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6.11.2002: Meldung: Wild Oats Markets, Inc.: Third Quarter 2002 Results

Wild Oats Markets, Inc. Reports Third Quarter 2002 Results

Tuesday November 5, 8:07 am ET

 

BOULDER, Colo., Nov. 5 / Wild Oats Markets, Inc. (Nasdaq: OATS - News), a leading national natural and organic foods retailer, today announced financial results for the third quarter and nine months ended September 28, 2002. In the third quarter of 2002, the Company reported net income of $2.2 million, or $0.08 per diluted share, compared to net loss of ($2.9 million), or ($0.12) per diluted share, in last year"s third quarter. Sales in the third quarter of 2002 increased 2.7 percent to $228.1 million, compared to $222.2 million in the third quarter of 2001.

 

Third Quarter Highlights

 

The 2.7 percent sales increase in the third quarter was achieved despite the sale and/or closure of eight stores during 2002. For the most part, these closures were part of the Company"s planned rationalization program to divest under-performing stores. The Company also closed one small vitamin store at the end of the third quarter of 2002.

 

Comparable store sales increased 5.6 percent in the third quarter of 2002, compared with 5.5 percent in last year"s third quarter. This was the seventh consecutive quarter of positive same-store sales, which reversed what was a negative trend in 2000. The increase in comparable store sales in the third quarter was comprised of a 1.6 percent increase in comparable store customer count and a 4.0 percent increase in comparable store average sale per customer in the period compared to the third quarter of 2001. Increased comparable store sales, customer traffic and average sale per customer were driven by the Company"s ongoing marketing initiatives.

 

"We are encouraged that our sales performance continues to show positive momentum despite a weak economy," said Perry D. Odak, President and Chief Executive Officer. "We believe that this is the result of the improvements we have made in our stores and the continued growth in the natural and organic products industry. Our same-store sales in the third quarter were positive for the seventh consecutive quarter, even in light of more challenging year- over-year comparisons to the third quarter of 2001."

 

Net income in the third quarter of 2002 was $2.2 million, or $0.08 per diluted share, compared with net loss of ($2.9 million), or ($0.12) per diluted share, in the same period last year. Third quarter 2002 net income included $174,000 pre-tax in net reversals of previous restructuring and asset impairment charges related to a gain on the disposal of a closed commissary facility and a reduction in lease-related liabilities at two other locations. Third quarter 2001 results included a non-cash restructuring and asset impairment charge of $776,000 pre-tax, primarily for the closure of three commissary kitchens.

 

"We generated financial results that were in the range of expectations despite an overall softness in the food retailing industry," said Mr. Odak. "In addition to favorable natural foods industry trends and improved store execution, we achieved these results while undertaking a major transition to Tree of Life, our new primary distribution partner. And, in early September, we completed a private placement of common stock, with net proceeds of $48.3 million, that we will use to fund our strategic growth, store expansion and infrastructure initiatives."

 

Wild Oats reported gross profit of $67.1 million, or 29.4 percent of sales, in the third quarter of 2002, a 5.6 percent increase compared with $63.5 million, or 28.6 percent of sales, in the third quarter of 2001. Gross profit of 29.4 percent in the third quarter declined from 30.2 percent in the second quarter of 2002. This was primarily the result of lower-than-expected sell-through rates and overly aggressive markdowns on certain specialty produce items. Disciplined expense management at the store level and lower-than-expected selling, general and administrative (SG&A) expenses offset the margin decline and contributed to the aforementioned increase in net income.

 

Direct store expenses continued to decline and contributed to the overall increase in profitability. In the third quarter of 2002, direct store expenses were $48.6 million, a 6.7 percent reduction, compared to $52.1 million in the third quarter of 2001. A portion of the decline was due to the previously mentioned sale or closure of eight stores. However, due to operational improvements in the stores, direct store expenses as a percent of sales also declined and were 21.3 percent in the third quarter of 2002, compared with 23.5 percent in the third quarter of 2001. The store contribution margin continued to improve in the third quarter of 2002, and was 8.1 percent of sales, a 3.0 percentage point increase, compared to 5.1 percent in the third quarter of 2001. The gain in store contribution was primarily due to continued improvements in store-level expense management.

