OATS Wild Oats Markets (MM)

Wild Oats Markets, Inc. (NASDAQ:OATS), a leading national natural and organic foods retailer, today announced financial results for the first quarter ended March 31, 2007. Net of $3.5 million, or $0.12 per share, in transaction expenses related to the pending merger with Whole Foods Market, Inc. the Company generated a significant improvement in profitability. Excluding transaction expenses, earnings per share in the first quarter of 2007 were $0.17 compared to $0.10 in the first quarter of 2006, and adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) increased 13.2 percent to $15.4 million from $13.6 million in last year�s first quarter. Reported net income on a GAAP basis for the first quarter of 2007, which includes the transaction costs, was $1.6 million, or $0.05 per share, and reported Adjusted EBITDA was $11.9 million in the first quarter of 2007. Financial Results Net sales in the first quarter increased 3.9 percent to $309.9 million, from $298.4 million in the first quarter of 2006. The contribution of seven new stores opened since the end of last year�s first quarter drove the overall increase in net sales and more than offset the sales impact of nine store closures in 2006. The Company reported a 0.3 percent increase in comparable store sales in the first quarter, compared with same-store sales of 4.1 percent in the first quarter of 2006. Wild Oats ended the first quarter of 2007 with 2.53 million total square feet under management, which represents a slight decline relative to last year due to the store closures in 2006. �We are very pleased with our growth in profitability in the first quarter, and with the top-line momentum we are establishing in 2007,� said Gregory Mays, Chairman and interim CEO of Wild Oats Markets. �The merchandising and marketing programs we put in place in the first quarter are gaining traction and are driving improvement in comparable store sales in the second quarter. We will continue to implement innovative merchandising and marketing programs, and focus on improved store-level operations to drive further sales gains and an improved customer experience.� Wild Oats Markets achieved significantly higher profitability in the first quarter compared to last year�s first quarter, excluding transaction and other non-operating charges. Excluding incurred charges of approximately $3.5 million related to the pending merger with Whole Foods Market, the Company�s net income was $5.1 million, resulting in earnings per share of $0.17 and Adjusted EBITDA of $15.4 million. Reported net income for the first quarter of 2007, which includes the transaction costs, was $1.6 million, or $0.05 per share, compared to net income of $2.9 million or $0.10 per share in last year�s first quarter. In addition to the transaction-related expenses in 2007, several non-operating charges adversely affected reported earnings in the first quarters of 2006 and 2007. These non-operating charges in the first quarter of 2007 totaled approximately $1.5 million in restructuring for lease-related liabilities, as well as asset impairment charges and accelerated depreciation for closed facilities. Net income in the first quarter of 2006 was adversely affected by non-operating charges totaling $1.7 million on a pre-tax basis, which included restructuring charges, asset impairment charges, severance payments and accelerated depreciation for the closure or relocation of facilities. Adjusted EBITDA, net of transaction-related costs, in the first quarter of 2007 was a record $15.4 million, or 5.0 percent of sales, compared to $13.6 million, or 4.6 percent of sales, in first quarter of 2006 (please refer to the attached schedule of Selected Additional Financial Information for a reconciliation of non-GAAP financial information). Wild Oats reported gross profit of $99.2 million in the first quarter of 2007, a 2.2 percent increase compared with $97.1 million in the same period last year. Gross margin in the first quarter of 2007 was 32.0 percent of sales, compared with 32.5 percent of sales in the first quarter of 2006. The slight decline in gross margin in the first quarter was due to increased occupancy costs, a sales mix shift to lower-margin product categories and a more aggressive promotional schedule in 2007 relative to last year, which has helped