Wild Oats Releases 3rd-Quarter Results, Announces Change in Distributor

BOULDER, Colo. - Wild Oats Markets, Inc. today released its preliminary third-quarter 2003 sales and earnings results. The national natural and organic foods retailer also announced that it has reached a decision with distributor Tree of Life, Inc. that mutual expectations under the two companies' primary distribution agreement were unlikely to be met and that Tree of Life would relinquish the primary distribution role.

Preliminary net sales for the third quarter of 2003 were $237.0 million, a 3.9 percent increase from $228.1 million in the third quarter of 2002. Comparable store sales were 0.8 percent for the quarter, compared with 5.6 percent in last year's third quarter. Preliminary net loss for the third quarter of 2003 was $861,000, or -$0.03 per share, compared with net income of $2.2 million, or $0.08 per share, in the third quarter of 2002. Included in these results are approximately $1.5 million, or $0.03 per share, in pre-tax charges related to asset writeoffs, restructuring charges, and accelerated depreciation for the planned closure or relocation of distribution centers and warehouses.

The inability of Wild Oats and its primary distributor, Tree of Life, to achieve anticipated supply chain improvements through the distribution arrangement was one of the contributors to the net loss in the quarter. Beginning with the transition to Tree of Life in September 2002, distribution performance had been improving steadily through the second quarter of 2003. However, despite both parties' efforts to continue to improve performance levels to meet the expectations of the distribution agreement, performance levels did not meet mutual expectations in the third quarter.

To compensate, Wild Oats Markets increased its purchases from secondary and tertiary suppliers and distributors at a higher cost. In addition, operating expenses were higher in the quarter, due to increased support needed to manage these issues. At the beginning of the quarter, in anticipation of continued improvement in performance levels and to build increased customer traffic into the stores, Wild Oats also invested in promotional activity and marketing programs, which did not produce desired sales results. All of these factors contributed to the bulk of the EPS shortfall in the third quarter.

Wild Oats Markets and Tree of Life have mutually agreed to terminate their current primary distribution relationship and convert Tree of Life into Wild Oats' secondary distributor. 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 (UNFI), to transition Wild Oats' 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 the transition is expected to create some disruption in the stores, Wild Oats believes that it will be minimal because of the past primary and current secondary distribution relationship with UNFI.

Several unknown factors, including the duration of the current labor strikes at unionized grocery stores in Southern California and in St. Louis, Mo.; potential additional strikes in other states; and the transition to a new primary distributor, may have an impact on earnings in the fourth quarter. Therefore, Wild Oats has withdrawn its previous EPS guidance for 2003 and is unable to provide revised full-year EPS guidance at this time. On Nov. 4, the company will release full results for the third quarter of 2003 and will host a comprehensive conference call with the investment community.
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