Exhibit 99.1
WILD OATS MARKETS, INC. REPORTS PRELIMINARY FOURTH QUARTER AND
YEAR-END 2004 RESULTS
BOULDER, Colo., Feb. 22 /PRNewswire-FirstCall/-- Wild Oats Markets, Inc.
(Nasdaq: OATS), a leading national natural and organic foods retailer, today
announced financial results for the fourth quarter and full year ended
January 1, 2005.
The financial results discussed in this release are preliminary, as they do
not contain anticipated adjustments relating to the Company's accounting for
leases and the associated amortization of leasehold improvements. In a recent
open letter from the Chief Accountant of the SEC to the AICPA, the SEC has
clarified certain points surrounding lease accounting. In review of this recent
interpretation, the Company is consulting with its current and former
independent public accounting firms and is revisiting the period of time over
which it has analyzed and accounted for leases on stores and the associated
capitalized leasehold improvements. As a result, on February 17, 2005 the
Company announced in a Form 8-K filing that the Company's Audit Committee
concluded the Company needed to restate its prior period financial statements.
The adjustments made pursuant to the restatement are all non-cash and will not
have an impact on the Company's cash position, net sales or same-store sales.
This restatement, detailed below, is similar to recent restatements announced by
other public multi-location retail and food service companies. The Company
expects a majority of the change to affect amortization of leasehold
improvements, which is included in the cost of goods sold and occupancy costs in
the Statement of Operations.
As a result of this restatement, the Company is withdrawing its previously
stated earnings guidance of $0.07 to $0.10 cents per share for 2005.
Comparable 2003 quarterly information contained herein also does not include
a restatement, announced Feb. 7, 2005 in a Form 8-K filing, of $500,000 in
restructuring charges between the second and fourth quarters of 2003 described
in more detail below. This restatement included non-cash charges and has no
impact on financial results for 2003 as a whole. Accordingly, investors are
cautioned that the numbers contained in this release are preliminary and the
Company reminds investors that it will be restating prior financial periods.
2004 Highlights
* Net sales increased 11.0 percent in the fourth quarter to $281.9 million,
and in 2004 increased 8.1 percent to a record $1.05 billion.
* Comparable store sales increased 1.4 percent in 2004 despite challenging
comparisons in Southern California stores due to double-digit same-store
sales in the fourth quarter of 2003.
* Wild Oats opened 12 new stores in 2004.
* The Company reported a net loss of ($7.1 million) or ($0.25) per share and
($3.8 million) or ($0.13) per share in the full year and fourth quarter of
2004, respectively.
"The best way to characterize 2004 is we overcame several challenges at the
same time that we instituted a significant amount of change, which put pressure
on our business and reduced our short-term potential for profitability," said
Perry Odak, President and CEO. "With distributor changes and the start-up of our
perishables distribution center -- which adversely affected margins and profits
throughout the year; the Southern California competitive activity; and a major
reorganization and centralization behind us, we expect we can focus on
optimizing our existing stores while, at the same time, meeting our new store
objectives to produce profitable growth in 2005. Our industry is strong, we've
built a solid infrastructure for this Company, and we're broadening our
merchandise selection to meet a greater number of customer needs. We are
confident we will now begin to reap the benefits of our hard work to turn Wild
Oats Markets around and to build a leading national natural and organic foods
brand."
2004 Preliminary Financial Results
In 2004, the Company reached a milestone and generated record net sales of
$1.05 billion, an 8.1 percent increase over net sales of $969.2 million in 2003.
This increase was due to the addition of 12 new stores in 2004, two of which
were relocations of previously closed stores. The 53-week year in 2004 also had
an $18.2 million positive impact on year-over-year sales comparisons. Comparable
store sales in 2004 increased 1.4 percent compared with an increase of 2.4
percent in 2003.
Including the two relocated stores, the Company closed or sold seven older
stores in 2004, ending the year with 2.45 million square feet, an increase of
10.0 percent compared with 2.23 million square feet at the end of 2003. Weighted
average square footage in 2004 was 2.32 million square feet, an increase of 7.4
percent compared to weighted average square footage of 2.16 million in 2003.