to drive improved sales results. The Company has reclassified depreciation expenses for stores, warehouse and commissary facilities to be presented separately. Therefore, these expenses are no longer included in the gross profit calculation. This classification reflects a more typical presentation used widely in the food retail industry (please refer to the attached schedule of Selected Additional Financial Information, which shows historical gross profit reclassified by quarter). Direct store expenses in the first quarter of 2007 were up slightly, but remained relatively constant as a percent of sales at $73.1 million, or 23.6 percent of sales, compared to $69.8 million, or 23.4 percent of sales, in the first quarter of 2006. The increase in direct store expenses in the first quarter of 2007 was due to higher inventory services costs, IT upgrades and increased regional management to better support stores. Store contribution in the first quarter of 2007 declined 4.2 percent to $26.1 million, or 8.4 percent of sales, compared with $27.2 million, or 9.1 percent of sales, in the first quarter of 2006. Selling, General and Administrative (SG&A) expenses in the first quarter of 2007 were $14.0 million, or 4.5 percent of sales, compared to $13.0 million, or 4.3 percent of sales, in the prior year first quarter. The year-over-year increase in SG&A was primarily the result of transaction costs related to the pending merger, without which, SG&A was $10.5 million in the first quarter, an 18.9 percent decline relative to last year�s first quarter. The reduction in SG&A in the first quarter can be attributed to improved operating efficiency and expense management. Net cash provided by operating activities was $5.8 million in the first quarter of 2007 compared with $13.2 million in the first quarter of 2006. Capital expenditures in the first quarter of 2007 were $12.0 million compared with $5.8 million in the first quarter of 2006. The increase in capital expenditures reflects the opening of one store in January, the continued construction of the Boulder flagship store and the completion of major remodeling of two stores. Business Developments On Feb. 21, 2007, Wild Oats Markets and Whole Foods Market announced they have signed a definitive merger agreement under which Whole Foods Market has offered to acquire Wild Oats Markets� outstanding common stock in a cash tender offer at $18.50 per share, or approximately $565 million based on fully diluted shares, plus assumed debt. Consummation of these transactions is subject to customary closing conditions, including regulatory filings. On April 25, 2007, the tender offer was further extended to May 22, 2007 due to a second request for information by the Federal Trade Commission (FTC) in connection with the Company�s Hart-Scott-Rodino filing. As a result of the pending merger, Company management will not host a conference call with the investment community to discuss first quarter 2007 financial results. The Company continues to sell its premium natural and organic Wild Oats branded products in retail channels outside its stores. As previously announced, this includes Price Chopper and Pathmark stores in the Northeast, and online food retailer, Peapod in Chicago and Washington D.C. As a result of the introduction of the Wild Oats branded products in these retail outlets, sales of Wild Oats corporate branded products increased by $2.0 million in the first quarter over the first quarter of 2006. About Wild Oats Wild Oats Markets, Inc. is a nationwide chain of natural and organic foods markets in the U.S. and Canada. With more than $1.2 billion in annual sales, the Company currently operates 110 natural food stores in 24 states and British Columbia, Canada. The Company�s markets include: Wild Oats Marketplace, Henry�s Farmers Market, Sun Harvest and Capers Community Markets. 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 number of stores the Company plans to open, remodel and relocate in the future, and the anticipated performance of such stores; the amount of capital expenditures required to open or remodel stores; expected future comparable store sales, revenues and earnings per share, future financial measures and prospects for favorable growth and performance, the likelihood of receipt of regulatory consents to, and the timing of the consummation of the proposed tender offer and merger, and the Company�s ability, within a reasonable time period, to identify and hire a chief executive officer with the vision and ability to continue the Company�s growth. 