BOULDER, Colo., Aug. 1 /PRNewswire-FirstCall/ -- Wild Oats Markets, Inc. (Nasdaq: OATS), a leading national natural and organic foods retailer, today announced financial results for the second quarter and first half ended June 29, 2002. In the second quarter of 2002, the Company generated net income of $1.5 million, or $0.06 per share, on sales of $236.2 million.
Net sales in the second quarter of 2002 were $236.2 million, up 3.0 percent compared with $229.4 million in the second quarter of 2001. The sales gain was driven by 5.2 percent comparable store sales growth in the second quarter, compared with 3.9 percent in last year's second quarter. Same-store sales in the second quarter continued the positive momentum begun in the first quarter of 2001, but were not as robust in sequential quarters due to stronger year-over-year comparisons in the second quarter, and the shift of the Easter holiday weekend to the first quarter in 2002 from the second quarter in 2001. This was the sixth consecutive quarter of positive same-store sales, which reversed what was a negative trend in 2000. In 2001, comparable store sales were 1.0 percent in the first quarter, 3.9 percent in the second quarter, 5.5 percent in the third quarter and 5.7 percent in the fourth quarter, and were 7.3 percent in the first quarter of 2002.
Continued strong comparable store sales of 6.2 percent in the first half of 2002 contributed to a 4.5 percent increase in net sales to $469.2 million, compared to $448.9 million in the first six months of 2001. This increase was achieved despite the sale or closure of eight under-performing stores from the Company's sales base at the end of the fourth quarter of 2001 and in the first half of 2002. In addition, the Company closed one Henry's Marketplace store in July 2002 when its lease expired.
Improved same-store sales, a 6.1 percent increase in customer traffic and a 3.3 percent rise in average sales per customer were primarily driven by continued positive customer response to the Company's marketing and merchandising programs. These initiatives have been expanded to additional Wild Oats stores in Arizona, Arkansas, Illinois, New Mexico, Ohio, Tennessee and Utah. To date, 60 of the 73 natural foods supermarket format stores in the Company's chain have implemented these marketing programs, which are designed to drive greater awareness of Wild Oats and to increase customer traffic through weekly advertising circulars distributed to customers via newspaper inserts and direct mail.
Net income in the second quarter of 2002 was $1.5 million, or $0.06 per diluted share, compared with net loss of ($38.1 million), or ($1.55) per diluted share, in the same period last year. Net income for the second quarter of 2002 included restructuring and asset impairment charges of approximately $830,000 for, among other things, the closure of two stores; and a reversal of previous restructuring and asset impairment charges of approximately $830,000 for the early disposition of vacant sites, which had no net impact to earnings. Second quarter 2001 results included a restructuring and asset impairment charge of approximately $54.8 million and $5.1 million in one-time charges, all related to the Company's strategic repositioning initiatives, and goodwill expense of $700,000.
Net income for the first half of 2002 was $2.2 million, or $0.09 per diluted share, compared with net loss of ($38.2 million), or ($1.58) per diluted share, in the first six months of 2001. First half 2002 net income included total additional restructuring and asset impairment charges of approximately $1.3 million and reversals of previous restructuring and asset impairment charges of $2.0 million. In the first half of 2001, the Company recorded restructuring and asset impairment charges of approximately $54.8 million, as well as $5.9 million in one-time charges and goodwill expense of $1.5 million.
"Despite a challenging economy and business environment for many industries, we believe our financial performance in the second quarter and first half of 2002 is evidence that our company-wide initiatives are working," said Perry D. Odak, President and Chief Executive Officer. "We expect our turnaround plan to continue to drive bottom line momentum as we are able to leverage our sales increases into profitable growth. We continue to focus on operational efficiencies in our stores, which has allowed us to improve service to our customers, further reduce inventory levels, and generate cash to pay down debt and fund our growth initiatives."
Wild Oats reported gross profit of $71.4 million, or 30.2 percent of sales, in the second quarter of 2002, a 7.6 percent increase compared with $66.4 million, or 28.9 percent of sales, in the second quarter of 2001. Second quarter 2001 gross profit margin of 28.9 percent included one-time charges of $2.4 million, which were related to an increase in inventory reserves.
"Our gross margins have returned to levels that were achieved prior to the implementation of our marketing and merchandising programs, which we started in the third quarter of 2001, and we will continue to focus on initiatives to further improve our margins as we drive sales going forward," said Mr. Odak.
Wild Oats generated gross profit of $139.1 million, or 29.6 percent of sales, in the first half of 2002 compared with $132.8 million, or 29.6 percent of sales, in the comparable period last year. First half 2001 gross profit margin of 29.6 percent included the previously mentioned $2.4 million in one-time charges.
