Whole Foods Merger Costs Hit Wild Oats' Q1 Profits

BOULDER, Colo. - Natural and organic foods retailer Wild Oats Markets Inc. saw first quarter profits squeezed by $3.5 million in costs related to its pending acquisition by Whole Foods Market Inc.

Earnings for the chain were $1.6 million, or 5 cents per share, compared with a profit of $2.9 million, or 10 cents, for the same period last year. Excluding transaction expenses, Wild Oats earned $5.1 million, or 17 cents, which would have beaten analysts' expectations of 14 cents per share.

"We [saw] growth in profitability in the first quarter, and [established] top-line momentum in 2007," said Gregory Mays, chairman and interim c.e.o. of Wild Oats. "The merchandising and marketing programs we put in place in the first quarter are gaining traction and are driving improvement in comparable store sales in the second quarter. We will continue to implement innovative merchandising and marketing programs, and focus on improved store-level operations to drive further sales gains and an improved customer experience."

Wild Oats' quarterly net sales increased 3.9 percent to $309.9 million, from $298.4 million last year, driven by the contributions from seven new stores opened since the end of last year's first quarter. The retailer reported a 0.3 percent increase in comparable store sales for the quarter, dropping from last year's 4.1 percent.

In addition to the transaction-related expenses in 2007, several non-operating charges adversely affected reported earnings in the first quarters of 2006 and 2007. The charges in the latest quarter - from restructuring for lease-related liabilities, as well as asset impairment charges and accelerated depreciation for closed facilities -- totaled approximately $1.5 million. Net income in the first quarter of fiscal 2006 was adversely affected by non-operating charges totaling $1.7 million, and included restructuring charges, asset impairment charges, severance payments, and accelerated depreciation for the closure or relocation of facilities.

Wild Oats ended the latest quarter with 2.53 million total square feet under management.

In February, Whole Foods signed a deal to buy Wild Oats for about $565 million, via an offering of $18.50 per Wild Oats share, plus the assumption of debt. In April, the tender offer was extended until May 22, due to a second request for information by the U.S. Federal Trade Commission.

Wild Oats said it continues to sell its premium natural and organic Wild Oats branded products in retail channels outside its stores, including Price Chopper and Pathmark stores in the Northeast, and online food retailer Peapod in Chicago and Washington D.C. The volume for the Wild Oats branded products out of these retail outlets increased the retailer's overall private label sales by $2 million in the latest quarter over the year ago.

Wild Oats operates 110 stores in 24 states and British Columbia, Canada. The company's banners include Wild Oats Marketplace, Henry's Farmers Market, Sun Harvest, and Capers Community Markets.
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