Whole Foods Shares Tumble After Results Miss Analysts' Estimates

A customer shops for produce at a Whole Foods Market Inc. store in Oakland, Cali., on May 6, 2015.

A customer shops for produce at a Whole Foods Market Inc. store in Oakland, Cali., on May 6, 2015.

Photographer: David Paul Morris/Bloomberg
  • Same-store sales decline 0.2 percent in the fourth quarter
  • Revenue forecast for fiscal 2016 trails analysts' estimates

Whole Foods Market Inc. shares plunged to a four-year low 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 percent in the fourth quarter, the Austin, 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 percent, 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 Inc. 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.”

The shares fell as much as 6.6 percent to $28.73 on Thursday, the lowest price since August 2011. Even before the slide, the stock had lost 39 percent this year.

Profit Decline

Fourth-quarter net income fell 56 percent to $56 million, or 16 cents a share, from $128 million, or 35 cents, a year earlier. Revenue gained 5.6 percent to $3.44 billion in the period, which ended Sept. 27. That missed the $3.47 billion estimated by analysts.

Sales in the current fiscal year will increase by as much as 5 percent, the company said. That trails analysts’ average estimate for growth of about 7 percent.

Aiming to placate investors, Whole Foods announced plans to buy back $1 billion in stock and raise its quarterly dividend 4 percent 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.”

Loyalty Program

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 recognize the need to move faster and go deeper to rebuild traffic and sales,” co-CEO Walter Robb said in the statement.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE