Shares of Whole Foods Market Inc. dropped in after-hours trading Wednesday after the grocery chain reported that its fiscal first-quarter profit and revenue fell below analysts' forecasts.
The U.S. grocery chain, known for its organic and natural food offerings, also lowered its earnings projections for the year for the second time in months. It also pared down its full-year revenue guidance to the lower end of its expected range.
The results show that Whole Foods is facing an increasingly competitive landscape. The chain had been able to boost sales in large part because of its healthy product selection fits with Americans' changing eating habits. But more mainstream players like Kroger Co. are increasingly tapping into that trend as well, and rolling out more products and sections labelled as natural or organic.
That has put more pressure on Whole Foods to be more competitive with prices. The chain, which operates 373 stores, including several in Vancouver and the Greater Toronto Area, has battled a perception among shoppers that its food is pricey.
Expects 500 stores by 2017
During a conference call with investors, executives acknowledged a more competitive landscape but expressed confidence in their business as the chain continues a rapid expansion.
The company sees demand for 1,200 Whole Foods Market stores in the U.S. alone. The company has signed 57 new leases over the past 12 months and says it will cross the 500-store mark in 2017.
"With the growing demand for fresh, healthy foods, the offering of natural and organic products seems to be expanding everywhere," Walter Robb, co-CEO of Whole Foods, told investors on the call. "This is a positive for us as it affirms our mission for the last 36 years and speaks to the increasing growth opportunity."
But investors weren't impressed with the latest results. When the company released its earnings on Wednesday after the markets closed, its shares dropped more than seven per cent, or $3.97 US per share, to $51.49 in after-hours trading. That's after they slipped 42 cents to $55.46 in regular trading.
The chain earned a profit of $158 million, or 42 cents per share, in the quarter that ended on Jan. 19. That compares with a profit of $146 million, or 39 cents per share, in the year-ago period. Revenue rose 10 per cent to $4.24 billion in the quarter.
Analysts expected 44 cents per share on revenue of $4.29 billion, according to FactSet estimates.
2nd cut to earnings forecast
Revenue at stores opened at least a year rose 5.4 per cent, below the 5.6 per cent gain analysts were expecting. The figure also was below the 5.4 per cent increase in the previous quarter and the 7.2 per cent pace in the year-ago period.
Whole Foods cut its earnings forecast for the second time since November when it said that it expected $1.65 to $1.69 per share. That estimate was pared down from the original guidance of $1.69 to $1.72 per share. The company now expects earnings per share for the current fiscal year to be $1.58 to $1.65.
Analysts expected $1.68 per share, according to research firm FactSet's estimates.
The company also now expects full-year revenue to be up 11 per cent to 12 per cent. That's down from an earlier projection of 11 per cent to 13 per cent.
In the latest fiscal year, revenue was $12.9 billion, so that means that the company expects revenue this year to be $14.3 to $14.4 billion. Analysts forecast $14.5 billion for the year.