WILD OATS MARKETS EXPANDS OFFERINGS

Mark Hamstra

BOULDER, Colo. -- Wild Oats Markets here last week said it is pursuing several initiatives to reverse losses posted in the fiscal fourth quarter and year ended Jan. 1.

The natural/organic retailer said it was expanding its offerings to include more gourmet, kosher, gluten-free and other fare that previously wouldn't have fit its stringent definitions of natural or organic. The move, which has been tested in some locations, is slated to roll out in the second quarter and is designed to lure a broader base of shoppers.

Wild Oats said it would add about 10% to its stockkeeping unit count, cutting the new products into existing shelf space in some instances and building new endcap displays in others.

"Through research with our customers we learned that we made our product selection too narrow to appeal to more mainstream shoppers," said Perry Odak, president and chief executive officer, in a conference call discussing the company's results for the fourth quarter and year. "It was a mistake for us to tighten our standards so tight that we were not beginner-friendly."

In addition, Wild Oats said it plans to:

- Continue to roll out new private-label items.

- Expand its food-service offerings with more seasonal and ethnic selections.

- Roll out back-door receiving after piloting it in about half the chain's locations.

Wild Oats also said its initial test of offering products through Ahold's Peapod online grocery service has exceeded the expectations of both companies, and the natural-products chain remains on track to test store-within-a-store locations in five Stop & Shop sites later this year. Stop & Shop also is a division of Ahold.

In the most recent fiscal year, Wild Oats said its profits were hampered by several factors, including expenses related to new-store openings, difficulties in the debut of a new distribution center in Southern California, accelerated depreciation, and charges associated with its 401(k) plan.

The company posted a preliminary loss of $3.8 million for the fourth quarter ended Jan. 1 and $7.1 million for the year, compared with net income of $829,000 and $3.6 million in the year-ago periods, respectively. Sales, driven by aggressive promotions and new-store openings, were up 11% for the quarter, to $281.9 million, and 8.1% for the year, to $1.05 billion.

During the year, the company opened 12 new stores and closed or relocated seven, ending the year with 108 locations.

Comparable-store sales fell 3.2% in the fourth quarter, including declines of about 20% to 25% at 22 stores in Southern California that had shown strong gains in the year-ago period because of the labor dispute at competitors Vons, Ralphs and Albertsons. For the year, comparable-store sales rose 1.4%, including results from Southern California.

The company said it would restate some results from the past two years because of changes in accounting for leasehold improvements. It also withdrew previous guidance of 7 to 10 cents in earnings per share for the current fiscal year, citing the accounting changes.

4th-QUARTER RESULTS

Qtr Ended: 1/1/05; 12/27/03

Sales: $281.9 million; $253.9 million

Change: 11%

Comp-store: -3.2%

Net income: *($3.8 million); $829,000

Inc/Share: (13 cents); 3 cents

Year: 2004; 2003

Sales: $1.05 billion; $969.2 million

Change: 8.1%

Comp-store: 1.4%

Net Income **: ($7.1 million); $3.59 million

Inc/share: (25 cents); 12 cents

* The fourth-quarter loss included $913,000 related to accelerated depreciation and the costs to review and correct "certain administrative practices" in the company's 401(k) retirement plan.

** The loss for the year included $2.5 million in restructuring charges and $6.3 million related to accelerated depreciation and the costs related to the retirement plan cited above.