Strong Sales Growth Drives Wild Oats Q4 Profits

DENVER -- Natural and organic food retailer Wild Oats Markets Inc. stock jumped 18 per cent yesterday, following word that the chain saw a profit in its fourth quarter from strong sales growth.

"We are very pleased with our results for 2005 and believe it was a year of solid progress for Wild Oats Markets," said Perry D. Odak, president and c.e.o. "We achieved -- and exceeded -- our sales and profitability targets, and we are realizing the benefits of the investments we have made to turn this business around."

Revenue totaled $282.7 million up from $281.9 million in the comparable fiscal quarter of 2004, which included an additional week of sales. Excluding that week's results, Odak said the sales increase was 7.2 percent.

This growth was driven by continued strong comparable store sales and total square footage growth of 5.5 percent, according to Wild Oats, which ended the quarter with 2.58 million square feet of selling space. The addition of eight new stores -- two of which were relocated stores -- and four major remodels in 2005, coupled with continued strong comparable store sales growth helped to drive the overall increase in net sales.

Net sales in 2005 were $1.1 billion, a 7.2 percent increase compared to $1.0 billion in 2004. Excluding the 53rd week in 2004, total sales in 2005 increased 9.1 percent.

Comparable store sales for the fourth quarter 4.2 percent over 2004, and comps for the full year 2005 increased 3.8 percent over 2004. The retailer expects 2006 comps for all stores to be in the range of 4 percent to 5 percent.

Wild Oats leveraged its growth into gains in profitability, which exceeded earnings guidance provided at the end of the third quarter. Net income for the fourth quarter of 2005 was $3.3 million, or 11 cents per diluted share, compared with a net loss of $34.7 million, or $1.22 per diluted share last year.

Net income for 2005 was $3.2 million, or 11 cents per share, compared with a net loss of $40 million, or $1.37 in 2004. Wild Oats Markets estimates that full-year 2006 EPS will be in the 34 cents to 40 cents per share range, which includes an 8 cents per share impact of expensing stock compensation plans.

Wild Oats saw a gross profit of $84 million in the fourth quarter, an 8.8 percent increase compared with last year's $77.2 million -- an improvement the retailer primarily attributes to its ability to strike a balance between sales and promotional activity, and its implementation of new merchandising initiatives focused on improving margins. It generated a 10.3 percent increase in gross profit to $327.6 million, or 29.1 percent of sales, in 2005 compared with $296.9 million, or 28.3 percent of sales, in 2004. The company expects gross margin for the full year 2006 to be approximately 30 percent.

Capital expenditures were $28.3 million in 2005, compared to $49.1 million in 2004. The reduction in capital expenditures in 2005 is primarily due to the number of stores opened in 2005 relative to 2004 and the timing of these new store openings, according to Wild Oats. The company expects full-year 2006 capital expenditures to be in the $55.0 million to $60.0 million range.

In Q4, Wild Oats opened one new Henry's store in Rancho Cucamonga, Calif. in the fourth quarter. This brings the total number of new stores opened in 2005 to eight. Currently Wild Oats has 16 leases or letters of intent signed for new stores opening in 2006 and 2007, and plans to open 10 new stores in 2006. It also completed the major remodeling of four older stores in 2005, including two San Diego Henry's stores and Wild Oats stores in Evanston, Ill. and West Hartford, Conn. It expects to complete the major remodeling of up to six older stores in 2006.

As part of its ongoing efforts to improve its overall store base, Wild Oats so far this year announced the closure of two smaller, older stores in Portland, Ore. and Ft. Lauderdale, Fla. It has also identified an additional store for closure in the second quarter of 2006.

"We are optimistic about our prospects for success in 2006," said Odak. "We have a solid management team in place, our real estate pipeline is full and we have many new stores in development. In addition to being the high growth segment of the food industry, we have built an infrastructure for growth and our investments in distribution and in upgrading our store base are paying off."
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