Continued store-level operational improvements led to a 6.3 percent reduction in direct store expenses in the second quarter of 2002, which helped to strengthen the Company's profitability in the quarter. Direct store expenses in the second quarter of 2002 were $51.5 million, compared with $55.0 million in the second quarter of 2001. Second quarter 2001 direct store expenses included $1.8 million in one-time charges. Direct store expenses as a percent of sales were 21.8 percent in the second quarter of 2002, compared with 24.0 percent in last year's second quarter.
In the first six months of 2002, direct store expenses were $101.9 million, or 21.7 percent of sales, a 4.4 percent decline compared with $106.6 million, or 23.8 percent of sales, in the first half of 2001. First half 2001 direct store expenses included the aforementioned $1.8 million in one-time charges.
The store contribution margin improved significantly in the second quarter of 2002 and was 8.4 percent of sales, a 3.4 percentage point increase compared with 5.0 percent in the second quarter last year. First half 2002 store contribution margin was 7.9 percent of sales, a 2.1 percentage point increase from 5.8 percent in the same period last year. The increase in both periods was largely driven by better store-level payroll expense management and reduced occupancy costs.
Selling, general and administrative (SG&A) expenses in the second quarter of 2002 increased 16.7 percent to $14.8 million from $12.7 million in the prior year second quarter. SG&A expenses in the second quarter of 2001 included $800,000 in one-time charges related to the Company's strategic repositioning, but did not include expenditures related to the new marketing and merchandising programs, which were launched in the third quarter of 2001. SG&A as a percent of sales was 6.2 percent in the second quarter of 2002 compared with 5.5 percent in the second quarter of 2001.
SG&A expenses in the first six months of 2002 were $28.9 million, a 26.0 percent increase, compared with $23.0 million in the same period last year. SG&A for the first half of 2001 included $1.6 million in one-time charges. The increase in SG&A expenses in both periods was primarily due to ongoing investments in marketing and advertising to drive increased awareness and customer traffic. These investments are expected to continue to drive improved top-line performance throughout the remainder of the year.
During the first half of 2002, net cash provided by operating activities was $23.8 million. Capital expenditures were $1.9 million for the second quarter, compared to $3.7 million in the second quarter of 2001. In the second quarter, Wild Oats paid down a net $10.5 million on its credit facility and, as of the end of the quarter, had approximately $96.3 million outstanding on its $125.0 million credit facility.
Expansion of the Company's marketing and merchandising initiatives late in the second quarter and early in the third quarter of 2002, coupled with other marketing and merchandising initiatives planned in the second half of the year, are expected to increase comparable store sales between 5.5 percent and 7.0 percent for the remainder of the year. No new store openings are anticipated until early 2003.
Continued improvement in gross margins, in conjunction with an expected reduction in direct store expenses and SG&A expenses as a percent of sales, is expected to translate into net earnings per diluted share of $0.08, and $0.10 to $0.11 in the third quarter and fourth quarter, respectively. Combined with net income of $2.2 million, or $0.09 per diluted share, for the first half of 2002, projected net earnings for the full year 2002 is expected to reach $0.27 to $0.28 per diluted share. Net earnings per share estimates provided above do not reflect the impact of any potential equity placement.
In June, the Company announced that it had signed a distribution contract, commencing September 1, 2002, with Tree of Life, Inc. as its primary national distribution partner for organic, natural and specialty food products. The decision to make this change came after extensive review of the Company's long-term requirements and the capabilities of Tree of Life to meet those needs. Since the announcement, a multi-disciplined Wild Oats/Tree of Life project team has been working on a smooth, phased transition to minimize disruption to the Company's business. Wild Oats expects all systems will be in place to transition to Tree of Life as its new distributor in September 2002. This new contract is expected to reduce product costs through forward buying, lower delivery costs through freight consolidation, cross docking and greater slotting, and reduce working capital levels through improved payment terms.
As previously announced, Wild Oats continues to identify potential investors to participate in an equity offering. The Company filed to register 3.25 million shares, in addition to 1.2 million shares previously registered, with the Securities and Exchange Commission in June 2002, and is awaiting final approval of the registration statement by the Securities and Exchange Commission. If and when the equity offering is completed, Wild Oats intends to use the proceeds to fund an aggressive new store development program. With the additional equity, Wild Oats plans to open up to 10 additional stores in 2003, 20 in 2004 and 25 in 2005.
A registration statement relating to these securities has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. Copies of the preliminary prospectus relating to the offering of the common stock may be obtained by contacting Sonja Tuitele at (720) 562-4984.
Company management will host a conference call and webcast with financial analysts and investors on Friday, August 2, 2002 at 9:00 a.m. Mountain time (11:00 a.m. Eastern time) to discuss financial results for the second quarter and first half ended June 29, 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 second quarter 2002 earnings conference call" or reference conference ID number 4801460. A simultaneous webcast will be available through a link on the Financial Information 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 101 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.
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 marketing and merchandising 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 for the fiscal year ended December 29, 2001, 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.