Wild Oats Profit Falls 97% On Merger Costs

BOULDER, Colo. — Wild Oats Markets here said costs related to its pending sale to Whole Foods Market resulted in a large earnings decline for the second quarter and first half that ended June 30, though sales were strong.

The company agreed in February to be acquired by Austin, Texas-based Whole Foods, but the Federal Trade Commission filed suit to block the transaction on antitrust grounds; a decision by a federal court judge is pending.

Net income for the quarter fell 97.4% to $127,000 — reflecting restructuring and asset impairment charges, the company indicated — while sales jumped 5.1% to $311.8 million and comparable-store sales increased 3.1%.

For the half, net income dropped 77.4% to $1.8 million, reflecting restructuring and asset impairment charges, while sales climbed 4.5% to $621.7 million and comps rose 1.7%.

Wild Oats said second-quarter results reflected transaction costs of approximately $6.5 million, plus $416,000 in non-operating restructuring charges for lease-related liabilities and accelerated depreciation for closed facilities. Excluding those combined charges, net income for the quarter would have been $7.1 million, or 23 cents per share, compared with $4.9 million, or 16 cents per share, a year ago, the company noted.

“Excluding those costs, the company was able to deliver significantly improved profitability in the second quarter by leveraging strong sales and improving expense management,” a spokeswoman told SN.

Wild Oats did not have a conference call to discuss its results with investors. In a filing with the Securities and Exchange Commission, the company said the financial results “illustrate the underlying strength in the business and demonstrate the success of several merchandising and marketing initiatives put into place early this year to drive top-line growth, [which] are netting positive results, and we expect to continue to build sales and profitability improvements.”

Simeon Gutman, an analyst with Goldman Sachs, New York, said he was pleased to see sizable growth in operating income and sequential stability in comps in a company that will potentially be acquired. “It appears management is doing a good job holding the business together while running it more profitably, which bodes well for Whole Foods if the deal goes through.

“On the other hand,” Gutman added, “results also suggest Whole Foods may face a potentially challenging sales and margin tradeoff.”