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 Company�s ability to execute, the results of merchandising and marketing programs, the impact of competition, the pending merger 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 30, 2006 and the Company�s quarterly reports on Form 10-Q. 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 STATEMENTS OF OPERATIONS (In thousands, except per-share amounts) (unaudited) � � � � � � � � � � � � THREE MONTHS ENDED � March 31, April 1, 2007� 2006� � Sales $ 309,942� 100.0% $ 298,357� 100.0% Cost of goods sold and occupancy costs � 210,776� 68.0% � 201,297� 67.5% Gross profit 99,166� 32.0% 97,060� 32.5% � Direct store expenses � 73,078� 23.6% � 69,821� 23.4% Store contribution 26,088� 8.4% 27,239� 9.1% � Depreciation and amortization 6,716� 2.2% 6,687� 2.2% Selling, general, and administrative expenses 14,022� 4.5% 12,978� 4.3% Loss on disposal of assets, net 19� 0.0% 90� 0.0% Pre-opening expenses 697� 0.2% 1,459� 0.5% Restructuring and asset impairment charges, net � 1,457� 0.5% � 1,670� 0.6% Income from operations 3,177� 1.0% 4,355� 1.5% � Interest income 551� 0.2% 589� 0.2% Interest expense � (1,840) -0.6% � (1,854) -0.6% Income before income taxes 1,888� 0.6% 3,090� 1.0% Income tax expense � 264� 0.1% � 205� 0.0% Net income $ 1,624� 0.5% $ 2,885� 1.0% � � � Basic net income per common share $ 0.05� $ 0.10� � � � � � Weighted-average number of commonshares outstanding � 30,005� � 28,970� � � � Diluted net income per common share $ 0.05� $ 0.10� � � � � Weighted-average number of commonshares outstanding, assumingdilution � 30,342� � 29,542� � Percentages may not add due to rounding. Certain prior periodinformation has been reclassified to conform to the currentpresentation. WILD OATS MARKETS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) � � � � � � � � March 31, December 30, 2007� 2006� ASSETS (unaudited) � Current Assets: Cash and cash equivalents $ 34,567� $ 40,420� Short-term investments 8,250� 13,675� Inventories (net of reserves of $1,062 and$1,032, respectively) 69,717� 67,753� Accounts receivable (net of allowance fordoubtful accounts of $179 and $288,respectively) 4,740� 7,581� Prepaid expenses and other current assets � 9,883� � 10,204� Total current assets 127,157� 139,633� � Property and equipment, net 199,274� 192,061� Goodwill, net 105,124� 105,124� Other intangible assets, net 4,776� 4,810� Deposits and other assets 4,980� 4,831� Deferred tax asset � 181� � 179� Total assets $ 441,492� $ 446,638� � LIABILITIES AND STOCKHOLDERS' EQUITY � Current liabilities: Accounts payable $ 57,622� $ 57,147� Book overdraft 24,133� 29,888� Accrued liabilities 60,930� 64,470� Current portion of debt, capital leases,and financing obligations � 500� � 573� Total current liabilities 143,185� 152,078� � Long-term debt, capital leases and financingobligations 147,596� 147,662� Other long-term obligations � 39,147� � 38,302� Total liabilities � 329,928� � 338,042� � Stockholders' equity: Preferred stock, $.001 par value; 5,000,000shares authorized; no shares issued andoutstanding -� -� Common stock; $0.001 par value; 60,000,000shares authorized, 32,540,392 and32,454,554 shares issued; 29,881,129 and29,795,291 outstanding, respectively 32� 32� Treasury stock, at cost: 2,659,263 shares,respectively (37,181) (37,181) Additional paid-in capital 243,568� 242,322� Accumulated deficit (96,288) (97,912) Accumulated other comprehensive income � 1,433� � 1,335� Total stockholders' equity � 111,564� � 108,596� Total liabilities and stockholders' equity $ 441,492� $ 446,638� WILD OATS MARKETS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) � � � � � � THREE MONTHS ENDED � March 31, 2007 April 1, 2006 Cash Flows From Operating Activities: Net income $ 1,624� $ 2,885� Adjustments to reconcile net income to net cashprovided by operating activities: Depreciation and amortization 6,716� 6,687� Loss on disposal of property and equipment 19� 90� Restructuring and asset impairment charges, net 1,457� 1,670� Interest on related party receivable -� (88) Stock-based compensation 564� 778� Accretion of debt issuance