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Whole Foods (NASDAQ: WFMI) was one of the great retail growth stories of the last five years. From mid-2003 to early 2006, the company's shares rose $25 to $77. After a couple of tough years, the stock is back under $20.
Whole Food's most recent quarterly results were abysmal, adding to the perception that the best days for the health food chain are over.
WFMI's net income dropped to $39 million from $49 million in the same quarter a year ago. The company also suspended its dividend and cut capital spending for non-store activities by $50 million.
According to the AP, "The natural foods grocer said it now expects sales growth of 6 percent to 10 percent for the year - rather than the previously stated 25 percent to 30 percent growth. And the company said its comparable-store sales are expected to grow 1 percent to 5 percent, down from the previously anticipated 7.5 percent to 9.5 percent growth."
Not unlike Starbucks (NASDAQ: SBUX), Whole Foods is caught in a downturn it cannot arrest. Larger food chains looked at the WFMI success and decided to open natural food sections of their own. Whole Foods charges a premium for its products and, in a slow economy, consumers are less likely to accept that.
The recession will end, but competition from larger food retailers will not. Whole Foods may have to drop its prices permanently. That means its old margins are never coming back.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
8-06-2008 @ 1:12PM
Sheldon L said...
Whole foods can expand and grow the top line numbers but the bottom line net profits will continue to shrink.
The stock has to contract to meet the lower expectations and more 'run-of-the-mill' retail commonality.
8-06-2008 @ 6:36PM
Martin Calle said...
Unless they prune their thinking to promote new growth. That thinking changes the dynamics of creating consumer demand.
8-07-2008 @ 1:38AM
sarah gilbert said...
Doug, while I agree the old margins are never coming back at their former strength, I think Whole Foods has a serious shot if the company can reposition along the local foods movement. no other large grocery company has anywhere close to Whole Foods' foodie credibility and consumers who look for local, sustainable produce, dairy, meats and the like will trust wfmi long before they'll trust wmt or safeway.
of course, this means management has to figure it out and jump on that bandwagon, dropping some low-margin copycat products and focusing on developing relationships and branding around local suppliers. I'm willing to make a bet that they'll figure it out -- at least, I'm willing at this price!