Whole Foods Market Inc. fell the most in a year after the supermarket chain’s latest sales results trailed analysts’ estimates, underscoring its troubles reaching millennials and competing with lower-priced rivals.
Revenue in the fiscal second quarter was $3.65 billion, the Austin, Texas-based company said in a statement on Wednesday. Analysts projected $3.7 billion, the average of estimates compiled by Bloomberg. Comparable-store sales growth slowed to 3.6 percent, compared with a forecast for a gain of 5.3 percent, according to Consensus Metrix.
Whole Foods has been losing momentum as competitors like Kroger Co. and Wal-Mart Stores Inc. sell more organic and local fare. Whole Foods also said on Wednesday that it will introduce a new store concept targeted at millennials, a bargain-hunting group that the premium-priced chain has had a hard time wooing.
“There’s just so many players trying to get into this space,” said Brian Yarbrough, an Edward Jones & Co. analyst, who downgraded the stock to hold on Thursday. While Whole Foods has been lowering prices to try to compete, “it’s not leading to better sales trends, and that’s our concern,” he said.
The shares tumbled 9.7 percent to $43.07 in New York, the biggest one-day drop since May 2014. Whole Foods has declined 15 percent this year, while the Standard & Poor’s 500 Index climbed 1.4 percent.
The new concept is an attempt to keep Whole Foods’ sales and profit increases above those of rivals. The company’s revenue gain slowed to 9.9 percent in fiscal 2014, the smallest increase since 2009. Kroger and Fresh Market Inc. both turned in better sales growth numbers in their latest fiscal years.
The sluggish sales gains have Whole Foods shares trading more like those of a mature supermarket operator than a high-flying growth company. Whole Foods traded at about 26 times earnings today, a roughly 32 percent premium to Kroger. In 2012, Whole Foods traded at more than 4.7 times Kroger’s valuation. That year, Whole Foods’ revenue rose 16 percent and Co-Chief Executive Officer John Mackey called it “the best year in our company’s 32-year history.”
The new stores will have their own brand and offer products at value prices, Whole Foods said Wednesday. The retailer is building a team to focus on the new stores and negotiate leases. The first locations will open next year, and the expansion will be “fairly rapid.” The company will share more details on the plan before Labor Day.
“It will deliver a convenient, transparent, and values-oriented experience geared toward millennial shoppers, while appealing to anyone looking for high-quality fresh food at great prices,” Walter Robb, co-CEO of Whole Foods, said in the statement.
Net income in the quarter ended April 12 rose 11 percent to $158 million, or 44 cents a share, from $142 million, or 38 cents, a year earlier, the company said Wednesday. Excluding some items, profit totaled 43 cents. That matched the average of 29 analysts’ estimates compiled by Bloomberg.
Whole Foods, which has more than 400 locations in the U.S., Canada and the U.K., reiterated its forecast for revenue growth of at least 9 percent this fiscal year. Comparable-store sales will grow in the low to middle single-digit percentage, the company said.