Whole Foods Market shares plunged in late trading after quarterly sales and earnings missed estimates, renewing fears that the chain’s days as a growth company are over.
Same-store sales fell 0.2 per cent in the fourth quarter, the Texas-based company said in a statement Wednesday. That represents the worst performance in more than five years. Analysts had predicted a gain of 0.7 per cent, according to Consensus Metrix.
As organic food becomes mainstream, Whole Foods is struggling to ward off competition from traditional supermarkets like Kroger Co. and Wal-Mart Stores. In the face of lower prices offered by rivals, the company is looking for ways to cut costs and go downmarket. Whole Foods announced plans in September to eliminate about 1,500 jobs and is opening a less expensive chain.
“The competition is difficult out there,” said Brian Yarbrough, an analyst at Edward Jones who has a hold rating on the shares. “They have a pricing perception problem.”
Fourth-quarter net income fell 56 per cent to $56 million, or 16 cents a share, from $128 million, or 35 cents, a year earlier. Revenue gained 5.6 per cent to $3.44 billion in the period, which ended 27 September. That missed the $3.47 billion estimated by analysts.
Sales in the current fiscal year will increase by as much as five per cent, the company said. That trails analysts’ average estimate for growth of about seven per cent.
Aiming to placate investors, Whole Foods announced plans to buy back $1 billion in stock and raise its quarterly dividend four per cent to 13.5 cents a share.
“In the face of increasing competition, we are not standing still,” co-Chief Executive Officer John Mackey said in the statement. “We have made measurable progress on many of our strategic initiatives over the past year.”
Still, the changes have been slow to produce results. The company has been slow to roll out a loyalty program, something that competitors have used to gather customer data and increase sales. Whole Foods is still testing its system and plans to introduce it nationwide by the end of 2016.
The company, which has about 433 locations, has been trying to reduce expenses so it can offer natural and organic goods at cheaper prices. But it’s had difficulty shedding its “Whole Paycheck” image, especially as regular supermarkets push deeper into the field. Kroger has expanded its Simple Truth line of natural and organic foods, and Wal-Mart started selling Wild Oats brand organics last year.
"It looks more and more like the business continues to deteriorate," Yarbrough said.
Part of the company’s growth strategy includes opening a separate chain that targets millennials with smaller locations, cheaper prices and more technology. The first of these stores, called 365 by Whole Foods Market, is scheduled to open next year in Los Angeles.
“We recognise the need to move faster and go deeper to rebuild traffic and sales,” co-CEO Walter Robb said in the statement.
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