value for customers or for shareholders. As we get outside eyes to help us look at every part of our business, they're going to help us identify things that are not creating value for customers or our shareholders and we're going to eliminate them. So that's basically it. Jason, do you want to add anything to that?

Yeah. The only thing I'd add is I think we've talked about before, we've operated a highly regionalized company for many years and we've taken certain areas and we've really created a great hybrid model of our global support team, working with regional teams. And we continue to have opportunities in a lot of those global support functions where we can take it to other areas and that will also help us provide cost savings and hopefully speed to market. Stephen Tanal - Goldman Sachs & Co.: Got it. That's helpful.

And, yes, we do expect the majority of those or all of those cost savings to flow through to the bottom line. That's how we get to the EBITDA margins that we're talking about in 2020.

Yes, and common – this is David – common buying is not just the food but it's also goods not for sale and supplies and packaging and things like that. So again, we had operated with all the operating regions of Whole Foods Market buying on their own. And as we put that into global, in our global team, we're also seeing significant savings on just common buying in all areas of our business. Stephen Tanal - Goldman Sachs & Co.: Okay. That's all really helpful. And if I could just slip in the last one. Just maybe a little bit of additional color on category manage. Any specifics you could share or what the aim is there, what kind of things you're doing. And then finally just the structure of the loyalty program that you guys have settled on. What does that look like? And then I'll yield. Thanks a lot.

Hi. So this is A.C. So on the category management side, as we've mentioned before, we started doing tests in our frozen category in two of our regions this past year and have had great – seen really great results from that. We're going to do our second test this summer dairy in a couple of the regions. And we're in the process right now of accelerating our plans so that we can start rolling out next fall with our full category management, category by category, throughout all of fiscal 2018, so that by the end of fiscal 2018 we'll have rolled out category management completely throughout the company.

And the last part of your question on affinity, as mentioned a little bit earlier, we're take some of the key functions, where we've seen a lot of success across our three pilots, we're not going to give very specific details on that today but what you'll see is some of the most amazing offers that we have as Whole Foods Market really driven through this program. And it will be collaborative with the category management pieces that A.C. just talked about and collaboration with our suppliers in bringing these great deals to our customers. Stephen Tanal - Goldman Sachs & Co.: Thanks so much, guys. Appreciate it.

Your next question comes from the line of Bill Kirk from RBC Capital Markets. Your line is open.

Thank you. So I have a question on the process for determining the multi-year outlook. Maybe how was its development different than the plan you outlined back in 2014? And maybe what assumptions were in the 2014 about competition versus assumptions in today's multi-year plan about competitions?

Well, I'll just talk about our process this time around. As we've said, it was very much a bottom-up and very detailed level process where we looked at each initiative separately, and the impact that we expected on basket size and transaction count and our costs from every one of the initiatives underway. We did that in consultation with dunnhumby and our other advisors to develop something that is very realistic based on their experience with other retailers. And we rolled that up and then once we had that, we said okay, now, this is it. Let's go in and layer in what we expect to deliver in additional cost cuts over the next three years. And we did that. And, sort of, the high level picture of it is that, by 2020, all of these major initiatives will be fully implemented. So we'll be seeing the results from that on the top line and from marketing, from category management, from order-to-shelf, from affinity, we'll be seeing we'll have lower prices. So we will have lower margins but the vast majority of the lower margins will be paid for by cost savings that we expect from the category management process and from the purchasing restructuring. As somebody has said recently, we're moving basically from a federated system of purchasing to a unified system of purchasing and we expect to see a lot of cost sayings there. We already have some indications of that and we know that that's a very realistic expectation. And then you layer in the cost savings on top of that which will all flow directly to the bottom-line and that's how we get to the high-level targets that we have issued for 2020.

So it sounds to me like it's a more robust development than the prior plan with more external help. Is that fair?

It's probably the most robust plan we have ever developed.

Okay. Thank you.