Weighted average square footage in the fourth quarter was 2.44 million square
feet, an increase of 11.4 percent compared to weighted average square footage of
2.19 million in last year's fourth quarter.
Wild Oats generated $281.9 million in net sales in the fourth quarter of
2004, an 11.0 percent increase from $253.9 million in last year's fourth
quarter. This increase was largely due to new stores, year-over-year sales
improvements in all regions of the country excluding Southern California, and
the additional week of sales in the fourth quarter of 2004 compared with the
fourth quarter in 2003.
The Company had previously projected its same-store sales in the fourth
quarter would decline 4 percent to 5 percent as aggressive competitive activity
by conventional stores continued in Southern California in the fourth quarter
and 22 of the Company's stores lapped strong double-digit same-store sales from
the benefit of the Southern California conventional grocery strike in the fourth
quarter of 2003. Fourth quarter 2004 comparable store sales declined 3.2 percent
but were stronger than anticipated as a result of effective advertising and
promotional activity launched early in the fourth quarter of 2004. Fourth
quarter 2003 same-store sales increased 9.9 percent. Without the Southern
California stores, Wild Oats experienced a comparable store sales increase of
4.3 percent in the fourth quarter of 2004.
"We are encouraged by the sales momentum achieved by our new advertising and
promotional programs in the fourth quarter," said Mr. Odak. "Strong top-line
growth continued throughout the fourth quarter and into the first quarter of
2005. We launched a very successful customer rewards program during the holidays
and the strong customer response drove sales and basket size growth, as well as
higher-than-expected redemptions on the rewards, which adversely affected gross
profit in the quarter."
The Company reported a net loss of ($7.1 million), or ($0.25) per share in
2004, compared with net income of $3.6 million, or $0.12 per share, in 2003.
Included in the 2004 results are approximately $2.5 million in restructuring
charges, or $0.06 per share after tax, primarily related to closed stores,
severance from the Company's 2004 reorganization, and asset write-offs.
Additionally, the 2004 net loss included $6.3 million, or $0.15 per share after
tax, in non-cash charges related to accelerated depreciation and non-recurring
charges related to review and correction of certain administrative practices in
the Company 401(k) retirement plan dating back to 1999.
Wild Oats reported a net loss of ($3.8 million), or ($0.13) per share, in
the fourth quarter of 2004, compared with net income of $829,000, or $0.03 per
share, in the same period last year. The net loss in the fourth quarter of 2004
was greater than expected due to a more favorable customer response to the
Company's holiday rewards program, which generated a greater level of coupon
redemptions than anticipated. As expected, a greater number of new stores in the
Company's portfolio caused lower gross margins and higher direct store expenses,
which impacted profitability in the year. Included in the fourth quarter 2004
results is approximately $0.01 per share after tax, relating to closed stores.
Additionally, the fourth quarter of 2004 net loss included $913,000 or $0.02 per
share, related to accelerated depreciation and the costs to complete the review
and correction of certain administrative practices in the Company's 401(k)
retirement plan.
Wild Oats reported gross profit of $296.4 million in 2004, a 3.8 percent
increase compared with $285.6 million in 2003. As the Company had previously
projected, investments in pricing and promotions to build sales in regions
affected by ongoing competition and the impact of 12 new stores put pressure on
gross margins throughout the year. New stores drove the gross profit margin down
by 40 basis points in 2004. As a result, gross profit margin in 2004 was 28.3
percent compared with 29.5 percent in 2003. The aforementioned accelerated
depreciation had a 36-basis-point adverse impact on gross profit margins for the
year.
Gross profit in the fourth quarter of 2004 was $77.2 million, a 3.4 percent
increase, compared with $74.7 million in the same period last year. The gross
profit margin was 27.4 percent in the fourth quarter of 2004, compared with 29.4
percent in the fourth quarter of 2003. New stores adversely impacted the gross
profit margin by 90 basis points in the fourth quarter. Several initiatives are
underway to enhance gross margins, including new merchandising initiatives
designed to broaden Wild Oats' appeal to more customers; the continued rollout
of higher-margin private label products; and a more normalized promotional
schedule.
