Sales Rise at Acquired Wild Oats Stores

AUSTIN, Texas — Whole Foods Market here said the Wild Oats stores it acquired in late summer are already showing improved sales results and should continue to show growth going forward.

John Mackey, chairman and chief executive officer, said the acquired stores are expected to account for 10% of the company's projected sales gains of 25% to 30% in fiscal 2008.

Whole Foods acquired 109 stores from Wild Oats in August and sold 35 of them on Sept. 30, the last day of its 2007 fiscal year.

Sales at the remaining 74 locations rose 3.9% during the last five weeks of the fourth quarter, Mackey said, and have risen another 6.6% during the first seven weeks of the first quarter of fiscal 2008 — reflecting “a broad-based trend across all markets,” Walter Robb, co-president and co-chief operating officer, said during a conference call with analysts to discuss financial results for the year and fourth quarter.

According to Mackey, the increases at the Wild Oats stores have resulted from an expanded product offering, particularly on the fresh food side, as well as from lower pricing on 1,500 items that were reduced to Whole Foods' levels.

“We are already directly sourcing and distributing produce, seafood, bakery and prepared-food items to those stores, which has raised the quality of the perishable offerings significantly,” he said.

“While the Wild Oats stores are older and smaller than our stores, we believe that over time we will raise their sales productivity to levels in line with our stores,” Mackey added. “Our integration [of those stores] has gone faster, further and deeper than in any of our prior mergers, and we feel very positive about the results we've seen so far.”

Perry Caicco, an analyst with CIBC World Markets, Toronto, was also positive about the potential of the Wild Oats stores. “The Wild Oats acquisition was a dubious strategic move, but Whole Foods' superior ability to execute is making it work,” he said in a written report. “Whole Foods is marvelous at store execution, and just five weeks in, Wild Oats is in receipt of Whole Foods' pricing strategy and product lines, [and] this alone has begun to drive sales upwards — a trend that should continue as more products are added, as private labels are rolled out and as modest store renovations are put in place.”

Mackey said Whole Foods expects to allocate between $575 million and $625 million in capital expenditures in 2008, of which $40 million to $50 million will go toward remodeling Wild Oats locations.

For the quarter, Whole Foods said its net income fell 14.8% to $33.9 million, with sales up 35% to $1.7 billion. Excluding the Wild Oats results, sales at Whole Foods for the quarter rose 16% to $1.6 billion, driven by comparable-store sales of 8.2%.

Including five weeks of results from Wild Oats, Whole Foods said net income for the year fell 10.4% to $182.7 million, while sales rose 17.6% to approximately $6.6 billion. Comps for the year were up 7.1%.

Mackey said the company anticipates comparable-store sales to rise between 7.5% and 9.5% in 2008.

Whole Foods has closed nine of the remaining 74 Wild Oats units since the end of its fiscal year, and of the remaining 63, it said it plans to close one more in the first quarter and seven more over the next few years as it opens Whole Foods stores nearby.

Mackey said the first re-bannering of a Wild Oats store to the Whole Foods name is scheduled for January, with most stores likely to be re-bannered before the end of 2008.

Of the 63 Wild Oats stores Whole Foods is retaining, average weekly sales at year's end were $224,000 per store and sales per square foot were $478.