EX-99.1 3 e16115ex99_1.txt PRESS RELEASE Exhibit 99.1 Wild Oats Markets, Inc. Reports Third Quarter 2003 Results BOULDER, Colo., Nov. 4 /PRNewswire-FirstCall/ -- Wild Oats Markets, Inc. (Nasdaq: OATS), a leading national natural and organic foods retailer, today announced financial results for the third quarter and nine months ended September 27, 2003. Net sales in the third quarter of 2003 increased 3.9 percent to $237.0 million, compared to $228.1 million in the third quarter of 2002. This increase was primarily driven by the inclusion of five new stores, one of which was a relocation, in the Company's portfolio compared to the third quarter of 2002. Wild Oats opened one store in Lexington, Ky. and relocated one store in Nashville, Tenn. in the third quarter of 2003. Net sales for the first nine months of 2003 were $715.3 million, which is a 2.6 percent increase, compared to net sales of $697.3 million in the first nine months of 2002. Comparable store sales increased 0.8 percent in the third quarter of 2003, compared with 5.6 percent in last year's third quarter. As previously announced, supply chain inconsistencies caused higher out-of-stock levels, which contributed to declining customer traffic in the quarter. As a result, comparable store customer traffic in the third quarter of 2003 was negative 2.4 percent and comparable store average transaction size per customer was positive 3.3 percent. Wild Oats reported a net loss of ($861,000), or ($0.03) per share in the third quarter of 2003, compared with net income of $2.2 million, or $0.08 per diluted share in the same period last year. Included in third quarter 2003 results are approximately $1.5 million, or $0.03 per share, in pre-tax charges related to asset write-offs, restructuring charges and accelerated depreciation for the planned closure or relocation of distribution centers and warehouses. The loss in the third quarter caused net income for the first nine months of 2003 to decline to $2.8 million, or $0.09 per share, from net income of $4.3 million, or $0.17 per share, in the first nine months of 2002. The inability of Wild Oats and Tree of Life, Inc. to achieve anticipated supply chain improvements was a primary contributor to the Company's net loss in the third quarter. The decline in net income was largely attributed to the Company's efforts to overcome disruption in the stores related to supply chain inconsistencies, including increased purchases from secondary and tertiary distributors at a higher cost, higher operating expenses related to managing supply chain issues, and increased promotional activity to drive customer traffic in anticipation of improved supply chain efficiencies. As previously announced, Wild Oats Markets and Tree of Life have mutually agreed to terminate their current primary distribution relationship. The parties have begun to work on a transition plan under which Wild Oats will exercise a conversion option with its secondary distributor, United Natural Foods, Inc. (UNFI), to transition its primary distribution business to UNFI at competitive terms. This conversion will be complete within the first quarter of 2004 and Tree of Life has committed to continue to support Wild Oats' stores during the transition to UNFI. "While we are disappointed by our results in the third quarter, we believe that our business fundamentals are strong, and we continue to make strides to achieve our growth objectives," said Perry D. Odak, President and Chief Executive Officer. "Early indications show that our results in the fourth quarter will be back on track, which is partially due to the benefit of labor strikes at unionized grocery stores in certain regions. Once we realize anticipated supply chain improvements, we expect that our financial results will reflect the overall growth in the natural products industry." Wild Oats reported gross profit of $68.9 million, or 29.1 percent of sales, in the third quarter of 2003, a 2.7 percent increase compared with $67.1 million, or 29.4 percent of sales, in the third quarter of 2002. The decline in gross margin in the third quarter was the result of the aforementioned accelerated depreciation for the planned closure or relocation of distribution centers and warehouses; supply chain inconsistencies and planned mark-downs to reduce inventory in Natural Living product categories to eliminate slow-moving products and make room for new products. Wild Oats