Wild Oats Markets, Inc. Reports Third Quarter 2004 Results

BOULDER, Colo., Nov 04, 2004 /PRNewswire-FirstCall via Comtex/ -- Wild Oats Markets, Inc. (OATS), a leading national natural and organic foods retailer, today announced financial results for the third quarter and nine months ended September 25, 2004.

Net sales in the third quarter of 2004 increased 5.8 percent to $250.7 million, compared to $237.0 million in the third quarter of 2003. The year-over-year sales increase was driven by 12 new stores, which offset the closure of seven stores in the 12-month period, two of which were relocations. Wild Oats opened one Wild Oats Natural Marketplace in Cincinnati, Ohio and two Henry's Farmers Markets in Corona and Fullerton, Calif. in the third quarter of 2004. Additionally, the Company closed one store in Colorado Springs, Colo. as part of the completion of a relocation, and relocated one store in Vancouver, Wash. in September. Wild Oats ended the third quarter with 2.37 million square feet, which is an 8.8 percent increase from the third quarter of 2003. Weighted average square footage in the third quarter of 2004 was 2.32 million, an 8.4 percent increase compared with third quarter 2003 weighted average square footage of 2.14 million.

Net sales for the first nine months of 2004 were $766.2 million, which is a 7.1 percent increase compared to net sales of $715.3 million in the first nine months of 2003. In addition to the contribution from new stores, year-to-date net sales were bolstered by the positive benefit of the California United Food and Commercial Workers strike against conventional grocery retailers in Southern California, which concluded February 29, 2004. While the strike had a positive impact on sales in the first quarter, second and third quarter sales were adversely affected by conventional grocers' overly aggressive promotional activity in Southern California.

Comparable store sales declined 0.6 percent in the third quarter of 2004, compared with an increase of 0.8 percent in last year's third quarter. As previously announced, intense competition in certain geographic regions -- primarily Southern California and Texas -- caused negative comparable store sales throughout the third quarter in approximately one-third of the Company's store base. As a result, comparable store customer traffic in the third quarter of 2004 was negative 4.1 percent and comparable store average transaction size per customer was positive 3.5 percent.

Wild Oats reported a net loss of ($6.1 million), or ($0.21) per share in the third quarter of 2004, compared with a net loss of ($861,000), or ($0.03) per share in the same period last year. Included in third quarter 2004 results are approximately $2.1 million in pre-tax restructuring charges, or $0.05 per share, primarily related to the Company's previously announced reorganization, the closure of two stores and asset impairment charges related to two stores. Additionally, the third quarter net loss included $1.4 million in other non-recurring charges, or $0.03 per share, related to costs to complete the review and correction of certain administrative practices in the Company's 401(k) retirement plan dating back to 1999. The Company reported a net loss of ($3.3 million), or ($0.11) per share, in the first nine months of 2004 compared with net income of $2.8 million, or $0.09 per share, in the first nine months of 2003.

As previously announced, investments made in pricing and promotions to build sales in regions affected by on-going competition and the impact on margins from new stores caused gross margins to decline in the quarter. Pressure on gross margins coupled with the above-described nonrecurring charges, resulted in the net loss in the third quarter and first nine months of 2004. Based on the operating results to date, the Company expects gross margin to be approximately 28.0 percent for the full year and the net loss for the full year to be between $0.13 and $0.17 per share.

"Our results for the third quarter were unsatisfactory, but we believe we needed to take aggressive action to build our customer traffic and sales back in regions affected by intense competitive activity," said Perry D. Odak, President and Chief Executive Officer. "The investments we are making in pricing and promotions have begun to drive sales improvement in the fourth quarter. We are encouraged by this momentum and will continue to invest in our business in the fourth quarter to ultimately drive profitable growth for Wild Oats Markets."

Wild Oats reported gross profit of $68.9 million, or 27.5 percent of sales, in the third quarter of 2004, compared with $68.9 million, or 29.1 percent of sales, in the third quarter of 2003. The decline in gross margins in the third quarter was largely due to pricing and promotional activity in response to competition in certain geographic regions, which had an estimated 130-basis-point negative impact on gross margins in the quarter. Additionally, having a greater number of new stores in the Company's portfolio, which initially have lower gross margins than the Company average, adversely affected overall gross margins by 30 basis points in the third quarter. Wild Oats generated gross profit of $219.2 million, or 28.6 percent of sales in the first nine months of 2004, compared with $210.9 million, or 29.5 percent of sales in the same period last year.

