Foolish Forecast: Sowing Wild Oats

Not all health foods stores are created equal.

For a study in contrasts, look at Motley Fool Stock Advisor pick Whole Foods (Nasdaq: WFMI  ) , which isn't just bigger than its tiny rival Wild Oats (Nasdaq: OATS  ) -- it's a qualitatively better business as well. Better profit margins (positive as opposed to negative). Better returns on equity (likewise). Better dividends (existent as opposed to non). In short, better all around.

But while Wild Oats has a long way to go to catch up to its larger rival, Wild Oats is at least making an effort these days. That's a fact that I expect we'll see demonstrated once again when the company reports earnings Friday morning. One year ago tomorrow, Wild Oats reported another in a string of loss-making quarters, losing its owners $0.21 per share, diluted. In fact, from April 2004 through March 2005, Wild Oats didn't earn its owners a penny of profit, losing them a combined $1.72 instead. That began to change last quarter, when the company reported its first profitable numbers since Q1 2004 -- three shiny pennies.

The most optimistic analysts following the company hope that it can repeat the second quarter's $0.03 in profit in Q3; overall, however, the Wall Street consensus is that Wild Oats will report just $0.02. Still, that's better than a kick in the head, as the saying goes, and would be much better than last year's Q3 loss.

The company itself did not provide guidance in last quarter's earnings release, but from the comments that CEO Perry Odak made in that release, management does appear to be optimistic about the rest of this year. Noting back then that the company was already in its third quarter (thus implying some visibility regarding the quarter as a whole), Odak expressed pleasure with his company's "strengthening sales momentum" and "gross margin improvement" and predicted "solid" same-store sales throughout the remainder of the year.

All of that bodes well for tomorrow's news and suggests that investors who bid the shares up 3% yesterday just might be on to something.

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Fool contributorRich Smithdoes not own shares of either company named above.


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