Natural-Foods Grocer Cuts Back Plans For New Stores and Suspends DividendNatural-foods grocer Whole Foods Market Inc., bruised by the sluggish U.S. economy, posted fiscal third-quarter profit that disappointed Wall Street and said it is cutting back on planned store openings and suspending its quarterly dividend to shareholders.
The weak results are the latest bad news for a former Wall Street darling, whose bright, cavernous stores have long been popular with health-conscious shoppers but whose rapid sales growth has cooled in recent years. The lower earnings are also a sign that the sagging economy is causing even consumers in higher income brackets to pare spending.
For years, the Austin, Texas, purveyor of natural and organic groceries saw little impact from economic slowdowns. But now it is acknowledging that it is vulnerable to economic tumult. To some degree, the company's woes mirror those of Starbucks Corp., which is closing stores and shedding jobs amid weaker sales.
"Today's economic environment is the most challenging I have experienced in my 30 years in retail," Chief Executive John Mackey said in a conference call with analysts.
Whole Foods said net income fell 31% to $33.9 million, or 24 cents a share, for the quarter ended July 6, from $49.1 million, or 35 cents a share, a year earlier. Revenue rose 22% to $1.84 billion. Analysts, on average, were expecting earnings of 31 cents a share and revenue of $1.9 billion, according to a Thomson Reuters survey.
Whole Foods reported results after the close of regular market trading. In 4 p.m. Nasdaq composite trading, Whole Foods shares rose $1.46 or 6.8% to $22.92. The shares fell 17% to $19 in after-hours trading.
Whole Foods said it is lowering the number of stores expected to open in fiscal 2009 to about 15, down from its May estimate of 25 to 30. It also said it has cut budgets for capital expenditures unrelated to new stores by 50%.
Whole Foods, co-founded by Mr. Mackey in 1980, now operates more than 270 stores in the U.S., Canada and the U.K.
The company said it is suspending its quarterly cash dividend for shareholders. It paid about $28 million in dividends in the latest quarter.
Same-store sales -- or sales at stores open at least a year, a key measure of a retailer's health -- rose only 3%. That's a sharp decline from the double-digit increases Whole Foods enjoyed just a few years ago, when the retail chain was growing rapidly, attracting shoppers with an array of prepared foods, fresh produce, meats and natural and organic boxed goods.
Whole Foods' stock price has plunged 44% this year on weaker sales growth. The company faces intensifying competition from large food retailers, which have been stocking more natural and organic foods.
Recently, the company has been trying to rejuvenate sales by offering more discounts and emphasizing value in its marketing. It has long tried to shake its image as an expensive place that some customers dub "Whole Paycheck."
"The company long touted its premium food offerings in its marketing, and that branding is now actually hurting them," said Tim Hanson, a senior analyst with the Motley Fool, an online investment community.
By: David Kesmodel
Wall Street Journal; August 6, 2008