Direct store expenses in 2004 were $235.4 million, or 22.5 percent of sales,
up 12.7 percent compared with $208.9 million, or 21.6 percent of sales, in 2003.
Direct store expenses, excluding new stores, in 2004 were 22.1 percent of sales.
The Company opened 12 new stores in 2004, eight in 2003 and one in 2002,
therefore the greater number of new stores in the portfolio has an impact on
year-over-year comparisons. New stores initially have higher direct store
expenses and shrink associated with their start up. In the fourth quarter of
2004, direct store expenses were $64.2 million, or 22.8 percent of sales,
compared with $54.6 million, or 21.5 percent of sales, in the fourth quarter of
2003. Direct store expenses, excluding new stores, in the fourth quarter of 2004
were 22.2 percent of sales. In addition to the impact from new stores, continued
increases in benefits costs drove direct store expenses up in the fourth quarter
and full year 2004 by $800,000, or $0.02 per share, and $3.0 million, or $0.07
per share, respectively.
Store contribution to profit was $60.9 million, or 5.8 percent of sales in
2004, a 20.6 percent decline compared with $76.4 million, or 7.9 percent of
sales in 2003. Store contribution for the fourth quarter of 2004 was $13.0
million, or 4.6 percent of sales, compared with $20.1 million, or 7.9 percent of
sales in the fourth quarter of 2003. The decline in store contribution margin as
a percent of sales in both periods was due to the aforementioned decline in
gross profit margin, the impact of new stores and higher benefits costs.
Selling, general and administrative (SG&A) expenses in 2004 declined 3.5
percent to $62.4 million from $64.7 million in the prior year. The Company was
able to lower SG&A expenses through less dependency on flyer-based advertising,
savings from the Company's reorganization in the third quarter of 2004, and its
ability to leverage past IT investments for greater efficiency. SG&A as a
percent of sales was 6.0 percent in 2004 compared with 6.7 percent in 2003.
In the fourth quarter of 2004, SG&A expenses were $16.9 million, or 6.0
percent of sales, compared to $16.4 million, or 6.5 percent of sales, in last
year's fourth quarter. This reduction was achieved even with substantial
advertising investments in the fourth quarter. The Company expects SG&A expenses
to be flat in 2005.
Net cash provided by operating activities was $17.5 million in 2004 compared
with $43.8 million in 2003. As the Company continued to invest in new stores and
remodel existing stores, capital expenditures increased to $50.8 million in 2004
compared with $31.7 million in 2003. In 2005, Wild Oats expects its capital
expenditures to be in the $40.0 million to $45.0 million range, as it continues
to fund its new store development and complete major remodels of up to 10
stores.
Business Developments
Wild Oats Markets opened 12 new stores in 2004, bringing its total square
footage to 2.45 million square feet as of the end of 2004. These new stores
included seven Wild Oats Natural Marketplace and five Henry's Farmers Market
stores. In the fourth quarter of 2004, the Company opened a Wild Oats store in
metropolitan Indianapolis, Ind. and a Henry's Farmers Market in metropolitan
Phoenix, Ariz. Thus far in the first quarter of 2005, the Company relocated a
Wild Oats store in Scottsdale, Ariz. and opened its fifth Wild Oats store in
metropolitan Salt Lake City, Utah. Including these two stores, the Company plans
to open up to 12 new stores in 2005, bringing its total anticipated square
footage to 2.67 million square feet at the end of 2005. Currently, the Company
has 21 leases and letters of intent signed for new stores scheduled to open in
2005 and 2006.
Restatement of Historical Financials
As mentioned above, on February 17, 2005 the Company announced in a Form 8-K
filing that the Company's Audit Committee concluded the Company needed to
restate its prior period financial statements to modify certain lease accounting
in accordance with a February 2005 open clarification letter from the SEC's
Chief Accountant. The adjustments that will be made pursuant to the expected
restatement are all non-cash and will not have an impact on the Company's cash
position, net sales or same-store sales. This restatement is similar to recent
restatements announced by numerous other public multi-location retail and
restaurant companies.
