Whole Foods to Shrink Store Count for First Time Since 2008By
Organic chain also cuts forecast for the year as sales slide
Company is still struggling to shed its high-priced image
Whole Foods Market Inc., facing its worst sales slump in more than a decade, is taking a step that would have been unthinkable in its highflying days: shrinking the size of the chain.
Though Whole Foods plans to open six stores during the current quarter, including two relocations, the company said Wednesday that it’s shutting down nine. That kind of retrenchment hasn’t happened since the last recession was underway in 2008. The company, which about 440 U.S. stores, also said it was abandoning its ambitious growth target and no longer plans to reach 1,200 locations as it tries to get expenses under control.
Six straight quarters of declining same-store sales -- a closely watched measure -- have forced the organic-food grocer to tighten its belt. Whole Foods also gave a forecast for the current year that offered little hope of a quick recovery.
“This is a company that owned the space for a long time, but there’s way too much competition now,” said Brian Yarbrough, an analyst at Edward Jones. “They’ve done several things to try and drive sales, and it’s just not working.”
Same-store sales dropped 2.4 percent last quarter, worse than the 1.7 percent decrease predicted by analysts. The company now expects sales on that basis to decline as much as 2.5 percent this year, compared with an earlier forecast that was closer to break-even.
“People were hoping there would be some improvement,” said Jennifer Bartashus, an analyst at Bloomberg Intelligence. “It’s a bit concerning there’s not a reversal happening there.”
Whole Foods has struggled to ward off competition from mainstream supermarkets, including Kroger Co. and Wal-Mart Stores Inc., which began offering more organic fare in recent years. And a bout of food deflation has put additional pressure on the entire industry.
Some on Wall Street have been pushing Whole Foods to rein in its growth plans, and the store plan was received warmly. The stock gained 2 percent percent to $29.91 at 10:02 a.m. in New York on Thursday. Prior to the drop, it was down 4.7 percent in 2017.
Responsibility for the turnaround is now squarely on John Mackey, a co-founder of the company who retook sole leadership last year. He had served as co-chief executive officer with Walter Robb until November.
He has an uphill fight ahead. Same-store sales declined 3.2 percent in the current quarter through Feb. 5, a sign its troubles are worsening. The Austin, Texas-based company also said it would no longer be reporting quarter-to-date figures in future reports, meaning investors will have less to go on.
Whole Foods’ struggles have fueled speculation that an activist investor could take on the chain, and one of its largest shareholders is said to have to discussed agitating for sweeping changes.
For years, Whole Foods offered products that were tough to find elsewhere, and the shares gave investors exposure to the fast-growing market for organic and natural food. But that advantage has eroded in recent years. With sales growth stagnating last year, Whole Foods announced $300 million in cost cuts.
But the company is still ramping up spending elsewhere, including on marketing and technology, and that’s expected to offset the cutbacks. It also introduced a new store concept last year aimed at younger, budget-conscious consumers. So far, only three of the locations -- dubbed 365 by Whole Foods Market -- have opened on the West Coast. The company announced on Wednesday that it has signed leases for new 365 stores in Brooklyn, New York, and Oakland, California.
The new concept, named after the company’s private-label brand, is seen as a way for Whole Foods to connect with shoppers who perceive the chain’s conventional stores as too pricey.
Whole Foods considered turning some of the stores it was closing into 365 locations, but it wasn’t practical, Mackey said. In some cases the company wanted to “thin out” its presence in a particular market, with the hope that it benefits Whole Foods locations nearby. Some of the stores had leases coming up in 2017, and management decided to accelerate the process and close them now.
The decision to shutter the nine stores will help boost profits and comparable sales, Mackey said on a conference call. The company is taking a more disciplined approach to growth but still has 80 stores in the pipeline, he said.
“We cleaned up the stores we needed to clean up for the time being, and we’re looking forward to moving forward,” Mackey said.