Merger Costs Impact Wild Oats' Earnings

ELLIOT ZWIEBACH

BOULDER, Colo. — Wild Oats Markets here said transaction expenses related to its pending merger with Whole Foods Market resulted in decline in net income for the first quarter, which ended March 31, while a more aggressive promotional schedule helped boost sales.

Wild Oats in late February agreed to be acquired by Austin, Texas-based Whole Foods in a cash tender offer of $18.50 per share. The tender offer has been extended from April 25 to May 22 due to a second request by the Federal Trade Commission for additional information.

Sales at Wild Oats rose 3.9% to $309.9 million, and comparable-store sales increased 0.3% for the quarter, while net income fell 43.7% to $1.6 million. Excluding approximately $3.5 million in merger-related costs, the company said net income rose 76.8% to $5.1 million.

Net income was also impacted by several non-operating items totaling approximately $1.5 million, including restructuring charges for lease-related liabilities, asset impairment charges and accelerated depreciation for closed facilities.

“We are very pleased with our growth in profitability in the first quarter and with the top-line momentum we are establishing in 2007,” Greg Mays, chairman and interim chief executive officer, said. “The merchandising and marketing programs we put in place in the first quarter are gaining traction and are driving improvement in comparable-store sales in the second quarter.”

Gross margins fell slightly, to 32% of sales, compared with 32.5% in last year's first quarter, which the company said was due to increased occupancy costs, a shift in sales mix to lower-margin product categories and a more aggressive promotional schedule.

Wild Oats also said sales of private brands to other distributors, including Pathmark, Price Chopper and Peapod, increased by $2 million since the year-ago first quarter, though it declined to indicate total private-brand sales.