 

SG&A expenses in the third quarter of 2002 remained steady at 5.6 percent of sales and were lower than the previously announced forecast of 6.0 percent of sales. SG&A in the third quarter of 2002 increased 1.9 percent to $12.7 million, compared with $12.5 million, excluding goodwill amortization expense, in the prior year third quarter. The lower-than-expected SG&A expenses in the third quarter of 2002 were primarily due to more disciplined cost management, including the deferral of headcount expenses as the Company postponed three store openings into 2003, as well as the favorable resolution of a legal matter.

 

During the first nine months of 2002, net cash provided by operating activities was $24.6 million. Capital expenditures were $2.3 million for the third quarter and $6.9 million year-to-date in 2002, compared to $2.9 million in the third quarter and $18.9 million year-to-date in 2001. In the third quarter of 2002, Wild Oats paid down a net $5.5 million on its credit facility and, as of the end of the quarter, had approximately $90.8 million outstanding on its $125.0 million credit facility.

 

Business Developments

 

On September 4, 2002, Wild Oats announced it had completed the sale of 4,450,000 shares of its common stock in a public stock offering. The purchase price of the shares was $11.50 per share, and the net proceeds of the offering were $48,289,000 after deduction of the expenses of the offering. The Company plans to use the proceeds of the completed offering to fund its aggressive new store development program, to remodel several of its existing stores, and to make investments in information systems and infrastructure aimed at reducing costs and improving operating margins. The Company plans to open three new stores in the first quarter of next year, and up to 10 additional locations throughout the remainder of 2003.

 

On September 30, 2002, Wild Oats completed the transfer of all of its U.S. stores to Tree of Life as its new primary distributor for organic, natural and specialty food products. The transfer process, which commenced on September 1, 2002, was executed to the Company"s plans and also included a previously announced vendor and stock-keeping unit (SKU) reduction. The stores experienced increased service disruptions during the transfer to Tree of Life, which included higher out-of-stock levels. By the end of September, store in-stock conditions were consistent with the Company"s expectations. Additionally, the Company anticipates that service levels will improve significantly with the new distribution agreement. In the long-term, this new contract is expected to reduce product costs, lower delivery costs through freight consolidation, cross docking and greater slotting, and reduce working capital levels through improved payment terms.

 

Year To Date Financial Results

 

In the first nine months of 2002, comparable store sales of 6.0 percent drove a 3.9 percent increase in net sales to $697.3 million, compared to $671.1 million in the first nine months of 2001.

 

Net income for the first nine months of 2002 was $4.3 million, or $0.17 per diluted share, compared with net loss of ($41.1 million), or ($1.69) per diluted share, in the first nine months of 2001. Year-to-date 2002 net income included total additional restructuring and asset impairment charges of approximately $1.2 million and reversals of previous restructuring and asset impairment charges of $2.0 million. In the first nine months of 2001, the Company recorded a $55.6 million restructuring and asset impairment charge related to the sale and closure of under-performing stores.

 

In the first nine months of 2002, the Company generated gross profit of $206.1 million, or 29.6 percent of sales, a 5.0 percent increase compared with $196.3 million, or 29.3 percent of sales in the same period last year.

 

Year-to-date direct store expenses were $150.6 million, or 21.6 percent of sales, a 5.2 percent decline compared with $158.7 million, or 23.7 percent of sales, in the comparable period last year. For the first nine months of 2002, the store contribution margin was 8.0 percent of sales, a 2.4 percentage point increase from 5.6 percent in the same period of 2001.

 

SG&A expenses in the first nine months of 2002 were $41.6 million, a 17.5 percent increase, compared with $35.4 million, excluding goodwill amortization expense, in the same period last year. SG&A as a percent of sales in the first nine months of 2002 was 6.0 percent compared with 5.3 percent, excluding goodwill amortization expense, in the same period last year. The increase in SG&A expenses was primarily due to the Company"s ongoing investments in marketing and advertising to drive improved top-line performance.