The issue requiring restatement relates to the Company's historical
accounting practice of using the initial lease term when determining whether
each of its leases was an operating lease or a capital lease and when
calculating straight-line rent expense. The Company had amortized its associated
leasehold improvements over the shorter of the useful life of the asset or the
initial and renewal terms of the lease.
Following the issuance of the SEC letter and discussions with the Company's
independent auditors, as well as an extensive analysis of its accounting
records, the Company has concluded that the accounting should be interpreted to
require that the Company use the same lease term for amortizing leasehold
improvements as it uses in determining capital versus operating lease
classifications and in calculating straight-line rent expense. The Company is
working diligently to complete its review of this matter and quantify the impact
on each of the prior periods affected. The Company will restate its prior period
financials when this review is completed.
Additionally, on February 7, 2005, the Company announced in a Form 8-K
filing that its interim financial statements for the second and fourth quarters
of 2003, as well as the second quarter of 2004, as presented on a comparative
basis, should no longer be relied upon due to an error in recording legal
contingencies and restructuring reserves. During its review of the restructuring
reserves accounted for in the second quarter and fourth quarters of 2003, the
Company understated and overstated, respectively, its adjustment to accrue for
the remaining lease obligation for a closed store site in the amount of
$500,000. This was due to the commingling of litigation and lease-related
reserves in supporting reserve schedules. As a result of the restatement,
restructuring expense will be increased by $500,000 for the second quarter of
2003 and decreased by the same amount for the fourth quarter of 2003, with no
net income or cash flow impact on fiscal year 2003 as a whole.
Earnings-per-share will decrease by $0.01 and increase by the same $0.01 in the
second and then fourth quarters of 2003. The Company expects to file restated
financial statements and related disclosures for the year ended December 27,
2003, as well as for its quarterly reports for the second and fourth quarters of
2004.
The Company is currently completing its analysis of historical financial
results and once its current and former independent auditors concur with the
Company's analysis, the Company will report the specific impact of the
restatements and release final restated financial statements as soon as
available. At that time, the Company will also amend the previous reports on
Form 8-K and file the restated financial statements.
Company management will host a conference call and webcast with financial
analysts and investors on Tuesday, February 22, 2005 at 8 a.m. Mountain time (10
a.m. Eastern time) to discuss financial results for the fourth quarter and full
year ended January 1, 2005. Participants calling from the U.S. may call in by
dialing (877) 252-5618. International callers should dial (706) 634-1349.
Participants should ask for the "Wild Oats fourth quarter/year-end 2004 earnings
conference call" or reference conference ID number 3756262. A simultaneous
webcast will be available through a link on the Investor Relations page of the
Wild Oats website at www.wildoats.com.
About Wild Oats Markets
Wild Oats Markets, Inc. is a nationwide chain of natural and organic foods
markets in the U.S. and Canada. The Company currently operates 108 natural
food stores in 24 states and British Columbia, Canada. The Company's markets
include: Wild Oats Natural Marketplace, Henry's Farmers Market, Sun Harvest
and Capers Community Market. For more information, please visit the Company's
website at www.wildoats.com.
Risk Factors and Uncertainties
This release contains forward-looking statements, as defined in the Private
Securities Litigation Reform Act of 1995, which involve risks and uncertainties.
Such forward-looking statements include the timing and impact of the Company's
restatement of its historic financial statements; the number of stores it plans
to open and relocate in the future and the anticipated performance of such new
stores; the impact of changes in the Company's merchandising and marketing
programs; expected future comparable store sales, revenues and earnings per
share and future financial measures and prospects for favorable growth and
performance.
The statements made by the Company are based on management's present
expectations, and actual results may differ from the results indicated or
otherwise implied by such forward-looking statements due to certain risks and
uncertainties including, but not limited to, the timing, impact and extent of
the Company's restatement of its balance sheets, profit and loss statements and
statements of cash flows for prior periods; review and determination by the
Securities and Exchange Commission of the adequacy of restatements; the number
of stores opened, closed or relocated; the Company's ability to execute, and the
results of merchandising and marketing programs; the impact of competition and
other factors as are set forth in the Company's SEC filings, including the
Annual Report on Form 10-K for the fiscal year ended December 27, 2003, as well
as quarterly reports on Form 10-Q for fiscal year 2004. These risk factors may
not be an all-inclusive enumeration of the business risks faced by Wild Oats.