Your next question comes from the line of Edward Kelly from Credit Suisse. Your line is open. Edward J. Kelly - Credit Suisse Securities (USA) LLC: Hi, good afternoon. So you've obviously taken some proactive steps from a corporate governance perspective with the changes at the board level. I was curious as to how involved the new members have been in the change in strategy at the company? Should we expect more change with their fresh perspective or what we see now is what we get? Just kind of curious as to your thoughts there.

Well, the new directors are just transitioning in so they haven't had any input yet into our strategic process. However, the full existing board has had a lot of input into our strategic process. And going forward, our evolved board will have a lot of input into our strategic process. And since we think we're gaining five new brilliant strategic business people, we're expecting lots of good ideas from them. And we're, frankly, thrilled and excited to be engaged with them. Edward J. Kelly - Credit Suisse Securities (USA) LLC: Okay. And then as we, sort of, think about the magnitude, I guess, of what you're looking to accomplish here and what needs to be done, it seems like there is obviously a lot to do. Do you have enough depth of management to execute on all this at this point? Or are you thinking about maybe bringing in some additional help? What else are you doing to ensure successful execution of all this?

Well, we feel like we're well advised. We have a number of really excellent consulting firms we're working with and they're bringing their expertise. We've just announced hiring a new Chief Financial Officer that we think is going to add new depth to our leadership team and we will think about adding additional leadership as it's necessary to do so. So not sure how else I can answer that question. So thanks very much. Edward J. Kelly - Credit Suisse Securities (USA) LLC: Okay. Thank you.

Your next question comes from the line of Charles Grom with Gordon Haskett Research Advisors. Your line is open.

Hi. Thanks. Good afternoon. Just to follow up on the cost structure dialogue, just wondering if you could...

Charles, can you speak up a bit?

Yes. Just on the cost structure side, I was wondering if you could get a little bit more granular for us on where do you think you can eliminate costs within the 12 existing operating divisions of the company. And then just as a follow-up, on the loyalty, how quickly do you plan to roll that out? And I was wondering if Jason would be willing to shed a little bit of light on what the comp lift and basket changes look like since rolling that out in the test markets.

Well, we did talk about already about the cost reductions, but we can add a little color maybe.

This is Ken here. Two things that I think are very important in this. One, by having the 365 stores as a new way of thinking around how to operate our business, we are learning a lot. And we're learning about how to translate that back into the core stores at Whole Foods, whether it's through the use of technology, the use of simplified business process change, the way we merchandise in the stores, the fixturing. All of that is very powerful in how we're rethinking the way we want to transform the Whole Foods stores. And then the second area that we're seeing lots of learning and opportunity is through the order-to-shelf program. In that process, we're identifying how we can best transition our product to the store, identifying areas that we can eliminate steps that prove it to be more efficient and as well translate into better in-stock conditions and operating practices in our stores. And those are two very important components of how we see us transforming the business.

This is David. I would also say, in our empowerment culture we have 90,000 team members helping us on this so we're all working together. And when Ken talks about order-to-shelf, the team members are really excited about that. They're really proud when they're able to achieve that, which is lower out-of-stocks, less inventory in the store, being able to be on the sales floor talking to customers and selling more products. So I think with us, different than other companies, when you get into cost cutting, it's everybody's together, working together to achieve these results.

And this is Jason, on your question on the affinity side, one of the things we're really focused on here is targeting our existing customers. Our customers are already in our stores. And one of the things that we've really seen in the program is the ability to incent them to grow their baskets. And, well, we're not going to provide a specific comp number on how that shows up over the course of the next few years, one of the tidbits we've shared is just by adding one additional item per trip amongst our core shoppers, which represents 40% of our sales, that's a $0.5 billion right there. And that's just one of the key things that we'll be aiming on with the focus of this program.

Yes. And, again, a smaller test but the 365 stores with the affinity program, more than half of the sales is flowing through the customers we have or are part of the program. So we're really encouraged by that. We're learning a lot. And some of the fun ideas we've done in those four stores we're going to again feed back to the parent.

Your next question comes from the line of Zack Fadem from Wells Fargo. Your line is open.

