Whole Foods Market Cuts Annual Guidance -- Update

By Heather Haddon

Whole Foods Market Inc. on Wednesday cut its full-year sales and profit guidance as fresh discounts failed to halt the decline in a key sales measure.

The organic-foods specialist faces tougher competition from mainstream rivals such as Kroger Co. and is responding with more promotions, online discount vouchers and the planned rollout of a new chain of smaller stores.

The company's fiscal second quarter profits beat analysts' expectations, but sales in stores open for more than 57 weeks fell 3% in the 12 weeks to April 10, a steeper decline in the closely watched metric than in the previous two quarters.

"We're copying some of the things that of our competitors do, we're learning from everybody," co-Chief Executive John Mackey said on an investor call. "We're probably undergoing far more an evolution in our company than ever before."

The Austin, Texas-based company trimmed its full-year sales forecast to a gain of up to 3%, having previously guided to a rise of up to 5%, though left estimates for margins and store expansion unchanged.

Its shares were recently up 0.2% at $35.07 having been more than 4% higher earlier in after-hours trade.

Executives said that same-store sales slipped primarily because a push to discount prices -- notably on fresh produce -- had yet to translate into increased sales, but also blamed the increasingly challenging market for the high-end grocer.

"We are facing ongoing headwinds from a highly competitive environment," said Mr. Mackey.

Year-over-year comparisons are expected to ease this quarter as it laps the opening of a number of new stores in Chicago and Florida that initially cannibalized existing locations. It will also pass the anniversary of a city-led probe into price labeling in New York that depressed sales.

The company is trying to differentiate itself from competitors with the new '365 by Whole Foods' format, a planned chain of smaller stores that seeks to appeal to younger and more cost-sensitive consumers.

The first is due to open on May 25 in Silver Lake, Calif. in late May, with others following after in Oregon and Washington. It has signed 19 leases for the 365 stores.

Three stores that had slated to be full-size outlets will now be the smaller 365 format. The flagship stores average around 45,000 square-feet, while the 365 format hovers around 30,000 square feet.

Profits in the quarter to April 10 fell to $142 million from $158 million a year earlier, with per-share earnings stable at 44 cents. Revenue rose 1.3% to $3.7 billion.

The company bought back $100 million of stock in the quarter, and said it repurchased an additional $550 million since the end of the quarter.

--Maria Armental contributed to this article.

Write to Heather Haddon at heather.haddon@wsj.com

(END) Dow Jones Newswires

May 04, 2016 19:59 ET (23:59 GMT)

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