Investors should recognize that the reliability of any projected financial data
diminishes the farther in the future the data is projected.
The statements made by management of the Company and summarized above
represent their views as of the date of this press release, and it should not be
assumed that the statements made herein remain accurate as of any future date.
Wild Oats does not intend to update these statements and undertakes no duty to
any person to effect any such update under any circumstances.
Wild Oats Markets, Inc.
Consolidated Statement of Operations
(In thousands, except per-share amounts)
(Unaudited)
Fiscal Quarters Ended
------------------------------------------------------------
January 1, Dec 27,
2005 2003
---------------------------- ----------------------------
Sales $ 281,933 100.0% $ 253,941 100.0%
Cost of goods sold
and occupancy costs 204,746 72.6% 179,280 70.6%
Gross profit $ 77,187 27.4% 74,661 29.4%
Direct store expenses $ 64,213 22.8% 54,603 21.5%
Store contribution $ 12,974 4.6% 20,058 7.9%
Selling, general and
administrative expenses $ 16,915 6.0% 16,413 6.5%
Pre-opening expenses 804 0.3% 1,251 0.5%
Loss on disposal of assets 64 0.0% 58 0.0%
Restructuring and asset
impairment charges (income) 205 0.1% 855 0.3%
Income (loss) from
operations (5,014) -1.8% 1,481 0.6%
Loss on early extinguishment
of debt
Interest income $ 292 0.1% 226 0.1%
Interest expense (1,261) -0.4% (342) -0.1%
Income (loss) before
income taxes (5,983) -2.1% 1,365 0.5%
Income tax expense (benefit) $ (2,202) -0.8% 536 0.2%
Net income (loss) $ (3,781) -1.3% $ 829 0.3%
Basic net income (loss)
per common share $ (0.13) $ 0.03
Weighted average number of
common shares outstanding 28,469 30,068
Diluted net income (loss)
per common share $ (0.13) $ 0.03
Weighted average number
of common shares
outstanding, assuming
dilution 28,469 30,596
Percentages may not add due to rounding. Certain prior period information
has been reclassified to conform to the current presentation
Wild Oats Markets, Inc.
Consolidated Statement of Operations
(In thousands, except per-share amounts)
(Unaudited)
Fiscal Years Ended
------------------------------------------------------------
January 1, Dec 27,
2005 2003
---------------------------- ----------------------------
Sales $ 1,048,164 100.0% $ 969,204 100.0%
Cost of goods sold
and occupancy costs 751,816 71.7% 683,592 70.5%
Gross profit 296,348 28.3% 285,612 29.5%
Direct store expenses 235,425 22.5% 208,908 21.6%
Store contribution 60,923 5.8% 76,704 7.9%
Selling, general and
administrative expenses 62,371 6.0% 64,659 6.7%
Pre-opening expenses 4,304 0.4% 2,890 0.3%
Loss on disposal of assets 234 0.0% 2,087 0.2%
Restructuring and asset
impairment charges (income) 2,494 0.2% (892) -0.1%
Income (loss) from
operations (8,480) -0.8% 7,960 0.8%
Loss on early extinguishment
of debt (186) 0.0%
Interest income 1,070 0.1% 780 0.1%
Interest expense (3,247) -0.3% (2,661) -0.3%
Income (loss) before
income taxes (10,657) -1.0% 5,893 0.6%
Income tax expense (benefit) (3,531) -0.3% 2,302 0.2%
Net income (loss) $ (7,126) -0.7% $ 3,591 0.4%
Basic net income (loss)
per common share $ (0.25) $ 0.12
Weighted average number of
common shares outstanding 28,527 26,481
Diluted net income (loss)
per common share $ (0.25) $ 0.12
Weighted average number of
common shares outstanding,
assuming dilution 28,527 27,082
Percentages may not add due to rounding. Certain prior period information
has been reclassified to conform to the current presentation
Wild Oats Markets, Inc.