costs 156� 156� Change in assets and liabilities, net � (4,693) � 1,003� � Net cash provided by operating activities 5,843� 13,181� � Cash Flows From Investing Activities: Capital expenditures (11,967) (5,759) Purchase of short-term investments (37,925) (21,410) Proceeds from the sale of short-term investments 43,350� 14,522� Proceeds from the sale of property and equipment � 2� � 24� � Net cash used in investing activities (6,540) (12,623) � Cash Flows From Financing Activities: Net decrease in book overdraft (5,755) (760) Repayments on notes payable, long-term debt andcapitalized leases (139) (125) Proceeds from issuance of common stock, net � 682� � 4,227� � Net cash (used in) provided by financingactivities (5,212) 3,342� � Effect of exchange rate changes on cash � 56� � (40) � Net (decrease) increase in cash and cash equivalents (5,853) 3,860� Cash and cash equivalents at beginning of period � 40,420� � 35,250� � Cash and cash equivalents at end of period $ 34,567� $ 39,110� WILD OATS MARKETS, INC. RECONCILIATION OF NON GAAP FINANCIAL INFORMATION (in thousands) (unaudited) � � � � � � THREE MONTHS ENDED � March 31, 2007 April 1, 2006 � Net income $ 1,624� $ 2,885� Interest expense, net of interest income 1,289� 1,265� Income tax expense 264� 205� Depreciation and amortization � 6,716� � 6,687� EBITDA 9,893� 11,042� Loss on asset disposals, net 19� 90� Stock-based compensation expense 564� 778� Restructuring and asset impairment charges, net � 1,457� � 1,670� EBITDA, as adjusted 11,933� 13,580� Transaction costs � 3,500� � -� EBITDA, as adjusted, after transaction costs $ 15,433� $ 13,580� � � � EBITDA as a percentage of sales � 3.2% � 3.7% � � EBITDA, as adjusted, as a percentage of sales � 3.9% � 4.6% � � � EBITDA, as adjusted, after transaction costs,as a percentage of sales � 5.0% � 4.6% WILD OATS MARKETS, INC. SELECTED ADDITIONAL FINANCIAL INFORMATION (in thousands) (unaudited) � � � 2006 RECLASSIFICATION IN 2007 � � � 1Q � � � � 2Q � � Statement of Operations As Reported Changes Reclassified As Reported Changes Reclassified Operating expenses: � Cost of goods sold and occupancy costs 206,985� (5,688) 201,297� 206,876� (5,398) 201,478� As a percent of sales 69.4% -1.9% 67.5% 69.8% -1.8% 67.9% � Direct store expenses 69,833� (12) 69,821� 69,939� (11) 69,928� As a percent of sales 23.4% 0.0% 23.4% 23.6% 0.0% 23.6% � Depreciation and amortization -� 6,687� 6,687� -� 6,370� 6,370� As a percent of sales 0.0% 2.2% 2.2% 0.0% 2.1% 2.1% � Selling, general and administrative expenses 13,965� (987) 12,978� 12,328� (961) 11,367� As a percent of sales 4.7% -0.3% 4.3% 4.2% -0.3% 3.8% � � � 3Q � � � � 4Q � � � As Reported Changes Reclassified As Reported Changes Reclassified Operating expenses: � Cost of goods sold and occupancy costs 206,131� (5,561) 200,570� 207,835� (5,640) 202,195� As a percent of sales 70.6% -1.9% 68.7% 70.1% -1.9% 68.2% � Direct store expenses 68,709� (11) 68,698� 68,562� (9) 68,553� As a percent of sales 23.5% 0.0% 23.5% 23.1% 0.0% 23.1% � Depreciation and amortization -� 6,468� 6,468� -� 6,532� 6,532� As a percent of sales 0.0% 2.2% 2.2% 0.0% 2.2% 2.2% � Selling, general and administrative expenses 10,870� (896) 9,974� 17,685� (883) 16,802� As a percent of sales 3.7% -0.3% 3.4% 6.0% -0.3% 5.7% � YTD 2006 � As Reported Changes Reclassified Operating expenses: � Cost of goods sold and occupancy costs 827,827� (22,287) 805,540� As a percent of sales 70.0% -1.9% 68.1% � Direct store expenses 277,043� (43) 277,000� As a percent of sales 23.4% 0.0% 23.4% � Depreciation and amortization -� 26,057� 26,057� As a percent of sales 0.0% 2.2% 2.2% � Selling, general and administrative expenses 54,848� (3,727) 51,121� As a percent of sales 4.6% -0.3% 4.3% WILD OATS MARKETS, INC. SELECTED ADDITIONAL FINANCIAL INFORMATION (in thousands) (unaudited) � 2005 RECLASSIFICATION IN 2007 � � � � � � � � � YTD 2005 � � Statement of Operations As Reported Changes Reclassified Operating expenses: � Cost of goods sold and occupancy costs 796,396� (22,086) 774,310� As a percent of sales 70.9% -2.0% 68.9% � Direct store expenses 264,074� (164) 263,910� As a percent of sales 23.5% 0.0% 23.5% � Depreciation and amortization -� 26,288� 26,288� As a percent of sales 0.0% 2.3% 2.3% � Selling, general and administrative expenses 45,307� (4,038) 41,269� As a percent of sales 4.0% -0.4% 3.7%