USA: Wild Oats Markets, Inc. reports third quarter results
Wild Oats generated sales of $222.2 million in the third quarter, a 7.2 percent increase compared with sales of $207.2 million in the third quarter of 2000. Sales for the first nine months of the year were $671.1 million, up 6.3 percent from $631.2 million in the comparable period last year. These results are primarily due to improved comparable store sales, which increased 5.5 percent in the third quarter, and 3.4 percent in the first nine months of 2001 compared with the same period last year. A focus on operational improvements in previously acquired stores and new marketing programs in select regions fueled the improved comparable store sales in both periods.
Wild Oats has improved its comparable store sales throughout the year. In 2001, comparable store sales increased 5.5 percent in the third quarter, 3.9 percent in the second quarter and 1.0 percent in the first quarter. The Company expects the positive comparable store sales to continue as it emphasizes operational improvements and rolls out its new ``Fresh Look'' marketing and advertising program.
The Wild Oats "Fresh Look" program was developed in response to extensive customer research conducted in the second and third quarters of 2001. This research revealed several opportunities for the Company to attract a broader segment of customers to its stores. Accordingly, the "Fresh Look" program includes increased -- from monthly to weekly -- newspaper advertising insertions and direct mail, weekly sale items and specials, more competitive pricing in certain markets, and more strategic merchandising efforts. The Company has implemented a phased roll out of this program, and, as of the end of the third quarter, had launched ``Fresh Look'' in nine of its 23 states, representing 29 of its 109 stores. The program was test marketed in Colorado beginning in mid-July 2001, and rolled out to select stores in Connecticut, Florida, Kansas, Massachusetts, Missouri, Nebraska, New Jersey and Oklahoma in mid-September. The Company has continued with its phased roll out, and has added 15 additional stores in Missouri, Ohio, Oregon and Washington as of the end of October 2001.
"We are pleased that our efforts to improve sales for the company are gaining momentum despite overall weakness in the economy and the negative economic impact of the events of September 11th,'' said Perry D. Odak, President and Chief Executive Officer. ``As we continue to implement our increased advertising and modified pricing and merchandising strategies, we expect our comparable stores sales in these regions to continue to show gradual improvement."
The Company reported gross profit of $63.5 million for the third quarter of 2001, a 2.1 percent increase compared with $62.3 million in the same period last year. The gross profit margin declined to 28.6 percent of sales in the third quarter of 2001 from 30.0 percent in last year's third quarter. The year-over-year decline in gross profit margin was primarily due to reduced merchandising margins resulting from the implementation of the "Fresh Look" pricing, merchandising and advertising program in certain geographic markets, as well as a shift in the sales mix between store formats. For the first nine months of 2001, Wild Oats reported $196.3 million in gross profit, a slight increase compared to $195.1 million in the first nine months of 2000. The gross profit margin declined to 29.3 percent of sales during the first nine months of 2001 from 30.9 percent of sales during the comparable period last year.
Direct store expenses in the third quarter of 2001 totaled $52.1 million, a 7.7 percent increase over $48.4 million in the prior year's third quarter. Direct store expenses as a percent of sales remained constant at 23.5 percent in the third quarter compared to the third quarter of 2000. As a result of the decline in gross profit margin, the store contribution margin was 5.1 percent of sales in the third quarter of 2001, a decline from 6.7 percent in the prior year period.
Selling, general and administrative expenses in the third quarter of 2001 increased to $12.5 million from $7.5 million in third quarter of 2000, an increase of 65.3 percent, and was 5.6 percent of sales in the third quarter of 2001 compared with 3.6 percent in the third quarter of 2000. This increase included $1.6 million of one-time expenses related to consulting and professional fees associated with the Company's strategic repositioning research, severance costs for former senior executives of the Company, recruiting and relocation costs, and expenses associated with the October 2001 amendment to the Company's $125.0 million credit facility. In addition, higher selling, general and administrative expenses included $2.3 million of expenses related to Wild Oats' "Fresh Look" advertising and marketing program, and $1.1 million of expenses for expanded infrastructure at the Company's headquarters. The Company is committed to creating a stronger infrastructure to better manage its operations and growth initiatives and, as a result, its operating results will continue to be negatively affected in the short-term.