Condensed Consolidated Balance Sheets
(In Thousands)
Jan 1, 2005 Dec 27, 2003
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 30,671 $ 17,400
Short term investments 11,144 --
Inventories, net 54,960 46,621
Accounts receivable, net 3,860 4,038
Prepaid expenses and other
current assets 12,837 8,793
Total current assets 113,472 76,852
Property and equipment, net 154,965 130,989
Intangible assets, net 112,705 113,380
Other long term assets 24,457 15,370
Total assets $ 405,599 $ 336,591
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 77,753 $ 74,256
Accrued liabilities 51,616 42,998
Current portion of debt and
capital leases 27 14
Total current liabilities 129,396 117,268
Long-term debt and capital leases 115,190 30,179
Other long-term liabilities 13,318 14,058
Total liabilities 257,904 161,505
Stockholders' equity:
Preferred stock, $0.001 par value;
5,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $0.001 par value;
60,000,000 shares authorized;
30,466,701 and 30,063,421
shares issued 30 30
Additional paid-in capital 210,615 206,585
Accumulated deficit (38,903) (31,777)
Treasury stock at cost; 1,977,800
shares as of January 1, 2005 (24,999) --
Accumulated other comprehensive income 952 248
Total stockholders' equity 147,695 175,086
Total liabilities and stockholders' equity $ 405,599 $ 336,591
Wild Oats Markets, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
14 and 13 Weeks Ended 53 and 52 Weeks Ended
Dec 27, Dec 27,
---------------------------- ----------------------------
Jan 1, 2005 2003 Jan 1, 2005 2003
------------ ------------ ------------ ------------
Cash Flows From
Operating Activities:
Net income (loss) $ (3,781) $ 829 $ (7,126) $ 3,591
Adjustments to reconcile
net income (loss) to
net cash from operating
activities:
Depreciation and
amortization 5,899 6,946 24,644 23,710
Deferred tax expense
(benefit) (2,386) -- (3,868) 1,635
Loss on disposal of
property and equipment 65 58 235 2,087
Noncash restructuring
and asset impairment
charges (income), net 243 794 2,494 (953)
Other (154) (128) (601) (49)
Change in assets and
liabilities, net (6,525) 9,113 1,748 13,795
Net cash provided
by (used in)
operating
activities (6,639) 17,612 17,526 43,816
Cash Flows From
Investing Activities:
Capital expenditures (7,818) (9,661) (50,798) (31,731)
Short term investments 15,143 -- (11,144) --
Proceeds from sale of
property and equipment 24 20 1,012 346
Net cash (used in)
provided by
investing activities 7,349 (9,641) (60,930) (31,385)
Cash Flows From Financing
Activities:
Net repayments on
line of credit -- (7,100) (30,179) (13,800)
Net increase (decrease)
in book overdraft 1,756 4,438 (3,459) 3,949
Repayments on notes
payable, long-term
debt and capitalized
leases -- (3) (50) (37,107)
Proceeds from long-term
debt -- -- 115,150 37,879
Purchase of Treasury Stock -- -- (24,999) --
Payment of debt issuance
costs (195) -- (3,658) (721)
Proceeds from issuance
of common stock 28 833 3,398 3,288
Net cash provided by
(used in) financing
activities 1,589 (1,832) 56,203 (6,512)
Effect of exchange rate
changes on cash 304 50 472 114
Net increase in cash and
cash equivalents 2,603 6,189 13,271 6,033
Cash and cash equivalents
at beginning of period 28,068 11,211 17,400 11,367
Cash and cash equivalents
at end of period $ 30,671 $ 17,400 $ 30,671 $ 17,400
SOURCE Wild Oats Markets, Inc.
-0- 02/22/2005
/CONTACT: Sonja Tuitele, Corporate Communications of Wild Oats Markets,
Inc., +1-720-562-4984/
/Web site: http://www.wildoats.com