WILD OATS' SUPPLY CHAIN PROBLEMS SQUEEZE MARGINS

BOULDER, Colo. -- Wild Oats Markets here said the negative effects of switching distributors will be largely behind it by next year.The natural-products retailer revealed in a conference call with analysts that supply chain inefficiencies in the third quarter had a negative impact on sales and margins in the 13-week period that ended Sept. 27. The call followed another recent call in which the company

BOULDER, Colo. -- Wild Oats Markets here said the negative effects of switching distributors will be largely behind it by next year.

The natural-products retailer revealed in a conference call with analysts that supply chain inefficiencies in the third quarter had a negative impact on sales and margins in the 13-week period that ended Sept. 27. The call followed another recent call in which the company said it would revert back to United Natural Foods, Dayville, Conn., as its primary distributor after experiencing a poor in-stock performance with its current primary distributor, Tree of Life, St. Augustine, Fla.

The company said its comparable-store sales were 0.8% in the period, after the out-of-stock problems reduced comps by about 0.7%. Comps were 5.6% in the year-ago third quarter.

"We believe the decline in customer traffic was due to inconsistent product availability," said Ed Dunlap, chief financial officer. "Once we work through this transition to [United], we expect to be back on track."

The company expects to complete the transition back to United by the end of the first quarter of 2004. As Wild Oats' primary distributor, United will supply about 30% of the retailer's volume, while Tree of Life will remain a secondary supplier, providing an estimated 10% of the volume, a Tree of Life spokesman told SN.

Gross margins in the third quarter declined as a percent of sales, to 29.1% vs. 29.4% a year ago, which the company attributed to the supply chain inefficiencies and other factors.

In the 13-week third quarter ended Sept. 27, the company posted a loss of $861,000, vs. net income of $2.17 million in the year-ago third quarter. Sales in the most recent period were $237 million, up about 3.9% from last year's results. Through the first three quarters, net income was $2.76 million, down 36.4% from year-ago levels, while sales grew 2.6%, to $715.26 million.