BOULDER, Colo. -- Wild Oats Markets here reported a sales increase of 11.1% -- but slim profits of $82,000 -- during the fiscal third quarter ended Oct. 1.
Perry Odak, president and chief executive officer, said the results indicated that price investments that the natural food retailer made a year ago were a success.
Wild Oats lost $7.1 million in the third quarter of 2004, when it was affected by, and subsequently drawn into, price wars among conventional supermarkets in Texas and in California. "We invested heavily to ignite our sales, and as we've experienced in three quarters so far this year, these initiatives worked," Odak told analysts in a conference call.
Sales of $278.5 million, including comparable-store gains of 6.1%, were driven by higher basket sizes and strong performance from private-label and holistic health products, Odak said. Traffic was down slightly, which Odak attributed to the effects of higher fuel prices.
Excluding Southern California stores, which are lapping a period of heavy margin investment related to promotional activity following the strike-lockout affecting conventional grocers, comps increased by 8.8%. Wild Oats raised its per-share earnings guidance to 4 to 7 cents from 2 to 4 cents. He added that the company should generate between $37.5 million and $38.5 million in earnings before interest, taxes, depreciation and amortization for the fiscal year, up from earlier estimates of $36 million to $37 million. EBITDA of $8.2 million for the quarter, and $28.1 million for the year, is up 40% from 2004.
Gross margins as a percentage of sales improved 154 basis points to 28.99%, Odak said, adding that the company expects to reach a 30% run rate on margins by year-end. This was sparked by strong private label and holistic health sales, he said. Holistic health, including products such as vitamins, oils, herbs and homeopathic remedies, carry the highest margins in the store and sales in the department are outpacing all others in the store. Sales of private-label products are up 40% for the year.
Robert Campagnino, an analyst for Prudential Equity Group, New York, said in a research note that Wild Oats' margin performance produced "a solid result in our view, and one that augers well for the company as it moves into the fourth quarter and 2006."
Adversely affecting margins during the quarter were expenses associated with revamped prepared food programs, including hot sandwiches and pizza, which launched during the quarter, Odak said.
Wild Oats has opened new Henry's Marketplace stores in Glendale, Ariz., and Rancho Cucamonga, Calif., and has 16 leases or letters of intent for new stores scheduled to open in 2006 and 2007. Odak said the company has shifted its real estate strategy to concentrate store development in dense markets with demographics suited for natural/organic shoppers, such as Florida, where Wild Oats is developing stores in Tampa, Fort Lauderdale and St. Petersburg, and is expanding a store in Miami.
Odak said the company was looking at "a couple of chains that have come on the market recently" for a potential acquisition and that it would keep an eye on activity surrounding Albertsons, the Boise, Idaho, retailer that is seeking a sale, and Winn-Dixie Stores, operating under Chapter 11 bankruptcy. "I would expect we're going to see a lot of stores come on the market in this next year, so we're being cautious," he said.