Hi. This is Quinn Burch on for Zack Fadem. Thank you for taking my question. So I wanted to ask about your partnership with dunnhumby. I know it's early days, but if you could provide an update on the timeline thus far and how you plan to use the data with respect to category management, customer loyalty, and promo tracking. Any additional color on that would be helpful. Thank you.

Hi. This is A.C. We're fully engaged now with dunnhumby. They have some of their folks onsite here working side by side with our team. As we are putting in – as we're hiring and developing our whole category management process, there's – they're helping introduce their tools, their proprietary tools that they have and working directly with our folks to learn those tools and implement them. Where it's really allowing us to – one of the main reasons that we wanted to go with dunnhumby, there's several, but one reason was that it would really help us accelerate our category management process. Originally, when we announced it, it was going to happen over the course of several years and we've been able to shorten that timeframe by a year by bringing dunnhumby in and accelerating that using their tools.

Yeah. And this is Jason. I'll just add, dunnhumby is definitely a key partner for us in analytics and better understanding what our assortment needs to look like. We're also focused with two other major partners, Infor and Nielsen. And so together with all three of them, we really believe that we've got a lot of best-in-class data analytics and a partnership that's helping us quickly move through this process to deliver a great assortment and great prices for our customers.

Okay, great. That's helpful. Thank you.

Your next question comes from the line of Kelly Bania from BMO Capital. Your line is open.

Hi. Thanks for taking my question. I wanted to ask about the sales initiatives. I think you mentioned the category management initiative has been tested in frozen in a couple of regions. So I was just curious, how much you – how much do you think you can extrapolate from the test that sounds pretty small at this point? It sounds like a key initiative to return to that comp, that positive comp by next year. So that's just the first question. And then the second question is on the affinity rollout. And I think I just heard you say about half your sales in the 365 were on the affinity program. I was just curious if you could provide any more metrics on how that was in Dallas and Philly. And if you think you have enough transactions that are being done on the affinity program for long enough to kind of extrapolate what that could mean for comps over the next couple years. Thank you.

One of the great opportunities for us in working with dunnhumby is that they have tremendous amount of experience working with retailers all over the world that have gone through the process of implementing category management. And it's through the results that we currently see and the work that we're doing with them that we've been able to model out what we really believe, we feel very confident. In fact, we think it's a little conservative, the results that we'll see as we roll category management out to all the other categories around the company.

This is Jason. To your question on the affinity program. So within our Whole Foods Market stores, we have about 44% of sales running through that program. As David mentioned, we have just over 50% in our 365 tests within those four stores. Overall, that's about 200,000 customers that we currently have active in our program. So we've got a lot of data points from those customers around the various aspects of the program that really drive to sales. And as I mentioned earlier, a key part of this is really targeting our existing customers, our core customers and getting them to make an additional trip a month or adding additional item in their basket. And that's really a lot of the analysis we did into building out our long-term outlook.

Thanks. And just to follow up on that, category management, I mean what is the timeline for that process? Is that just kind of a new way of thinking and as an ongoing process? Or do you have a timeline for how long you think that entire process will take?

I think we already said that. It's 2017 for affinity rollout and we'll have category management completely implemented by the end of 2018. That's the timeline.

Thanks.

Your next question comes from the line of Robby Ohmes from Bank of America Merrill Lynch. Your line is open.

Oh, hey. Thanks for taking my question. Just another one on the assumptions behind the 2020 revenue target. Can you maybe fill us in on how you're thinking about what your e-commerce business could look like then? And also just you guys are I think at $880 in sales per square foot right now, which is as you point out, pretty impressive. So I think you have to get probably back towards $900 or so or more to hit the $18 billion number just kind of roughly doing the store growth or sales square footage growth that you're looking at. Is this going to be transaction acceleration driven to get to your sales per square foot back to that level? Or is e-commerce involved? Just trying to understand how you take this already very high sales productivity to a whole another level while you're going to be lowering prices. Thanks.

