Aug 6, 2008 11:44 am US/Eastern
Whole Foods 3Q Misses Estimates, Lowers Outlook
(AP)
Whole Foods Market Inc. said Tuesday that a tough economy pinched shoppers and pushed its net income down more than 30 percent for the third quarter.
Shares of the Austin-based natural foods grocer plummeted in after-hours trading after the company said it was drastically lowering its outlook, suspending its quarterly dividend indefinitely and announced cost cuts such as opening fewer stores next year.
"Today's economic environment is the most challenging I have experienced in my 30 years in retail," said Whole Foods Chief Executive Officer John Mackey.
The company earned $33.9 million, or 24 cents a share, for the three months ending July 6, down from $49.1 million, or 35 cents a share, in the same quarter last year. It estimates that the purchase of Wild Oats was responsible for a $4.9 million, or 3 cents a share, impact on the net income.
Whole Foods reported revenue of $1.84 billion for the quarter, up from $1.51 billion in the previous year.
The results fell far short of Wall Street's expectations. Analysts polled by Thomson Financial had expected a profit of 31 cents per share on revenue of $1.9 billion.
Shares in Whole Foods, which had risen nearly 7 percent during regular trading ahead of the results, dropped almost 18 percent to $18.84 in after-hours trading.
Whole Food's stock has shrunk nearly 50 percent in the past year as the company struggles to draw budget-minded shoppers to its stores, which are more well-known for their high-end products.
Whole Foods has upped its focus on the value options in its stores: positioning better-priced items on the more traveled paths in the stores and launching several programs to educate consumers.
Its "Whole Deal" program, launched in July, shows shoppers product discounts and other deals around the store. Some stores have "value gurus" who lead customers on tours highlighting the best deals in store and giving tips or recipes on how to stretch their food dollars.
But shoppers aren't entirely sold on the idea that the store that sells fine cheeses and delicately aged beef is also a destination for deals.
The company said its comparable store growth, up 2.6 percent for the quarter, was among its weakest ever.
Whole Foods also said it is struggling in the U.K., where it has lost $18.4 million over the last four quarters.
"The current state of Whole Foods is very challenged by various factors," said BB&T Capital Partners analyst Andrew Wolf.
He said sales, cost and overall economic issues hurt the company this quarter. But unlike the downturn in 2001, which Whole Foods weathered better, the company is increasingly feeling the pressure from fuel prices on its sales.
"Whole foods is more of a destination store," Wolf said. "Destination shopping trips are being cut."
Whole Foods said it expects to earn 13 to 15 cents a share for the fourth quarter, bringing the full year to 93 to 95 cents a share.
The company lowered its outlook for 2009, saying it now expects sales growth of 6 percent to 10 percent for the year -- rather than the previously stated 25 percent to 30 percent growth. And it said its comparable-store sales are expected to grow 1 percent to 5 percent, down from the previously anticipated growth of 7.5 percent to 9.5 percent. The company expects to earn $1.08 to $1.14 per share for 2009, well below the consensus forecast.
Whole Foods said it plans to update its guidance in November.
"It is never pleasant going through a difficult down time," Mackey said. "You can run around, throw your hands up at the despair of it all or see what is the opportunity that is being given to us right now."
The company also said it is making several cost-cutting steps including reducing the number of stores it plans to open in 2009 and suspending its quarterly dividend for the foreseeable future.
But executives remained positive about long-term possibilities, saying the acquisition of Wild Oats Market Inc. and strategic investments should pay off.
"We remain very bullish on our growth prospects as the market for natural and organic products continues to grow and our company continues to evolve," Mackey said.
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