Rough Times at Wild Oats

BOULDER, Colo.--Wild Oats Markets Inc. (NASDAQ:OATS) posted increased sales but lowered earnings for its second quarter (2Q), while announcing that its chief financial officer (CFO) had left the company. Additionally, Wild Oats' credit has been suspended at its borrowing facility due to outstanding loans due this past June 30.

On Aug. 10, the company (www.wildoats.com) reported sales of $229.4 million for the 2Q, an increase of 7.8 percent over sales of $212.8 million for the same period in 2000. The company stated that this 2Q sales increase was driven by comparable store sales increasing 3.9 percent. The increase in comparable store sales in the 2Q is the second consecutive quarter increase, reflecting operational improvements in recently acquired stores, new marketing programs in selected regions and the year and last's store closures.

Gross margin decreased to 28.9 percent from 31.2 percent in the same period last year due to an increase in inventory reserves for slow-moving goods, lower margins on certain categories of products sold in the stores and a 25 percent increase in utility expenses. Also adding to this decrease was a 15.4-percent rise in direct store expenses, primarily due to larger employee benefits as a percentage of sales and an increase in reserves for self-insured losses. As a result, the store contribution margin was 5.0 percent of sales in the 2Q compared to 8.8 percent in the comparable period last year.

However, the company had a net loss of $3.4 million compared to a net gain of $3.4 million in the same period in 2000. Wild Oats' attributed this to significant monies spent this year on construction, advertising expenses and market research fees on the company's marketing, purchasing, merchandising and new store programs. In addition, the company recorded a restructuring and asset impairment charge of approximately $35 million, which was excluded in the pro forma net loss figure.

Plus, the company's lenders issued a notice of nonmonetary default after the company fell out of compliance with covenants held by its credit facility. Also, monetary borrowings were due June 30 and further borrowings have been suspended. The company plans to raise $30 million to $50 million in equity financing to repay its debs.

All store openings planned for 2001 have been postponed until 2002. The company currently has 109 stores in 23 states and British Columbia. In 2000, the company opened or acquired 16 new stores, and either closed or sold 20 stores. It had also opened four new stores while closing one during the first quarter of 2001.

"We are pleased with the positive trends in our comparable store sales as we experienced two consecutive quarters of growth, despite a soft economy," said Perry D. Odak, chief executive officer and president. He added that the company is looking into various strategies for growing sales, including increased advertising, more frequent advertised specials and modified pricing.

Other changes at the company included the resignation of Mary Beth Lewis on July 20 as the company's CFO and vice president of finance. In the meantime, Frances Rathke, who was CFO of Ben & Jerry's Homemade Inc. for 11 years and is now an independent consultant, will be the interim CFO while the company searches for someone to fill the position.

This is only a few of the changes that have occurred at Wild Oats since Odak became chief executive officer and president of the company in March. [For more, visit /sitecore/content/repository/nutrition/news/2001/05/changes-in-the-wind-at-wild-oats.aspx.] The company will be conducting an extensive review of all components of its business, including current marketing, purchasing, merchandising and new store programs. Until the company completes its entire review, its management will not give specific guidance for sales and earnings for the remainder of 2001 and 2002.

"While this extensive review of our business may result in some short-term negative impact on the company's operating results ... we believe that any resulting changes will have a significant positive impact on the company's long-term, future performance," Odak stated.