 

"With several major initiatives behind us, we have established a strong foundation from which to grow this Company," said Mr. Odak. "We are confident that we are moving into a period of sustainable growth and that we have the tools in place, along with a much more disciplined cost structure, to support an aggressive growth phase for Wild Oats. This platform will be a launching pad for us to achieve our objectives of growing our store base by 50 percent over the next three years and optimizing the growth opportunities of the natural and organic products industry."

 

Company management will host a conference call and webcast with financial analysts and investors on Tuesday, November 5, 2002 at 11:00 a.m. Mountain time (1:00 p.m. Eastern time) to discuss financial results for the third quarter and nine months ended September 28, 2002. Participants calling from the U.S. may call in by dialing (877) 252-5618. International callers should dial (706) 634-1349. Participants should ask for the "Wild Oats third quarter 2002 earnings conference call" or reference conference ID number 6233414. A simultaneous webcast will be available through a link on the Investor Relations page of the Wild Oats website at www.wildoats.com .

 

About Wild Oats

 

Wild Oats Markets, Inc. is a nationwide chain of natural and organic foods markets in the U.S. and Canada. The Company currently operates 99 natural foods stores in 23 states and British Columbia, Canada. The Company"s markets include: Wild Oats Natural Marketplace, Henry"s Marketplace, Nature"s -- a Wild Oats Market, Sun Harvest and Capers Community Markets. 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 marketing and merchandising programs; and the future financial measures and the prospects for favorable growth and performance.

 

Wild Oats Markets, Inc.

Consolidated Statement of Operations

(In thousands, except per-share amounts)

(Unaudited)

 

Thirteen Weeks Ended

September 28, September 29,

2002 2001

 

Sales $228,102 100.0% $222,168 100.0%

Cost of goods sold

and occupancy costs 161,026 70.6% 158,625 71.4%

 

Gross profit 67,076 29.4% 63,543 28.6%

 

Direct store expenses 48,639 21.3% 52,128 23.5%

 

Store contribution 18,437 8.1% 11,415 5.1%

 

Selling, general and

administrative expenses 12,708 5.6% 12,471 5.6%

Pre-opening expenses 237 0.1% 1 0.0%

Amortization of goodwill 741 0.3%

Restructuring and asset

impairment charges (174) -0.1% 776 0.4%

 

Income (loss) from

operations 5,666 2.5% (2,574) -1.2%

 

Loss on investment

Interest expense, net 2,134 0.9% 2,044 0.9%

 

Income (loss) before income

taxes 3,532 1.6% (4,618) -2.1%

 

Income tax expense (benefit) 1,360 0.6% (1,720) -0.8%

 

Net income (loss) $2,172 1.0% ($2,898) -1.3%

 

Basic net income (loss)

per common share $0.08 ($0.12)

 

Weighted average number of

common shares outstanding 26,440 24,699

 

Diluted net income (loss)

per common share $0.08 ($0.12)

 

Weighted average number of

common shares outstanding 27,185 24,699

 

 

Thirty-Nine Weeks Ended

September 28, September 29,

2002 2001

 

Sales $697,302 100.0% $671,050 100.0%

Cost of goods sold

and occupancy costs 491,155 70.4% 474,720 70.7%

 

Gross profit 206,147 29.6% 196,330 29.3%

 

Direct store expenses 150,561 21.6% 158,740 23.7%

 

Store contribution 55,586 8.0% 37,590 5.6%

 

Selling, general and

administrative expenses 41,642 6.0% 35,443 5.3%

Pre-opening expenses 1,251 0.2% 1,516 0.2%

Amortization of goodwill 2,228 0.3%

Restructuring and asset

impairment charges (826) -0.1% 55,610 8.3%

 

Income (loss) from

operations 13,519 1.9% (57,207) -8.5%

 

