Wild Oats Markets, a leading national natural and organic foods retailer, has announced unaudited financial results for the Q4 and FY ended 29 December 2001.
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Net sales for the year were a record US$893.2m, up 6.6% compared with US$838.1m in 2000. The sales gain was primarily driven by positive 4% comparable store sales in 2001, reversing a declining trend of negative 2.6% same-store sales in 2000. Wild Oats generated US$222.1m in net sales in Q4 of 2001, up 7.4% from US$206.9m in last year’s Q4. Continuing the positive momentum established in the first three quarters of 2001, comparable store sales were 5.7% in Q4, their strongest level of the year.
The increase in Q4 comparable store sales is slightly higher than growth in same-store sales of 5.5% in Q3, and is up from 3.9% and 1% in the second and first quarters of 2001, respectively. Sales gains in the 42 currently operating Wild Oats stores that implemented the company’s new Fresh Look marketing and merchandising program, continued strong sales growth in the company’s farmer’s market stores, and operational improvements fueled same-store sales increases in both periods.
“We are encouraged by the continued strength in our sales and in our ability to generate four consecutive quarters of comparable store sales growth,” said Perry D. Odak, president and CEO. “Our new Fresh Look merchandising and marketing program is achieving desired results through more frequent advertising and strategic pricing and merchandising efforts. Early results demonstrate that the longer the Fresh Look program is in a market, the more positive the customer reach and financial performance of the participating stores. As a result, we will continue to introduce this program in our remaining Wild Oats stores in 2002.”
Wild Oats stores currently in operation that had been on the Fresh Look program for 30 weeks or more at the end of 2001 have experienced improved comparable store sales in the mid-single-digit range. Additionally, customer traffic in these stores increased by 8.9% on average, transaction size has been virtually unchanged while average number of items per transaction has increased by 6%. Moreover, market research indicates greater overall awareness of Wild Oats stores in participating markets.
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By GlobalDataWild Oats reported gross profit of US$258.5m in 2001, a 0.9% increase compared with US$256.2m in 2000. The gross profit margin declined to 28.9% of sales in 2001 from 30.6% last year. The decline in gross profit margin was primarily due to reduced retail pricing in stores that implemented the Fresh Look program, and a one-time US$2.4m increase in inventory reserves recorded in Q2 of 2001. Additionally, the gross profit margin declined as a result of an overall sales mix shift, resulting from the increased emphasis on produce, meat and seafood products, which have lower gross margins due to the perishable nature of these product categories.
Gross profit in Q4 of 2001 was US$62.2m, a 1.9% increase compared with US$61m in the same period last year. The gross profit margin declined to 28% of sales in Q4, compared with 29.5% in the same period last year. The reduction in gross profit margin in Q4 was the result of reduced retail pricing related to the Fresh Look program as well as a substantially higher than expected redemption of coupons from the advertising flyer in Q4. The company subsequently discontinued its coupon program until it can establish a more effective execution and tracking mechanism, and does not expect this to continue to have an adverse affect on results in future periods.
Direct store expenses in 2001 totaled US$212.6m, an 11.3% increase over US$191m in 2000. Direct store expenses as a percent of sales were 23.8%, compared with 22.8% last year. Higher direct store expenses were the result of an increase in employee benefits and business-related insurance costs. Included in this increase were US$1.8m of non-recurring charges. Q4 2001 direct store expenses were US$53.9m, up 11.4% from US$48.4m in Q4 of 2000. The store contribution margin was 3.7% of sales in Q4 of 2001, a decline from 6.1% in the same period last year. This was primarily due to the reduction in the gross profit margin and the previously mentioned non-recurring charges.
Selling, general and administrative (SG&A) expenses, excluding goodwill amortization, in 2001 increased 56.2% to US$45.9m from US$29.4m in the prior year. This increase included US$3.8m in one-time charges in the year, related to customer research and consulting fees, and employee severance and recruiting and relocation costs. SG&A as a percent of sales was 5.1% in 2001 compared with 3.5% in 2000. The increase in on-going SG&A expenses in 2001 related to investments in marketing to drive increased awareness and customer traffic in the stores, as well as investments to streamline operations and to strengthen information systems to help position Wild Oats for future growth.
In Q4 of 2001, SG&A expenses, excluding goodwill amortization, were US$10.5m, or 4.7% of sales, a 45.9% increase from US$7.2m, or 3.5% of sales, in last year’s Q4. Higher SG&A expenses in Q4 included increased marketing investments, including greater advertising frequency from monthly to weekly, and an enhanced advertising flyer featuring a greater number of products. These investments are focused on driving customer traffic and increasing awareness of Wild Oats among a broader customer base. In the short-term, operating results will continue to be adversely affected by investments in the business. However, these investments are expected to translate into profitability improvements in the second half of 2002.
Net loss in Q4 was US$2.8m, or US$0.11 per diluted share compared with net loss of US$12.6m, or US$0.55 per diluted share in the same period last year. In Q4 of 2001, the company recorded a net credit of approximately US$700,000 relating to restructuring activity. Excluding the restructuring activity, the company reported net loss in Q4 of 2001 of US$3.5m, or US$0.14 per diluted share, compared with pro forma net income of US$876,000, or US$0.04 per diluted share, excluding a US$21.4m restructuring charge related to the company’s previously announced strategic repositioning, in Q4 of 2000.
Net loss for the FY was US$43.9m, or US$1.80 per diluted share compared with net loss of US$15m, or US$0.65 per diluted share in 2000. In addition to the Q4 restructuring credit, as part of Wild Oats’ previously announced strategic repositioning, the company recorded restructuring and asset impairment charges of approximately US$55m pre-tax in the second and third quarters of 2001. Excluding these charges, the company reported net loss of US$9.5m, or US$0.39 per diluted share in 2001, compared with pro forma net income of US$12.6m, or US$0.54 per diluted share, excluding US$44.1m in pre-tax restructuring and asset impairment charges related to the sale and closure of under-performing stores and the discontinuation of e-Commerce activities, in 2000.
In 2001, net cash provided by operating activities was US$25.7m, an overall US$6.4m increase to cash. Capital expenditures were US$1.2m for the Q4 and US$20.1m for the year. During 2001, Wild Oats paid down US$1.7m on its credit facility and, as of the end of the year, had approximately US$122.3m outstanding on its credit facility.
Business Developments
In Q4, the company announced the appointment of Edward Dunlap as CFO. Dunlap brings with him more than 20 years of financial management experience in retail and consumer products industries. This addition rounds out Wild Oats’ executive management team, blending industry knowledge with conventional wisdom and experience.
As previously announced, the company continues to identify potential investors to raise additional equity to fund additional growth initiatives. In August 2001, Wild Oats began to contact potential investors. To date, the company has received several offers to invest in Wild Oats. Management is currently reviewing these proposals in light of additional options for raising equity funds to determine whether more favorable funding may be available.
“We are proud of our accomplishments in 2001,” said Odak. “We have generated positive comparable store sales for four consecutive quarters, reversing a negative trend. We have increased brand awareness and have boosted customer traffic in our stores. And, we have improved our cash position and the overall financial health of the Company. We will continue to be steadfast in our efforts to revitalize Wild Oats, and believe we are well positioned for a stronger 2002.”
