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Wild Oats Posts Preliminary 4Q and Year-End Sales Increase

BOULDER, Colo. -- Wild Oats Markets, Inc. yesterday reported preliminary financial results for the fourth quarter and full year ended Jan. 1, showing net sales up 11.0 percent in the fourth quarter; and 8.1 percent for the year to a record $1.05 billion.

The results don't contain anticipated adjustments relating to the company's accounting for leases and the associated amortization of leasehold improvements. On Feb. 17, Wild Oats said in a Form 8-K filing that the company's audit committee found that the company needed to restate its prior period financial statements. The adjustments made pursuant to the restatement are all non-cash and will not have an impact on the company's cash position, net sales, or same-store sales. The restatement will be issued as soon as the review is complete next month.

Other 2004 preliminary results included:

-- Comparable-store sales went up 1.4 percent in 2004, despite challenging comparisons in Southern California stores because of double-digit same-store sales in the fourth quarter of 2003. Fourth-quarter 2004 comps decreased 3.2 percent but were stronger than expected, due to effective advertising and promotional activity launched early in the fourth quarter of 2004. Fourth-quarter 2003 same-store sales increased 9.9 percent. Without the Southern California stores, Wild Oats experienced a comparable-store sales increase of 4.3 percent in the fourth quarter of 2004.

-- Wild Oats opened 12 new stores in the year, bringing its total square footage to 2.45 million square feet. These new stores included seven Wild Oats Natural Marketplace and five Henry's Farmers Market stores. So far in the first quarter of 2005, the company has relocated a Wild Oats store in Scottsdale, Ariz. and opened its fifth Wild Oats store in metropolitan Salt Lake City. Including these two stores, the company plans to open as many as 12 new stores in 2005, bringing its total anticipated square footage to 2.67 million square feet at the end of 2005. Wild Oats currently has 21 leases and letters of intent signed for new stores scheduled to open in 2005 and 2006.

-- The company reported a net loss of $7.1 million, or 25 cents per share, and $3.8 million, or 13 cents per share, in the full year and fourth quarter of 2004, respectively. The net loss in the fourth quarter was greater than expected because of strong customer response to the company's holiday rewards program, which generated a higher level of coupon redemptions than anticipated.

-- Wild Oats reported gross profit of $296.4 million in 2004, a 3.8 percent increase from 2003. As the company had previously projected, investments in pricing and promotions to build sales in regions affected by ongoing competition and the impact of 12 new stores put pressure on gross margins throughout the year.

-- Gross profit in the fourth quarter of 2004 was $77.2 million, a 3.4 percent increase over the same period last year. The gross profit margin was 27.4 percent in the fourth quarter of 2004, compared with 29.4 percent in the fourth quarter of 2003. New stores adversely affected the gross profit margin by 90 basis points in the fourth quarter. According to Wild Oats, several initiatives are under way to improve gross margins, including improvement of the supply chain, new merchandising and marketing initiatives designed to broaden Wild Oats' appeal to more customers, the continued rollout of higher-margin private label products, and a more normalized promotional schedule.

"The best way to characterize 2004 is, we overcame several challenges at the same time that we instituted a significant amount of change, which put pressure on our business and reduced our short-term potential for profitability," said Wild Oats president and c.e.o Perry Odak in a statement. "With distributor changes and the startup of our perishables distribution center [in Riverside, Calif.]--which adversely affected margins and profits throughout the year; the Southern California competitive activity; and a major reorganization and centralization behind us, we expect we can focus on optimizing our existing stores while, at the same time, meeting our new store objectives to produce profitable growth in 2005. Our industry is strong, we've built a solid infrastructure for this company, and we're broadening our merchandise selection to meet a greater number of customer needs. We are confident we will now begin to reap the benefits of our hard work to turn Wild Oats Markets around and to build a leading national natural and organic foods brand."

Odak attributed strong sales to new advertising and promotional programs launched in the fourth quarter, in particular the "very successful" customer rewards program implemented during the holidays. During the conference call yesterday, he said that the company, which had experienced a redemption rate "north of 30 percent" with the program, had learned enough to offer an improved program in March, which would offer much better control of redemption.

Also during the call, Odak discussed such other positive developments as a new real estate forecasting model the company was implementing to find ideal store locations, based on comprehensive customer data, and which has so far pinpointed 450 possible locations; the strengthening of Wild Oats' distribution system by making Unify its primary distributor for nonperishable products, which has resulted in the retailer's highest in-stock levels to date; and the launch of a new ad campaign last September to attract new customers as well as retain old ones. The successful relaunch of the company's private label program, which saw over 450 food products under the Wild Oats and Henry's brand and 270 Wild Oats brand vitamins and supplements, would be augmented in 2005 by 400 new or reformulated products, added Odak. Additionally, Wild Oats' e-tailing partnership with Peapod was "exceeding all expectations."

The merchandising initiative to broaden appeal to a larger customer base would include a greater selection of gourmet, convenience, lower-price, and restricted-diet products, according to Odak and c.f.o. Ed Dunlap, as well as some national brands to be gradually "cut in at the lowest level" and kosher items. Dunlap stressed the importance of a better balance of products for a more "beginner-friendly" atmosphere in stores.

Wild Oats now operates 108 natural food stores in 24 states and British Columbia, Canada. The company's banners include Wild Oats Natural Marketplace, Henry's Farmers Market, Sun Harvest, and Capers Community Market.
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