Whole Foods Market Inc on Wednesday said same-store sales growth cooled again in the third quarter as it battles competition in the natural and organic grocery category it dominates, sending its shares tumbling 10 percent in after-hours trade.
The Austin, Texas-based chain's same-store sales, a closely watched performance gauge for retailers, were up just 1.3 percent for the quarter ended July 5, far less than the 2.8 percent gain expected by analysts polled by Consensus Metrix.
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Those sales rose 3.6 percent in the second quarter and grew 4.5 percent in the first quarter. The rapid deceleration is troubling for investors, who have wondered how long Whole Foods could maintain its grip on the specialty grocery category it pioneered and helped take mainstream.
Third-quarter net income increased 2 percent to $154 million, or 43 cents per share. That missed Wall Street's estimate of 45 cents per share, according to Thomson Reuters I/B/E/S.
Whole Foods also dialed down its 2015 same-store sales forecast. It now expects growth in the low single digit percentages, versus its prior call for growth in the low to mid-single digit percentages.
Its forecast for fourth-quarter earnings of 34 to 35 cents per share was also a miss. Analysts were looking for 38 cents per share.
Whole Foods executives in May attributed the sales slowdown to competition from mainstream and specialty retailers and "severe cannibalization" from its own stores in places like Chicago and Florida.
The firm is responding with a new chain of smaller markets that target Millennials and value-oriented shoppers.
Called 365 by Whole Foods Market, the new chain is a nod to its value-priced private label brand.
The company on Wednesday said it has signed four leases for 365 stores, and that it plans to convert one Whole Foods Market to the new concept. The first 365 store will debut in Los Angeles' hipster Silverlake neighborhood. Other stores are slated for Santa Monica, California; Portland, Oregon; Houston; and Bellevue, Washington.
Whole Foods plans to open up to five 365 stores in the second half of next year and then to double the number of openings in 2017.
Early this month, Whole Foods executives apologized to shoppers after an investigation by New York's Department of Consumer Affairs found it charged too much for some prepackaged foods.
The company's stock closed at $40.82, down 0.29 percent, on Nasdaq before skidding to $36.65 in after-hours trade.
(Reporting by Lisa Baertlein in Los Angeles; Editing by Grant McCool and Dan Grebler)