This is Jason. I'll start with your question on digital sales. So for us, that includes our partnership with Instacart, which is our sort of direct delivery to customers fulfilled out of our stores. It also includes our own e-store where we run a catering business and holiday meals. It also includes a number of other partners doing things like meal delivery. DoorDash is one of our partners in that space. And we also have a number of smaller initiatives we've done both with direct ship and click-and-collect. So our guidance in that space is sort of the collection of all those areas. It's been one of the fastest-growing parts of where we've seen sales growth within the company, as we have a lot of customers who are looking to engage with us online and having delivery of groceries. And we continue to be, I think, very aggressive in our thoughts as far as how that will contribute over the next four years.

And this is David. In terms of the increased sales per square foot, one thing to remember is Whole Foods is always on the move in terms of innovating our designs and the way our stores look. If you go to our new Lakeview store which just recently opened in Chicago. We roast coffee. We have two full bars. We have a friend who does juice in the store, Snap Kitchen. We have a lot of different concepts in that store and we continue to always be innovative, looking for new ways to grow our sales. And we're going to continue to invest our capital in our existing stores to accomplish that as well.

So you asked a question about, so how are we going to – what's going to happen, are transaction's going to increase. Yes, we are going be investing in price significantly. We're going to turn around and take the category management savings that we get from purchasing economies and cutting, and reducing brokerage fees. That's all going to be reinvested in price. So we see that two areas are going to increase. We expect our transactions to increase as we lower our prices and close the gaps we have with other competitors. And secondly, we expect our, through affinity, we expect our basket size to grow significantly. So transactions will increase, basket size will grow and those will more than offset an average price that might be slightly lower.

Got it. Thanks, John.

Your next question comes from Ryan Domyancic from William Blair. Your line is open. Ryan J. Domyancic - William Blair & Co. LLC: Hi. Good afternoon, and thanks for taking my question. I know you've really touched on this earlier on the call, but can you provide any more details on how the first class of 365 stores are performing? And then within that, like, how material do you think 365 will be to your 2020 growth targets for square footage? Thanks.

Well, we're not going to give you the actual. We only have four stores, so we're not going to give you the actual individual breakdowns, but we have one extraordinary performer that's doing amazingly well. We have a new store that's opened up that's beating our projections. We have another store that's slightly below our projections and we have a fourth store that's underperformed our projections significantly, mostly because we think it was a bad real estate decision there. So in our own long-term outlook, we show 365 ramping up. And I forget how many stores we actually have in development. How many?

22.

We have 22 365 stores currently in our pipeline and we will be increasing that number. That's a number you can expect to grow. And we like the profit model that 365 delivers. We take out so many costs. The percentage to operate the stores is so much lower than a typical larger Whole Foods Market. It doesn't have all the bells and whistles that Whole Foods has, but also has significantly lower capital cost. And I encourage people to come down and see our new store in Austin because it's 365 2.0. Those of you that saw the first-generation, we've made significant improvements. That's the way Whole Foods does thing. We continually upgrade and improve. And 365 has a new iteration and we're very happy with it and that's what you'll be seeing. We've got two more stores opening up this fiscal year, one in Santa Monica, that we know is going to be outstanding store and third store in Akron, Ohio. So 2.0 we think is going to be a great success and then 3.0 is going be better than that and that's just the way we do things at Whole Foods – constant improvement. Ryan J. Domyancic - William Blair & Co. LLC: Great. That's helpful. Thank you.

Your next question comes from the line of Michael Lasser from UBS. Your line is open.

Good evening. Thanks a lot for taking my question. John, where do you think your price gap versus the market is today? Where do you think it needs to go in order to improve price perception with both your existing and your more incremental customers? And my second question is, are you seeing positive comps across all the Whole Foods stores where your affinity program has been rolled out? Thank you so much.

Well, we're not going to tell you the answer to all those questions. But, A.C., do you want to take the first part of that question?