As part of its previously announced strategic repositioning, in the third quarter of 2001, the Company recorded a non-cash restructuring and asset impairment charge of $776,000 pre-tax, primarily for the closure of three commissary kitchens. The Company expects to record a restructuring charge of approximately $250,000 in the fourth quarter of 2001 related to severance costs for the employees affected by the closure of these support facilities. Excluding this charge, the Company reported net income (loss) in the third quarter of 2001 of ($2.6 million), or ($0.10) per diluted share, compared with net income of $1.1 million, or $0.05 per diluted share in the third quarter of 2000. Despite an overall increase in sales, this loss primarily is the result of lower merchandising margins and higher SG&A expenses.
In addition to the above-mentioned restructuring charge, as previously announced, the Company recorded a restructuring and asset impairment charge of approximately $55 million pre-tax in the second quarter of 2001. Excluding these charges, for the first nine months of 2001, the Company reported net income (loss) of ($6.1 million), or ($0.25) per diluted share, compared with net income of $11.0 million, or $0.47 per diluted share in the first nine months of 2000. In the first nine months of 2000, the Company recorded a $22.7 million pre-tax restructuring and asset impairment charge related to the sale and closure of under performing stores.
During the first nine months of 2001, net cash provided by operating activities was $25.6 million, an overall $1.2 million increase to cash. Capital expenditures were $2.9 million for the third quarter and $18.9 million year-to-date. During the first nine months of 2001, the Company paid down $7.5 million on its credit facility and, as of the end of the quarter had approximately $116.5 million outstanding on its credit facility.
On October 18, 2001, the Company announced the completion of an amendment to its credit facility, which waived previous defaults and modified or added certain terms or covenants, including an increase in interest rates and agency fees, limitations on the execution of new leases, opening of new stores and other capital expenditures, and modification of other financial covenants.
Wild Oats intends to raise $30.0 to $50.0 million in equity financings to provide additional liquidity and to fund growth initiatives. If the Company is successful in raising additional equity financing, under the amended credit agreement, it will be allowed to increase the number of new leases it executes and new stores it opens.
As previously announced, the Company has postponed any further new store openings planned for 2001 while it reviews and redesigns key store components. The sites previously planned for opening in the current year will be rescheduled.
"As demonstrated in the first three quarters of this year, we've experienced momentum in our comparable store sales, and they are showing increasingly greater improvement as the year progresses," said Mr. Odak. "As we continue the phased roll out of our 'Fresh Look' program, we expect to generate modest sales growth, but it will be at the expense of the continued short-term negative impact on our bottom line. We expect to begin to see the positive outcome of these strategies in the second half of 2002, and are confident that these sales gains will eventually translate into bottom-line improvement over time."
Wild Oats Markets, Inc. is a nationwide chain of natural and organic foods markets in the U.S. and Canada. With annual sales of $838.1 million, the Company currently operates 107 natural food stores and two vitamin stores in 23 states and British Columbia, Canada. The Company's markets include: Wild Oats Market, Henry's Marketplace, Nature's - a Wild Oats Market, Sun Harvest Farms and Capers Community Market natural foods stores. For more information, please visit the Company's website at www.wildoats.com.
Risk Factors and Uncertainties
Except for the historical information contained herein, this news release contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements include the number, timing and location of stores that the Company plans to open, relocate, sell or close in the future, the amount and timing of expected restructuring and asset impairment charges, expected future comparable store sales, revenues and earnings per share, the success of the Company's "Fresh Look" campaign, and the future financial measures and the prospects for favorable growth and performance.