Loss on investment 228 0.0%

Interest expense, net 6,543 0.9% 7,272 1.1%

 

Income (loss) before

income taxes 6,976 1.0% (64,707) -9.6%

 

Income tax expense (benefit) 2,638 0.4% (23,571) -3.5%

 

Net income (loss) $4,338 0.6% ($41,136) -6.1%

 

Basic net income (loss)

per common share $0.17 ($1.69)

 

Weighted average number of

common shares outstanding 25,425 24,325

 

Diluted net income (loss)

per common share $0.17 ($1.69)

 

Weighted average number of

common shares outstanding 26,071 24,325

 

 

Wild Oats Markets, Inc.

Consolidated Statement of Cash Flows

(In Thousands)

(Unaudited)

 

Thirty-Nine Weeks Ended

Sep 28, Sep 29,

2002 2001

Cash Flows From Operating Activities:

Net income (loss) $4,338 $(41,136)

Adjustments to reconcile net income

(loss) to net cash from operating activities:

Depreciation and amortization 15,762 19,770

Deferred tax expense (benefit) 3,157 (21,090)

Loss (gain) on disposal of property and equipment (27) 463

Restructuring and asset impairment charges (826) 55,610

Loss on investment 228

Other (213) (171)

Change in assets and liabilities:

Inventories 8,992 2,664

Receivables and other assets 4,304 9,982

Accounts payable (7,987) 2,252

Accrued liabilities (2,914) (2,950)

 

Net cash provided by operating activities 24,586 25,622

 

Cash Flows From Investing Activities:

Capital expenditures (6,906) (18,903)

Proceeds from sale of property and equipment 218 135

 

Net cash used in investing activities (6,688) (18,768)

 

Cash Flows From Financing Activities:

Net repayments on line of credit (24,000) (7,487)

Proceeds on notes payable and long-term debt 2,000

Payments on notes payable, long-term debt

and capitalized leases (8,294) (195)

Proceeds from issuance of common stock 52,925 398

 

Net cash provided by (used in)

financing activities 20,631 (5,284)

 

Effect of exchange rate changes on cash 14 (340)

 

Net increase in cash and cash equivalents 38,543 1,230

Cash and cash equivalents at beginning of period 18,840 12,457

 

Cash and cash equivalents at end of period $57,383 $13,687

 

 

Wild Oats Markets, Inc.

Condensed Consolidated Balance Sheet

(In Thousands)

 

Sep 28, 2002 Dec 29, 2001

(unaudited)

 

Assets

Current assets:

Cash and cash equivalents $57,383 $18,840

Inventories, net 45,066 54,058

Accounts receivable, net 3,785 2,906

Prepaid expenses and other current assets 7,127 12,422

 

Total current assets 113,361 88,226

 

Property and equipment, net 119,897 128,922

Intangible assets, net 113,939 114,296

Other long-term assets 18,346 21,982

 

Total assets $365,543 $353,426

 

Liabilities and Stockholders" Equity

Current liabilities:

Accounts payable $57,602 $62,852

Accrued liabilities 35,404 39,526

Current portion of debt and capital leases 90,905 12,338

 

Total current liabilities 183,911 114,716

 

Long-term debt and capital leases 20 112,291

Other long-term liabilities 17,536 19,404

 

Total liabilities 201,467 246,411

 

Stockholders" equity:

Preferred stock, $0.001 par value;

5,000,000 shares authorized; no shares

issued and outstanding

Common stock, $0.001 par value;

60,000,000 shares authorized;

29,642,849 and 24,766,409 shares

issued and outstanding 30 25

Additional paid-in capital 203,291 151,076

Accumulated deficit (37,939) (42,277)

Accumulated other comprehensive loss (1,306) (1,809)

Total stockholders" equity 164,076 107,015

 

Total liabilities and stockholders" equity $365,543 $353,426

 

Certain amounts in the prior years" financial statements have been

reclassified to conform to the current year presentation.

 

Source: Wild Oats Markets, Inc.

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