Sure. Yes, we've realized that in certain categories we are priced – we have a larger price differentiation with our customers – with our – versus our competitors than we need to and we're specifically targeting those areas through category management and through other purchasing initiatives so that we can get our costs down in order to be more competitive. At the same time, in a lot of areas, we're dealing with not the same products. For instance, our quality standards and our quality of product in our Meat and Seafood departments are always going to mean that our prices are going be a little bit higher. The important thing is to – for the right amount of differential there so that customers perceive the quality and the difference in price makes sense to them. We think in a few areas over the years that differential has gotten larger than it needs be and, as part of our plan, we're bringing that down to where we really believe that will be successful.

It also depends upon which competitors in which markets, it's not exactly the same, and then some markets where you have a stronger competition than we have in other markets. So it's hard to generalize across the whole country. We do know we need to close the gap and we're determined to do so.

Thanks.

And on the affinity portion, we do not provide comp results by participating stores or tests that we do but we have seen both an increase in sales and trips amongst our members in all three tests.

So we are getting comp lift in those affinity stores. We're just not going to discuss for how much.

You said that those, the affinity members, are driving about 44% of the sales in those stores?

44% in the Whole Foods Market stores. A little higher in the 365 stores.

Great. Thank you so much. And good luck.

Thanks.

Thanks.

Your last question comes from the line of Shane Higgins from Deutsche Bank. Your line is open.

Thanks for taking the questions. I just had two, actually. The first was just on your decision to raise the dividend 29%. If you guys could just talk us through how you got to that number? And then the second one was just if you could just give us some thoughts on how you guys are managing your capital structure. Looks like you guys should have a lot of debt capacity if you can hit your EBITDA targets.

Well, we wanted to raise the dividend. I mean, I think as we explained in our script and on in our online presentation, the company is very dedicated to returning capital back to our shareholders. And as we've been talking to lots of investors over the last couple of years and getting their feedback on what they think the right, sort of – how do they like to have the capital returned, higher share backs, more dividends? And, honestly, they're kind of split down the middle. Some want more dividends. Some want more stock buy-backs. We do have more free cash flow than we need for our investments than we have for our own capital expenditures at this point. So we are committed to returning that excess capital to our shareholders and we have a consistent track record of doing so. So in discussing it with our financial advisors and talking about it with our Board of Directors, it was determined that we should increase both. And we increased the dividend, frankly, to get it to a 2% yield. We think at a 2% yield, we'll attract a certain investor class that maybe hasn't looked at Whole Foods until we get to that yield. So that was deliberately set to get to a 2% yield. And then stock buy-back is somewhat based on what we think the right capital structure the company should have in terms of between equity and debt. And that was, again, talking to our financial advisors about that. And the board discussing it and that's what we came up with. Glenda, do you want to add anything?

Yes. I mean, you're exactly right. The Whole Foods Market is producing very strong cash flow. And it's pretty easy for us to support that increase in the dividend and increase in buybacks. We've returned over $3 billion to the shareholders over the – since 2012 and we want to continue with those returns.

All right. Great. Thanks.

Okay. So we're getting to the end of this call but I do want to call out this is going to be the last earnings call that our Chief Financial Officer, Glenda Flanagan, will ever participate in. As she's pointed out, she's participated in over 100 of these board calls since we went public back in 1992. I don't think she's missed any. But Glenda has been amazing. She's well loved by the entire leadership team at Whole Foods. She's been a great Chief Financial Officer. She's been my partner. I've worked very closely with her for a long time. And we've got a great new CFO coming in. But there's only one Glenda and we love her. And the good news is, is that she's not going to be the Chief Financial Officer anymore but she's going to still be in an advisory capacity with our company and we're still going to get to work with her. So those of you that know her, I hope you will congratulate her for a really great job that she's done for, gosh, since 1988. Longest tenured Chief Financial Officer in the Fortune Female 500.

Thank you, John. That's very sweet.

You're welcome. Thank you for your continued interest in our company. We look forward to hearing your thoughts as we move forward. Please join us in July for our third quarter earnings call. Good bye, everybody.

This concludes today's conference call. You may now disconnect.