Direct store expenses increased 9.0 percent to $57.9 million in the third quarter of 2004, compared with $53.1 million in the third quarter of 2003. This increase was the result of higher store payroll expenses required for new stores, and continued increases in benefits and insurance costs. Additionally, the aforementioned non-recurring charge related to correction costs determined through a review of the 401(k) plan administrative practices added approximately $1.0 million to direct store expenses in the third quarter. As a result of these factors, direct store expenses as a percent of sales increased to 23.1 percent from 22.4 percent in the third quarter of 2003. Direct store expenses in the year-to-date period were $171.2 million, or 22.3 percent of sales, compared with $154.3 million, or 21.6 percent of sales, in the same period in 2003.

Store contribution was $11.0 million, or 4.4 percent of sales, in the third quarter of 2004, a 30.4 percent decline compared to $15.8 million, or 6.6 percent of sales, in the third quarter of 2003. This was due to the above-mentioned decline in gross margins and increase in direct store expenses. Store contribution for the first nine months of 2004 was $47.9 million, or 6.3 percent of sales, a 15.4 percent decline compared with $56.6 million, or 7.9 percent of sales in the same period last year.

Selling, General & Administrative expenses (SG&A) in the third quarter of 2004 were $15.5 million, or 6.2 percent of sales, compared with $15.5 million, or 6.5 percent of sales in the prior year third quarter. SG&A expenses were flat year-over-year as savings from the Company's reorganization in the third quarter were offset by higher marketing expenses. SG&A expenses in the first nine months of 2004 were $45.5 million, or 5.9 percent of sales compared with $48.2 million, or 6.7 percent of sales in the same period last year.

Net cash provided by operating activities was $24.6 million in the first nine months of 2004 compared with $26.2 million in the same period last year. As the Company continued to invest in new stores and remodeling existing stores, capital expenditures increased to $43.0 million in the first nine months of 2004, compared to $22.1 million in the first nine months of 2003.

Business Developments

To date in 2004, Wild Oats Markets completed the major remodeling of six stores as part of its previously announced store remodeling initiative. Thus far in the fourth quarter, the Company has opened Wild Oats Natural Marketplace stores in Vancouver, Wash., which was a relocation of the store closed in the third quarter, and one Wild Oats store in the metropolitan Indianapolis, Ind. market. The Company will open its second Henry's Farmers Market in the metropolitan Phoenix, Ariz. area on Nov. 10, 2004, bringing the total new stores opened in 2004 to 12. Based on its current real estate development schedule, the Company now expects it will open up to 15 new stores in 2005.

As previously announced, Wild Oats Markets is pursuing additional opportunities whereby it will offer its Wild Oats branded products in other retail environments. The Company has reached agreement to test two alternative retail concepts. The first -- a test in the Chicago market with Peapod, the country's leading Internet grocer -- began in October 2004. Wild Oats now offers more than 200 private label products on the Peapod site to consumers in the greater Chicago metropolitan area. The second is a three-to-five store test of a Wild Oats branded store-within-a-store concept with Stop & Shop, the largest food retailer in the Northeastern U.S., which is expected to launch in the first half of 2005.

Company management will host a conference call and webcast with financial analysts and investors on Thursday, November 4, 2004 at 11:00 a.m. Mountain time (1:00 p.m. Eastern time) to discuss complete financial results for the third quarter ended Sept. 25, 2004. 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 2004 earnings conference call" or reference conference ID number 1373326. A simultaneous webcast will be available through a link on the Investor Relations page of the Wild Oats website at www.wildoatsinc.com.

About Wild Oats

Wild Oats Markets, Inc. is a nationwide chain of natural and organic foods markets in the U.S. and Canada. With nearly $970 million in annual sales, the Company currently operates 108 natural foods stores in 24 states and British Columbia, Canada. The Company's markets include: Wild Oats Natural Marketplace, Henry's Farmers Market, Sun Harvest and Capers Community Markets. For more information, please visit the Company's website at www.wildoatsinc.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 cost of future store development; expected future comparable store sales, revenues and earnings per share; the success of the Company's marketing and merchandising programs; total reductions in SG&A from the Company's reorganization; 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 Company's ability to execute on operational, 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 27, 2003, 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 is 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.

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