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Wild Oats' Net Income Drops; New Initiatives Offer Potential Lift

BOULDER, Colo. - Increased direct-store expenses and softer-than-expected sales in the second quarter led to a drop in Wild Oats Markets, Inc.'s second-quarter net income, the company said in an earnings conference call yesterday morning.

However, a corporate restructuring and some new initiatives are aimed at cutting expenses and generating new revenue streams.

Among the conference call highlights:

-The company reported a 3.9 percent sales increase to $251.7 million.

-Comparable-store sales went up 1.5 percent.

-Net income was 0.01 cents per diluted share vs. seven cents a share a year ago

-Wild Oats opened five new stores.

-To accelerate its growth plans, Wild Oats raised $115 million through a convertible debentures offering, which was completed in June 2004.

-Second-quarter comparable-store sales were negatively affected by post-strike promotional activity in Southern California and other markets, as well as disruptions related to the company's ramp-up with a new primary distributor, and the startup of its new perishables distribution center in Riverside, Calif. Additionally, the grocer opened new stores in existing markets, which had the effect of short-term cannibalization of existing stores' sales. This had a negative impact on same-store sales in 10 existing stores in the second quarter.

-Yesterday the company also said it is launching a reorganization to complete the centralization of its operations, merchandising, and marketing functions, which will improve and streamline its operations. This reorganization will result in a restructuring charge of about $500,000 in the third quarter and expected savings of $5 million in SG&A annually.

Among Wild Oats' recent business developments, the grocer reached an agreement to test two alternative retail concepts beginning in the fourth quarter of 2004. One is a three-to-five store test of a Wild Oats branded store-within-a-store concept with Stop & Shop Supermarket Co., LLC. "The concept will be our Holistic Health Department as featured in our newest Superior, Colo. prototype," Wild Oats' dir. or corp. communications, Sonja Tuitele, told Progressive Grocer. "Products will include our private label vitamins, supplements, and lifestyle products, along with our private label grocery line."

Although on the surface it may seem unusual for a supermarket to open a store-within-a-store concept inside another supermarket, Tuitele said it's an ideal fit. "We don't believe we are in the same channel as conventional grocers, since we offer natural and organic products that meet the toughest standards in the industry," she said.

Additionally, Wild Oats will begin an online retailing test of the sale of its private label grocery products in the Chicago area through Peapod, LLC, a leading U.S. Internet grocer. Although Peapod and Stop & Shop are both owned by Ahold, Tuitele said it is coincidential that the partners in each of the programs have the same parent. "These efforts are being made to further diversify our business outside of our brick-and-mortar stores and to further drive national brand awareness of Wild Oats, as well as the benefits of natural and organic food and products," she noted.
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