Natural foods grocer Wild Oats Markets (NASDAQ:OATS), the nation's No. 2 after Whole Foods Market (NASDAQ:WFMI), announced fourth-quarter and full-year financial results this morning. While the numbers were largely downbeat when compared with the year-ago period, they can in a large way be attributed to fundamental changes in the way the company does business as it continues to grow.
Full-year revenue hit a new high, rising 5.4% to just above $969 million, but that came on the back of a 6.6% increase in square footage. Same-store sales rose just 2.4%, less than half the rate of growth Wild Oats saw in 2002. Also playing a large role in sales growth was the California grocery strike, which has reverberated well beyond the walls of Kroger (NYSE:KR) and Albertson's (NYSE:ABS), the first-line players.
The numbers continue to unravel as you move down the income statement. (We are, however, glad to see a cash flow statement and balance sheet in the press release.) Gross margins fell as the company began a transition back to distributor United Natural Foods (NASDAQ:UNFI). Selling, general and administrative expense (SG&A) as a proportion of sales increased, management said, because of investment in growth. Net income, meanwhile, fell -- though it would have increased but for significant pre-tax charges.
In the end, however, Wild Oats did manage to generate free cash flow well in advance of reported net income. The business finished the year with more cash and less debt than it had the year before. Management is optimistic about the reintegration of United Natural Foods, its plans for store expansion and marketing, and the hope of gaining new regular customers as the California strike rages on.
Profitability is seen improving in 2004 as the company works to sell more private-label products and leverage its SG&A expenditures. The stock is currently trading at about 40 times the low end of management's EPS target for this year -- a pricy valuation, as investors have helped the shares outpace the S&P 500 by a good margin over the last 12 months.
Talk about the battle of natural vs. mainstream grocers on our Wild Oats discussion board.
Fool contributor Dave Marino-Nachison doesn't own any of the companies in this story. He can be reached via email.
