Whole Foods Shares Fall as Organic-Food Competition Hurts Salesby
Grocer posts fourth consecutive same-store sales decline
Company looking to new 365 chain to help reignite growth
Whole Foods Market Inc. shares slumped the most in almost a year after third-quarter sales missed analysts’ estimates, a sign the organic-food chain is struggling to fend off new competition from mainstream supermarkets.
Same-store sales fell 2.6 percent in the period, which ended July 3, the Austin, Texas-based company said in a statement on Wednesday. That was the fourth consecutive quarterly decline. Analysts had predicted a 2.4 percent slide.
Whole Foods, suffering through its worst sales slump since 2009, has struggled to shed its “Whole Paycheck” image. Kroger Co., Wal-Mart Stores Inc. and other major chains have boosted their organic and natural offerings, bringing fierce competition to a market that Whole Foods once dominated.
“Whole Foods continues to face challenges from competitors going after organic and natural foods more aggressively,” said Joe Feldman, an analyst at Telsey Advisory Group.
Whole Foods shares fell 7.5 percent to $31.11 in New York after the results were released, marking the biggest intraday drop since July 2015. The stock had gained less than 1 percent this year through the close of trading Wednesday.
To cope with the new competition, the company is pursuing $300 million in cost cuts and working to lower prices at its more than 435 locations. Whole Foods also launched a lower-cost chain of stores aimed at younger consumers this year.
Earnings amounted to 37 cents a share last quarter, helped by budget cuts. That matched projections.
John Mackey, co-chief executive officer of Whole Foods, says the company is committed to reaching the $300 million cost-cutting target by the end of fiscal 2017 and will invest the savings in “better pricing.” The company has trimmed about 2,000 jobs as part of the effort.
But stiff competition in the grocery industry has weighed on Whole Foods. The proliferation of natural and organic products at mainstream stores means that some customers are skipping trips to the company’s stores, Mackey said.
“People don’t drive as far as they used to, because there’s good enough alternatives in many cases close to them,” Mackey said Wednesday on a conference call. “They can stop by a Kroger or a HEB or a Wegmans to get products that they used to only be able to get at Whole Foods.”
Mackey noted that Whole Foods continues to add new stores that should drive sales growth. The company recently opened a new store in Brooklyn’s Williamsburg neighborhood and announced plans on Wednesday to add a three-floor location at One Wall Street in Manhattan as part of a new development. That store is slated to open in 2018.
Whole Foods also recently launched a chain called 365 by Whole Foods Market, a fleet of smaller stores named for its line of cheaper, private-label products. Two 365 stores, which are cheaper to build and carry fewer products than traditional Whole Foods markets, are currently open on the West Coast. The company has signed leases for more than 15 other locations.
The idea is to use technology and a more intimate format to appeal to millennials.
“Our 365 stores are firsts for us in so many ways, from a streamlined operating model, to centralized buying, to auto-replenishment of inventory,” Mackey said in the statement. “We are already taking advantage of our many learnings to shape and evolve not just future 365 stores but Whole Foods Market stores as well.”