Wild Oats Markets, Inc. (Nasdaq: OATS) today reported its financial performance for the second quarter ended June 30, 2001.
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Financial Results
The Company reported sales of $229.4 million for the second quarter of 2001, an increase of 7.8% over sales of $212.8 million for the same period in 2000. Sales for the six months then ended were $448.9 million, an increase of 5.9% over sales of $424.0 million in the same period of 2000. This sales increase in the second quarter was driven by a comparable store sales increase of 3.9%. For the year, sales in comparable stores increased 2.3%. The Company opened four new stores and closed one store in the first quarter of 2001. The Company opened or acquired 16 new stores, and closed or sold 20 stores in 2000.
The increase in comparable store sales of 3.9% for the second quarter continues a positive trend from the first quarter of 2001 comparable store sales of 1.0%. These two consecutive quarterly increases in comparable store sales in 2001 are the first increases reported since the fourth quarter of 1999. Such increases primarily reflect operational improvements in some of the more recently acquired stores, new marketing programs in selected regions, and store closures.
The gross profit margin decreased to 28.9% in the second quarter of 2001 from 31.2% in the same period last year. The gross profit margin decline is due to increases in inventory reserves for slow-moving goods, lower margins on certain categories of products sold in the stores and higher utilities expenses. The 25% increase in utility expense impacted net loss per share by approximately $0.01 for the quarter and lowered the gross profit margin by 15 basis points.
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By GlobalDataDuring the second quarter of 2001, direct store expenses increased 15.4%, or 160 basis points, over the prior year. This increase was primarily due to higher employee benefits as a percentage of sales and an increase in reserves for self-insured losses. As a result of the decline in gross profit margin and increases in direct store expenses, the store contribution margin was 5.0% of sales in the second quarter of 2001, a significant decrease from the 8.8% in the prior year.
Selling, general and administrative expenses increased 66.6%, or 190 basis points, over the second quarter of last year. This significant increase is primarily related to advertising expenses, as well as market research fees associated with an extensive review currently being conducted of all components of the Company’s business, including marketing, purchasing, merchandising and new store programs. In addition, selling, general and administrative expenses increased over the prior quarter due to expenses in the store construction and new store development departments associated with the evaluation of existing store operations, site inspections and repair and maintenance coordination.
As part of its previously announced strategic repositioning, in the second quarter of 2001, the Company recorded a restructuring and asset impairment charge of approximately $35 million after tax. The net income (loss) and diluted net income (loss) per share reported below are exclusive of all restructuring and asset impairment charges. Net income (loss) for the second quarter of 2001 decreased 201.2% to a net loss of ($3.4 million) from a net income of $3.4 million in the same period in 2000. Net income (loss) for the six months then ended decreased 140.9% to a net loss of ($3.6 million) from $8.7 million in the same period in 2000. Diluted net income (loss) per share for the second quarter of 2001 decreased 200.0% to ($.14) from $.14 per share in the same period in 2000. Diluted net income (loss) per share for the six months then ended decreased 140.5% to ($.15) from $.37 per share in the same period in 2000.
“We are pleased with the positive trends in our comparable store sales as we experienced two consecutive quarters of growth, despite a soft economy,” said Perry D. Odak, Chief Executive Officer and President. “We are currently evaluating a number of strategic initiatives which, if implemented in 2001 or 2002, are projected to increase overall sales gradually in those regions in which the initiatives are implemented, through increased advertising, more frequent advertised specials and modified pricing.”
During the first half of 2001, net cash provided by operating activities was $20.1 million and there was an overall $1.9 million increase to cash. Capital expenditures were $3.7 million for the quarter and $16.0 million year- to-date. During the first half of 2001, the Company paid down $5.0 million on its credit facility and, as of the end of the quarter, had approximately $119.0 million outstanding on its credit facility. As a result of the restructuring and asset impairment charges incurred during fiscal 2000, the Company was not in compliance with certain covenants under its credit facility, and as a result, its lenders issued a notice of non-monetary default, although no acceleration of outstanding debt has been requested. All borrowings outstanding under the credit facility at June 30, 2001 are considered to be due on demand and accordingly are classified as a current liability, and all further borrowings have been suspended. Management believes that they have reached agreement on most major issues of an amendment with its lending group, and are working towards finalizing the amendment in the next 60 days. The amendment proposed will waive the defaults and modify certain of the covenants that will include an increase in interest rates and agency fees, and certain limitations on the execution of new leases, opening of new stores and other capital expenditures, as well as modification of other financial covenants. As part of the amendment the Company has agreed to grant a security interest in all of its assets. The Company is also proposing to raise up to approximately $30 to $50 million or more in equity financings to provide additional liquidity, though such equity financing is not a requirement of amending the credit facility. If the Company is successful in raising additional equity financing, under the credit agreement it will be allowed to increase the number of new leases it executes and new stores it opens. If the Company’s lenders accept the amendments currently proposed by the Company, then the Company’s borrowing capacity would be limited to $125 million, the maturity date of the credit facility would continue to be August 1, 2003, the interest rate would increase as of the date of the amendment and each six months thereafter, and events of default would be waived as of the amendment date.
Effective July 20, 2001, Mary Beth Lewis resigned as the Company’s Chief Financial Officer and Vice President of Finance to pursue other opportunities. We would like to thank her for her years of valuable contribution to the Company. The Company is currently interviewing candidates for this position and has retained Frances Rathke as an interim Chief Financial Officer. Ms. Rathke was the Chief Financial Officer and Secretary for Ben & Jerry’s Homemade, Inc. from 1989 through August 2000 and is an independent consultant.
