Back to Basics: WFMI to Close, Sell Amrion

THORNTON, Colo.—Less than a month after it announced it had retained an investment banking firm to help decide the fate of its investment in Amrion, a supplements maker based here, Whole Foods Market (WFMI) on Nov. 21 said it has signed a definitive agreement to purchase 100 percent of Amrion’s common stock, close the company and sell it.

“We believe that it is in the best interests of our shareholders to discontinue Amrion’s operations and to focus all of our energy and attention on what we do best, which is operating natural foods supermarkets,” said WFMI CEO John Mackey

in the company’s Nov. 21

conference call.

As a result, Whole Food’s 4Q00 results include charges totaling approximately $49 million. According to WFMI CFO Glenda Flanagan, the charges consist of:

n An equity in loss of unconsolidated affiliate of $14 million—the majority of which is the write-off of Amrion’s investment in American WholeHealth and the write-down of Amrion’s investment in Real Goods Trading Corp. (RGTC);

n A loss of about $9 million from discontinued operations representing FY00 losses from Amrion’s direct marketing and manufacturing divisions; and

n An estimated loss of about $26 million from the disposal of the assets of Amrion.

“The final amounts realized from the disposal, as well as Amrion’s actual losses in FY01, will have no effect on Whole Food’s income from continuing operations in FY01,” Flanagan said during the call.

Now that Whole Foods has divested itself of both Amrion and its Web attempt WholePeople.com, WFMI is left with only one non-retail investment: Boulder, Colo.-based Allegro Coffee, which it acquired in January 1998 in a stock deal that was said to be worth about $8 million. Whole Foods executives made no mention of plans to also sell Allegro during the conference call.

The company’s decision to sell Amrion pleased analysts who just days before the announcement insisted that this was WFMI’s best option.

“I think the message [was] loud and clear from analysts and investors: We want Whole Foods to sell or close down Amrion,” says Yudi Bahl, senior VP at U.S. Bancorp Piper Jaffray. “The idea [was] to do away with Amrion either way.”

Adams, Harkness & Hill analyst Scott Van Winkle agrees. “It’s been nothing more than a nuisance to shareholders,” he says. “It was losing money quarterly.”

Separately, Whole Foods on Nov. 21 posted a 4Q00 pro forma net income of $13.2 million or $.48/share, up 20 percent from a 4Q99 pro forma net income of $11 million or $.40/share. The company’s 4Q00 sales were $438.3 million—a 22 percent increase over 4Q99 sales of $357.9 million.

Piper Jaffray reiterated its Buy rating and raised its FY01 EPS estimate from $2.32/share to $2.35/share and its price target from $54/share to $59/share. Similarly, Tucker Anthony Capital Markets maintained its Buy rating and raised its price target from $55/share to $62/share.

Whole Food’s stock on Nov. 22 jumped $3.44/share to close at $54.88/share. WFMI closed Nov. 28 at $57.38/share.