Whole Foods Shares Tumble as Rivals Stall Profit Growth

Whole Foods Market Inc. investors are learning a hard lesson today: The chain isn’t the only place to buy organic kale anymore.

Shares of the largest U.S. natural-goods grocer fell the most in seven and a half years after profit growth stalled and the company cut its forecast amid increasing competition from traditional supermarkets and other organic-food sellers.

Whole Foods has been opening more stores and trying to lower its prices to attract more customers. At the same time, Kroger Co. is pushing organic beef and vegetable chips under its Simple Truth brand, and Sprouts Farmers Market Inc. is opening more locations in states including Texas and California.

Net income for the quarter ended April 13 was $142 million, or 38 cents a share, about the same as a year earlier, the Austin, Texas-based company said in a statement. The average of 30 analysts’ estimates compiled by Bloomberg was 41 cents. Sales rose 9.7 percent to $3.32 billion, missing projections for the sixth straight quarter.

The retailer lowered its forecast for profit this fiscal year to as much as $1.56 a share, excluding certain items, compared with a previous projection of as much as $1.65. Analysts estimated $1.61 a share, on average, yesterday.

The shares tumbled 19 percent to $38.93 at the close in New York for the biggest decline since November 2006. The shares have dropped 33 percent this year, the worst performance in the Standard & Poor’s 500 Consumer Staples Index.

Rival Offerings

Kroger’s Simple Truth brand is growing at an “astonishing pace,” Chief Operating Officer Michael Ellis said on a conference call in March. Meanwhile, Target Corp.’s organic and better-for-you products are “picking up steam,” Kathryn Tesija, an executive vice president, said on a conference call in February.

Even Wal-Mart Stores Inc. sells some organic food, and its website has recipes and nutrition tips.

“Our tremendous success has created more competition,” Whole Foods Co-Chief Executive Officer John Mackey said on a conference call yesterday. The natural- and organic-food market has “gotten to be a very big niche, and in some ways it has gone mainstream.”

Sales at Whole Foods stores open at least 53 weeks rose 4.5 percent in the quarter and will gain as much as 5.5 percent in the year. Same-store sales are considered an indicator of a retailer’s performance because they include only older, established locations.

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