generated gross profit of $211.0 million, or 29.5 percent of sales in the first nine months of 2003, compared with $206.1 million, or 29.6 percent of sales in the same period last year. Direct store expenses increased 9.2 percent to $53.1 million in the third quarter of 2003, compared with $48.6 million in the third quarter of 2002. This increase in direct store expenses was largely the result of increased store payroll expenses required to accommodate supply chain inconsistencies. As a result, direct store expenses as a percent of sales was up more than one full percentage point to 22.4 percent, compared with 21.3 percent in last year's third quarter. Direct store expenses in the year-to-date period were $154.3 million, or 21.6 percent of sales, compared with $150.6 million, or 21.6 percent of sales, in the same period in 2002. The Company continues its focus on expense management at store level and, by the end of the fourth quarter of 2003, expects its direct store expenses as a percent of sales to return to levels achieved in the first half of the year. Store contribution was $15.8 million, or 6.6 percent of sales, in the third quarter of 2003, a 14.6 percent decline compared to $18.5 million, or 8.1 percent of sales, in the third quarter of 2002. 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 2003 was $56.7 million, or 7.9 percent, a 2.0 percent increase compared with $55.5 million, or 8.0 percent of sales in the same period last year. Selling, General & Administrative expenses (SG&A) in the third quarter of 2003 increased 21.8 percent to $15.5 million, or 6.5 percent of sales, compared with $12.7 million, or 5.6 percent of sales, in the prior year third quarter. Higher SG&A expenses in the third quarter of 2003 were primarily due to increased administrative costs related to the Company's new store rollout program, and continued investments to improve the Company's IT systems. Additionally, third quarter 2002 SG&A expenses benefited from a favorable legal judgment. While the Company invested in advertising and promotional programs early in the third quarter of 2003 in anticipation of supply chain improvements, which did not produce desired results, this was largely a reallocation of resources and did not have an adverse impact on SG&A in the quarter compared to prior-year levels. SG&A expenses in the first nine months of 2003 were $48.3 million, or 6.7 percent of sales, compared with $41.6 million, or 6.0 percent of sales, in the same period last year. Wild Oats Markets continues to generate improved cash flow despite a significant increase in capital expenditures related to investments in new and existing stores. During the first nine months of 2003, net cash provided by operating activities was $26.2 million, compared to $25.1 million in the same period in 2002. Capital expenditures were $8.6 million for the third quarter and $22.1 million year-to-date in 2003, compared to $2.3 million in the third quarter and $6.9 million year-to-date in 2002. In the third quarter of 2003, Wild Oats paid down a net $2.6 million on its credit facility and, as of the end of the quarter, had approximately $37.3 million outstanding on its $75.0 million credit facility. 2003 Outlook To date in 2003, Wild Oats Markets completed remodeling and/or resetting 20 stores as part of its previously announced store remodeling and resetting initiatives. Wild Oats Markets will open three additional stores in the fourth quarter of 2003, bringing the total new stores opened in 2003 to eight. The three additional stores include two Wild Oats Natural Marketplaces in Southwest Denver, Colo. and Park City, Utah; and one Henry's Marketplace in Chino Hills, Calif. As previously communicated, the Company had planned to open nine new stores this year, and as a result of construction delays, the Company will open this ninth store, a Wild Oats Natural Marketplace in Colorado Springs, Colo., in January 2004. Wild Oats currently has 15 leases and 18 letters of intent signed for new stores slated to open in 2004 and 2005. The Company expects it will meet its growth plans of adding up to 15 new stores in 2004 and up to 20 in 2005. "We continue to focus both on improving our existing stores and building successful new stores," said Mr. Odak. "Our new store development program is netting positive results and, as we continue to improve efficiencies in opening new stores, we are able to focus greater attention on our existing store base. Our ability to continue to generate cash and pay down debt, while at the same time devoting a higher level of capital expenditures on store remodeling and new store development, gives us even greater confidence in the underlying financial strength we have built for this Company." As previously announced, several factors, including the duration of the current labor strikes at unionized grocery stores in Southern Calif. and potential strikes in other states, as well as the transition to a new primary distributor, may have an impact on earnings results in the fourth quarter. Therefore, the Company has withdrawn its previous EPS guidance for 2003 and is unable to provide revised full-year EPS guidance at this time. Company management will host a conference call and webcast with financial analysts and investors on Tuesday, November 4, 2003 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 27, 2003. 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 2003 earnings conference call" or reference conference ID number 3339461. 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. With annual sales of nearly $920 million, the Company currently operates 101 natural foods stores in 25 states and British Columbia, Canada. The Company's natural food stores include Wild Oats Natural Marketplace, Henry's Marketplace, 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 ability to resolve distributor issues without significant disruption, 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 and labor disputes in certain regions, the ability to obtain necessary inventory, the timing of completion of the transition to a new primary distributor, the Company's ability to execute on marketing and merchandising initiatives to drive customer traffic, 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 28, 2002, 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. Wild Oats Markets, Inc. Consolidated Statement of Operations (In thousands, except per-share amounts) (Unaudited) Thirteen Weeks Ended Sept 27, Sept 28, 2003 2002 Sales $237,028 100.0% $228,102 100.0% Cost of goods sold and occupancy costs 168,158 70.9% 161,026 70.6% -------- -------- Gross profit 68,870 29.1% 67,076 29.4% Direct store expenses 53,114 22.4% 48,629 21.3% -------- -------- Store contribution 15,756 6.6% 18,447 8.1% Selling, general and administrative expenses 15,472 6.5% 12,705 5.6% Pre-opening expenses 616 0.3% 237 0.1% (Gain) loss on disposal of assets 661 0.3% 13 0.0% Restructuring and asset impairment charges (income) 134 0.1% (174) -0.1% -------- -------- Income (loss) from operations (1,127) -0.5% 5,666 2.5% Interest expense, net 285 0.1% 2,134 0.9% -------- -------- Income (loss) before income taxes (1,412) -0.6% 3,532 1.5% Income tax expense (benefit)(1) (551) -0.2% 1,360 0.6% -------- -------- Net income (loss) $(861) -0.4% $2,172 1.0% ======== ======== Basic net income per common share $(0.03) $0.08 ======== ======== Weighted average number of common shares outstanding 29,898 26,440 ======== ======== Diluted net income per common share $(0.03) $0.08 ======== ======== Weighted average number of common shares outstanding, assuming dilution 29,898 27,185 ======== ======== Wild Oats Markets, Inc. Consolidated Statement of Operations (In thousands, except per-share amounts) (Unaudited) Thirty-Nine Weeks Ended Sept 27, Sept 28, 2003 2002 Sales $715,263 100.0% $697,302 100.0% Cost of goods sold and occupancy costs 504,312 70.5% 491,155 70.4% -------- -------- Gross profit 210,951 29.5% 206,147 29.6% Direct store expenses 154,305 21.6% 150,605 21.6% -------- -------- Store contribution 56,646 7.9% 55,542 8.0% Selling, general and administrative expenses 48,246 6.7% 41,625 6.0% Pre-opening expenses 1,639 0.2% 1,251 0.2% (Gain) loss on disposal of assets 2,029 0.3% (27) 0.0% Restructuring and asset impairment charges (income) (1,747) -0.2% (826) -0.1% -------- -------- Income (loss) from operations 6,479 0.9% 13,519 1.9% Interest expense, net 1,951 0.3% 6,543 0.9% -------- -------- Income (loss) before income taxes 4,528 0.6% 6,976 1.0% Income tax expense (benefit) (1) 1,766 0.2% 2,638 0.4% -------- -------- Net income (loss) $2,762 0.4% $4,338 0.6% ======== ======== Basic net income per common share $0.09 $0.17 ======== ======== Weighted average number of common shares outstanding 29,792 25,425 ======== ======== Diluted net income per common share $0.09 $0.17 ======== ======== Weighted average number of common shares outstanding, assuming dilution 30,169 26,071 ======== ======== (1) Interest expense for the nine months ended September 27, 2003 includes a $186,000 loss on early extinguishment of debt. Wild Oats Markets, Inc. Condensed Consolidated Balance Sheet (In Thousands) Sept 27, 2003 June 28, 2003 Dec 28, 2002 (unaudited) (unaudited) Assets Current assets: Cash and cash equivalents $11,211 $15,275 $11,367 Inventories, net 45,836 47,785 47,175 Accounts receivable, net 4,708 3,087 2,524 Prepaid expenses and other current assets 3,217 7,490 7,069 -------- -------- -------- Total current assets 64,972 73,637 68,135 Property and equipment, net 126,134 123,963 122,359 Intangible assets, net 113,524 113,648 113,819 Other long term assets 18,963 16,976 19,272 -------- -------- -------- Total assets $323,593 $328,224 $323,585 ======== ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $62,878 $65,105 $57,596 Accrued liabilities 36,080 35,955 37,943 Current portion of debt and capital leases 19 16 146 -------- -------- -------- Total current liabilities 98,977 101,076 95,685 Long-term debt and capital leases 37,279 39,886 43,075 Other long-term liabilities 13,964 14,330 17,923 ------- ------- ------- Total liabilities 150,220 155,292 156,683 -------- -------- -------- 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; 29,965,041 and 29,658,660 shares issued and outstanding 30 30 30 Additional paid-in capital 205,830 204,693 203,282 Accumulated deficit (32,606) (31,745) (35,368) Accumulated other comprehensive income (loss) 119 (46) (1,042) -------- -------- -------- Total stockholders' equity 173,373 172,932 166,902 -------- -------- -------- Total liabilities and stockholders' equity $323,593 $328,224 $323,585 ======== ======== ======== Wild Oats Markets, Inc. Consolidated Statement of Cash Flows (In Thousands) (Unaudited) Thirteen Weeks Ended Thirty-nine Weeks Ended Sept 27, Sept 28, Sept 27, Sept 28, 2003 2002 2003 2002 Cash Flows From Operating Activities: Net income $(861) $2,172 $2,762 $4,338 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 5,898 5,234 16,764 15,762 Deferred tax expense (587) 2,337 1,396 3,157 Loss (gain) on disposal of property and equipment 661 12 2,029 (27) Restructuring and asset impairment charges 134 (174) (1,747) (826) Loss on early extinguishment of long-term debt 186 Other 26 (151) 132 (211) Change in assets and liabilities: Inventories 1,955 2,396 1,500 8,992 Receivables and other assets 814 1,558 533 4,304 Accounts payable (2,012) (5,378) 5,698 (7,494) Accrued liabilities (167) (4,816) (3,051) (2,916) ------- ------- ------- ------- Net cash provided by operating activities 5,861 3,190 26,202 25,079 ------- ------- ------- ------- Cash Flows From Investing Activities: Capital expenditures (8,554) (2,262) (22,070) (6,906) Proceeds from sale of property and equipment 322 213 326 218 ------- ------- ------- ------- Net cash used in investing activities (8,232) (2,049) (21,744) (6,688) ------- ------- ------- ------- Cash Flows From Financing Activities: Net repayments on line of credit (2,600) (3,000) (6,700) (24,000) Net increase (decrease) in book overdraft (195) (2,373) (489) (493) Repayments on notes payable, long-term debt and capitalized leases (4) (2,564) (37,102) (8,294) Proceeds from long-term debt 37,879 Payment of debt issuance costs (721) Proceeds from issuance of common stock 1,112 51,491 2,455 52,925 ------- ------- ------- ------- Net cash provided by (used in) financing activities (1,687) 43,554 (4,678) 20,138 ------- ------- ------- ------- Effect of exchange rate changes on cash (6) (40) 64 14 ------- ------- ------- ------- Net increase (decrease) in cash and cash equivalents (4,064) 44,655 (156) 38,543 Cash and cash equivalents at beginning of period 15,275 12,728 11,367 18,840 ------- ------- ------- ------- Cash and cash equivalents at end of period $11,211 $57,383 $11,211 $57,383 ======= ======= ======= ======= Non-Cash Investing and Financing Activities; Stock Issued in payment of note payable $1,210 ======= Settlement of note payable against accounts receivable $200 ======= SOURCE Wild Oats Markets, Inc. -0- 11/04/2003 /CONTACT: Sonja Tuitele, Corporate Communications of Wild Oats Markets, Inc., +1-720-562-4984/ /Web site: http://www.wildoats.com http://www.wildoatsinc.com / (OATS) CO: Wild Oats Markets, Inc. ST: Colorado IN: REA SUP FOD SU: ERN ERP CCA