Business Outlook
In March 2001, the Company hired Perry D. Odak as its new CEO and President. As a result of the change in CEO and certain other senior management, the Company is currently conducting an extensive review of all components of its business, including previously announced strategic repositioning initiatives, as well as current marketing, purchasing, merchandising and new store programs. Certain modifications have been made in pricing, advertising and merchandising in some geographic markets, and the Company is evaluating the results of those modifications on store results. The results of these initiatives will guide the Company’s strategic evaluation of its future business strategy. Even without implementation of any strategic initiatives, the Company expects to see modest increases in comparable store sales through the remainder of 2001.
Until the Company completes its entire review, management will not give specific guidance for sales and earnings for the remainder of 2001 and 2002.
“While this extensive review of our business may result in some short-term negative impact on the Company’s operating results as a result of modifications in pricing and increases in advertising expenditures, we believe that any resulting changes will have a significant positive impact on the Company’s long-term, future performance,” said Mr. Odak.
Also as part of this comprehensive review of its business, the Company has decided to postpone any further new store openings planned for 2001. The sites previously planned for 2001 will be rescheduled to open in 2002.
The comments regarding the future financial performance in the immediately preceding paragraph constitute forward-looking statements and are made in express reliance on the safe harbor provisions contained in Section 21E of the Securities Exchange Act of 1934. This information, as well as other forward- looking information provided, should be read in conjunction with the information under the caption “Business Risks” below.
Business Risks
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 write-down charges, expected future revenues and earnings per share, and the future financial measures and the prospects for favorable growth and performance as a result of the ongoing review of the Company’s business and strategic plan.
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, the successful transition of operating authority to the new CEO, the timing and success of the comprehensive review of the Company’s business referenced above, the successful integration of acquisitions, the timing and execution of new store openings, relocations, remodels, sales or closures, the timing and impact of merchandising, marketing, promotional and advertising campaigns, the impact of competition, changes in product supply or suppliers, changes in management information needs, changes in customer needs and expectations, governmental and regulatory actions, customer reaction to the Company’s strategic plan and store formats, increasing utility costs, and general industry or business trends or events, as well as the other risks detailed from time to time in the Company’s SEC filings, including the Annual Report on Form 10-K for the fiscal year ended December 30, 2000. 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 presently intend to update these statements and undertakes no duty to any person to effect any such update under any circumstances.
Information about Wild Oats
Wild Oats Markets, Inc. operates a nationwide chain of natural foods markets in the U.S. and Canada, currently operating 109 stores in 23 states and British Columbia. The Company’s shares are traded on the Nasdaq National Market under the symbol “OATS”. For additional information, please contact Gloria Fletcher, investor relations, at (303) 440-5220.
- Wild Oats Markets, Inc.
- Consolidated Statement of Operations
- (In thousands, except per-share amounts)
- (Unaudited)
Thirteen Weeks Ended
June 30, July 1,
2001 2000
Sales $229,383 100.0% $212,772 100.0%
Cost of goods sold and
occupancy costs 163,005 71.1% 146,433 68.8%
Gross profit 66,378 28.9% 66,339 31.2%
Direct store expenses 54,996 24.0% 47,652 22.4%
Store contribution 11,382 4.9% 18,687 8.8%
Selling, general and
administrative expenses 12,654 5.5% 7,597 3.6%
Pre-opening expenses 85 0.0% 544 0.3%
Amortization of goodwill 722 0.3% 755 0.3%
Restructuring and asset
impairment charges 54,834 23.9% 20,641 9.7%
Loss from operations (56,913) -24.8% (10,850) -5.1%
Loss on investment 228 0.1% 2,060 1.0%
Interest expense, net 2,762 1.2% 1,975 0.9%
Loss before income taxes (59,903) -26.1% (14,885) -7.0%
Income tax benefit (21,783) -9.5% (6,105) -2.9%
Net loss $(38,120) -16.6% $(8,780) -4.1%
Basic net loss per
common share $(1.55) $(0.38)
Weighted average number of
common shares
outstanding 24,641 23,044
Diluted net loss per
common share $(1.55) $(0.38)
Weighted average number of
common shares
outstanding 24,641 23,044
Pro forma net income
(loss) (1) $(3,437) $3,396
Pro forma diluted net
income (loss) per
common share (1) $(0.14) $0.14
Weighted average number of
common shares
outstanding 24,641 23,428
Twenty-Six Weeks Ended
June 30, July 1,
2001 2000
Sales $448,882 100.0% $424,013 100.0%
Cost of goods sold and
occupancy costs 316,095 70.4% 291,150 68.7%
Gross profit 132,787 29.6% 132,863 31.3%
Direct store expenses 106,612 23.8% 94,198 22.2%
Store contribution 26,175 5.8% 38,665 9.1%
Selling, general and
administrative expenses 22,972 5.1% 14,677 3.5%
Pre-opening expenses 1,515 0.3% 1,898 0.4%
Amortization of goodwill 1,487 0.3% 1,520 0.3%
Restructuring and asset
impairment charges 54,834 12.2% 20,641 4.9%
Loss from operations (54,633) -12.1% (71) 0.0%
Loss on investment 228 0.1% 2,060 0.5%
Interest expense, net 5,228 1.2% 3,757 0.9%
Loss before income
taxes (60,089) -13.4% (5,888) -1.4%
Income tax benefit (21,851) -4.9% (2,442) -0.6%
Net loss $(38,238) -8.5% $(3,446) -0.8%
Basic net loss per
common share $(1.58) $(0.15)
Weighted average number of
common shares
outstanding 24,138 23,022
Diluted net loss per
common share $(1.58) $(0.15)
Weighted average number of
common shares outstanding 24,138 23,022
Pro forma net income
(loss) (1) $(3,563) $8,704
Pro forma diluted net
income (loss) per
common share (1) $(0.15) $0.37
Weighted average number
of common shares
outstanding 24,138 23,567
(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.
