WILD OATS EXPECTS SALES RATE TO SPROUT

ELLIOT ZWIEBACH

BOULDER, Colo. -- Wild Oats Community Markets here expects sales to continue to grow at a rate of 30% to 35% a year for the next few years, Mike Gilliland, chief executive officer of the natural foods chain, said last week.

He said he anticipates sales will hit $400 million by year's end, which would represent growth of close to 30% over last year's $311.1 million, "and we believe that rate of top-line growth is sustainable for the next few years," he said.

Gilliland also said the 57-store chain expects new stores and acquisitions to help raise the store count to more than 100 and to boost sales to $1 billion by 2001.

Gilliland made his predictions during a phone conference call following release of the company's financial results for the second quarter and first half ended June 27, which indicated nine additional stores helped boost sales to record levels.

Wild Oats sales rose 29% to a record $98.7 million for the 13-week quarter and 30% to $190.3 million for the half -- reflecting the acquisition of six stores and the opening of three (including one relocation), the company said. Same-store sales rose 2% for the quarter and 4% for the half.

Excluding non-recurring acquisition-related expenses of $393,000, the company said, net income rose 69% to $2.8 million for the quarter and 71% to $5.5 million for the half.

The acquired stores include two in New York and one each in Columbus, Ohio; Santa Barbara, Calif.; Little Rock, Ark.; and Victoria, British Columbia; new stores opened in Columbus, Ohio -- a relocation of an acquired unit -- Princeton, N.J., and New York.

The company said it has 12 new sites and six relocations under development. New stores are scheduled to open in Santa Monica, Calif., and Miami Beach, Fla., during the current quarter; in Dallas, Indianapolis and Las Vegas later this year; and in Albuquerque, N.M.; Denver; Eugene, Ore.; Hinsdale, Ill.; Kansas City, Kans.; Las Vegas; and Miami in 1999. Relocations are scheduled for stores in Denver; Memphis, Tenn.; and Tempe, Ariz., this year, and Fort Collins, Colo.; Salt Lake City; and Santa Fe, N.M., in 1999, the company said.

According to Gilliland, "Wild Oats accelerated its growth in the second quarter by combining the most successful new store opening in the company's history in Columbus, Ohio, with strategic acquisitions in Manhattan, Santa Barbara, Victoria and Little Rock, [and] we are well on our way to exceeding our new-store growth plan for 1998.

"Wild Oats also posted record-level profits in the second quarter in spite of new competition in Boulder [from a new Whole Foods outlet]. Having successfully managed the competition, we are now looking forward to pursuing many excellent new store opportunities in untapped markets across the country."

During the phone conference Gilliland said Wild Oats plans to introduce an on-line shopping site in late September featuring 2,000 stockkeeping units.

"We don't think on-line shopping will have a material effect on our business initially, but we're thinking positive about it," he said.

"There's a lot of experimentation going on right now, and for a modest investment, we'll be able to learn a lot and grow our business at the same time.

"We see a lot of upside, but it's too early to comment on what kinds of numbers we anticipate."

Gilliland said Wild Oats will partner with Pandessic LLC, Sunnyvale, Calif., "which has experience with virtual retailing." He also said the company will partner with a vitamin-supplement manufacturer, though he declined to name that partner. "Supplements will probably represent the lion's share of the on-line business, but we'll offer our own private-label line and other grocery products as well," Gilliland said.

He said all deliveries will be sent out via United Parcel Service, with guaranteed next-day delivery. In other highlights of last week's conference call:

Same-store sales, which rose only 2% for the quarter because of some store cannibalization, have been rebounding in the first month of the third quarter to a 4% increase because of strong sales at relocated and remodeled stores, said Mary Beth Lewis, chief financial officer. She said she expects same-store sales to rise 6% by the fourth quarter.

Wild Oats is on schedule to use category management to reset the top five categories in all stores by year-end, said Jim Lee, president. He said the chain has hired Brian Harris & Associates, Los Angeles, to help launch its category management implementation this month, and Spence Information Services, San Francisco, to supply it with information on product movement at natural-food stores to better meet consumer needs.

Wild Oats' private-label line accounts for 7% to 8% of sales and should reach double digits by next year, Lee said. He also said the company expects to triple the number of private-label SKUs -- to approximately 440 -- by the end of the year.

The company has made 100,000 shares of Wild Oats stock available to virtually all employees "so they can share in our growth," Lee said.

The chain's first East Coast store, in Princeton, N.J., is operating "above plan," Gilliland said, and a store it acquired in Manhattan in the second quarter "has been very busy, and we anticipate several more stores in Manhattan, as well as in the suburbs like Westchester, Long Island and northern New Jersey."

2ND-QUARTER RESULTS Qtr

Ended 6/27/98 6/28/97

Sales $98.7 million $76.7 million

Change 29%

Same-store 2%

Net Income $2.6 million $1.7 million

Change 55.3%

Inc/Share 21 cents 16 cents

26 Weeks 1998 1997

Sales $190.3 million $146.4 million

Change 30%

Same-store 4%

Net Income $5.3 million $3.2 million

Change 64.2%

Inc/Share 41 cents 31 cents

Includes nonrecurring acquisition-related expenses of $393,000.