Boulder, Colorado-based Wild Oats Markets, the natural and organic foods retailer, has posted net income of US$668,000, US$0.03 per share, on sales up 6.2% to US$233m for its Q1 ended 30 March 2002.

The sales gain was driven by 7.3% comparable store sales in the Q1, continuing the positive momentum established in 2001 with five successive quarters of same-store sales growth. Comparable store sales were 1% in the Q1 2001, 3.9% in the Q2 2001, 5.5% in the Q3 2001 and 5.7% in the Q4 2001.

Wild Oats said that the continued improvement in same-store sales is primarily due to positive results from its Fresh Look marketing and merchandising programme, which has helped to increase overall sales, customer traffic and basket size in the 42 Wild Oats Natural Marketplace stores that have implemented the programme. Additionally, operational improvements in the remaining Wild Oats natural food supermarket format stores, and continued strong sales in the Henry’s Marketplace® and Sun Harvest farmers market stores, contributed to the growth in comparable store sales in the Q1 2002.

The increase in net income was driven by overall operational improvements that resulted in improved store contribution margins and reduced direct store expenses, and Wild Oats was profitable for the first time since the Q3 2000.

“We are pleased with the progress we have made this quarter. We believe that our strategies to improve sales and strengthen our operations are working, and have netted positive results earlier than originally expected,” said Perry D. Odak, president and CEO.

“In addition to continued growth in comparable store sales and a return to profitability in the Q1, we have significantly reduced our inventories and improved our cash position. This has allowed us to reduce our debt in the quarter and, with continued strong balance sheet management, will help to fund our growth initiatives into the future.”

Wild Oats reported gross profit of US$67.6m in the Q1 2002, a 1.9% increase year on year. The gross profit margin increased to 29% of sales in the Q1 from 28% in the previous quarter, but declined compared to the gross profit margin in the Q1 2001, which was 30.3%. The year-over-year decline in gross profit margin was primarily due to reduced retail pricing in stores that implemented the Fresh Look programme and an overall sales mix shift toward lower-margin perishable products.

A reduction in direct store expenses helped to strengthen the company’s profitability. Direct store expenses in the Q1 2002 totalled US$50.4m, a 2.3% decline year on year. Direct store expenses as a percent of sales were 21.6%, compared with 23.5% in last year’s Q1. In sequential quarters, direct store expenses as a percent of sales declined 2.7 percentage points in the Q1 from 24.3% in the Q4 2001. The store contribution margin was 7.4% of sales in the Q1 2002, a 60 basis point increase from 6.8% in the same period last year. This increase was primarily due to improved management of store payroll expenses and occupancy costs.

Selling, general and administrative (SG&A) expenses, excluding goodwill amortization, in the Q1 2002 increased 37.4% to US$14.2m from US$10.3m in the prior year Q1. SG&A as a percent of sales was 6.1% in the Q1 2002 compared with 4.8% in the Q1 2001. The increase in SG&A expenses in the Q1 was primarily due to on-going investments in marketing and advertising related to the Fresh Look program to drive increased awareness and customer traffic.

During the Q1 2002, net cash provided by operating activities was US$14m. Capital expenditures were US$2.7m for the Q1. In the Q1, Wild Oats paid down US$15.5m on its credit facility and, as of the end of the quarter, had about US$106.8m outstanding.

Business developments

Wild Oats has strengthened its overall store portfolio so that it has a stronger base from which to grow. In the Q1, the company closed or sold five stores that did not meet its strategic objectives.

As part of its strategy to strengthen its overall store portfolio and operating performance, Wild Oats unveiled a new store prototype on 17 April 2002 in Long Beach, California. The Long Beach Wild Oats store is a 26,000ft² community market that will serve as the prototype for all future Wild Oats stores. The company plans to open two additional Wild Oats Natural Marketplaces using the new prototype, and one Henry’s Marketplace by early 2003. Wild Oats plans to open up to ten additional stores in 2003, 20 in 2004 and 25 in 2005.

“The momentum we established in 2001 has continued into the new year,” said Odak. “We had a positive quarter in terms of financial results, operational improvements, the completion of our new store prototype, and we opened our Long Beach location in the early part of the Q2. We expect continued positive results during the remainder of the year.

“For the full year, we expect to generate comparable store sales that are slightly above Q4 2001 levels, and continued improvement in our profitability.”