The statements made by the Company are based on management's present expectations and actual results may differ from the results indicated or otherwise implied by such forward-looking statements due to certain risks and uncertainties including, but not limited to, general economic conditions, the impact of competition in certain regions, the ability to obtain necessary inventory to support increased advertising and more frequent special pricing, the Company's ability to execute on the "Fresh Look" initiatives being implemented, as well as other risks detailed from time to time in the Company's SEC filings, including the Annual Report on Form 10-K and 10-K/A for the fiscal year ended December 30, 2000, as well as quarterly reports on Form 10-Q. These risk factors may not be an all-inclusive enumeration of the business risks faced by Wild Oats. Investors should recognize that the reliability of any projected financial data diminishes the farther in the future the data are projected.
The statements made by management of the Company and summarized above represent their views as of the date of this press release, and it should not be assumed that the statements made herein remain accurate as of any future date. Wild Oats does not intend to update these statements and undertakes no duty to any person to effect any such update under any circumstances.
Wild Oats Markets, Inc. Consolidated Statement of Operations (In thousands, except per-share amounts) (Unaudited) Thirteen Weeks Ended September 29, September 30, 2001 2000 Sales $222,168 100.0% $207,201 100.0% Cost of goods sold and occupancy costs 158,625 71.4% 144,947 70.0% Gross profit 63,543 28.6% 62,254 30.0% Direct store expenses 52,128 23.5% 48,412 23.4% Store contribution 11,415 5.1% 13,842 6.7% Selling, general and administrative expenses 12,471 5.6% 7,548 3.6% Pre-opening expenses 1 0.0% 1,018 0.5% Amortization of goodwill 741 0.3% 800 0.4% Restructuring and asset impairment charges 776 0.4% Income (loss) from operations (2,574) -1.2% 4,476 2.2% Loss on investment Interest expense, net 2,044 0.9% 2,315 1.1% Income (loss) before income taxes (4,618) -2.1% 2,161 1.0% Income tax expense (benefit) (1,720) -0.8% 1,086 0.5% Net income (loss) ($2,898) -1.3% $1,075 0.5% Basic net income (loss) per common share ($0.12) $0.05 Weighted average number of common shares outstanding 24,699 23,102 Diluted net income (loss) per common share ($0.12) $0.05 Weighted average number of common shares outstanding 24,699 23,414 Pro forma net income (loss) (1) ($2,574) Pro forma diluted net income (loss) per common share (1) ($0.10) Weighted average number of common shares outstanding 24,699 Thirty-Nine Weeks Ended September 29, September 30, 2001 2000 Sales $671,050 100.0% $631,214 100.0% Cost of goods sold and occupancy costs 474,720 70.7% 436,098 69.1% Gross profit 196,330 29.3% 195,116 30.9% Direct store expenses 158,740 23.7% 142,609 22.6% Store contribution 37,590 5.6% 52,507 8.3% Selling, general and administrative expenses 35,443 5.3% 22,226 3.5% Pre-opening expenses 1,516 0.2% 2,916 0.5% Amortization of goodwill 2,228 0.3% 2,320 0.4% Restructuring and asset impairment charges 55,610 8.3% 22,701 3.6% Income (loss) from operations (57,207) -8.5% 2,344 0.4% Loss on investment 228 0.0% Interest expense, net 7,272 1.1% 6,071 1.0% Income (loss) before income taxes (64,707) -9.6% (3,727) -0.6% Income tax expense (benefit) (23,571) -3.5% (1,356) -0.2% Net income (loss) ($41,136) -6.1% ($2,371) -0.4% Basic net income (loss) per common share ($1.69) ($0.10) Weighted average number of common shares outstanding 24,325 23,048 Diluted net income (loss) per common share ($1.69) ($0.10) Weighted average number of common shares outstanding 24,325 23,048 Pro forma net income (loss) (1) ($6,131) $10,995 Pro forma diluted net income (loss) per common share (1) ($0.25) $0.47 Weighted average number of common shares outstanding 24,325 23,527 (1) Pro forma net income (loss) and pro forma diluted net income (loss) per common share exclude the restructuring and asset impairment charges in fiscal 2001 and fiscal 2000.
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