Whole Foods Announces Financial Results, Store Closures

Whole Foods Market (NASDAQ:WFM) reported what is arguably its worst performance in a decade in its financial results Wednesday. The company reported fiscal first-quarter adjusted earnings per share of 39 cents, meeting consensus estimates. Sales totaled $4.92 billion, missing the $4.97 billion estimate but up from the same quarter of last year.

Same-store sales dropped 2.4 percent last quarter, more than the 1.7 percent decline predicted by analysts. Same-store sales declined 3.2 percent in the current quarter through Feb. 5. The company said it would no longer be reporting quarter-to-date figures in future reports.

Whole Foods also gave a forecast for the current year. The company now expects same-store sales to decline as much as 2.5 percent this year. The grocer previously forecast that it would break even for the year.

John Mackey, a co-founder of the company, retook sole leadership last year. He says that the company is working on getting its expenses under control after six straight quarters of declining same-store sales. Last year, Whole Foods announced $300 million in cost cuts. However, spending elsewhere, like on marketing and technology, is expected to offset the cutbacks.

Whole Foods announced that it is shrinking its store count for first time since 2008. The company will be closing nine stores in the second quarter, the most it has ever closed at one time. The company said it is abandoning its ambitious plans to reach 1,200 locations. Whole Foods currently has about 440 U.S. stores.

Whole Foods became popular by offering products that were tough to find elsewhere. Now, organics have become so thoroughly mainstream that organic chains now have to face conventional big-box competitors. Between 2005 and 2015, sales of organic food increased 209 percent. Last year, organic sales topped $43.3 billion.

Competition from traditional supermarkets in the organic space is hampering the company’s growth. Now that other traditional grocers offer similar items, Whole Foods has turned into just another grocery store. According to the Organic Trade Association, mass-market retailers were responsible for 53.3 percent of organic food sales in 2015, while natural retailers were responsible for about 37 percent.

Food deflation has put pressure on the entire industry. Lowering prices has been one of Whole Food’s primary strategies for dealing with competitors. It’s been dropping prices at its regular locations and started mailing out national discount circulars. Mackey says that the company has to be “price relevant” in order to keep up with the competition.

 

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