After a series of disappointing earnings reports, executives for Whole Foods Market hoped Wednesday's quarterly numbers would win back favor from investors.
But while the Austin, Texas-based natural foods grocer did beat some Wall Street expectations for its fiscal third quarter, the company also missed on its same-store sales projections and lowered its sales forecast for the rest of the year.
The combination sent Whole Foods' stock downward in after-hours trading. Shares fell as much as 7 percent shortly after the earnings report, but the stock stabilized closer to the $37.94 mark, down $1.17, or 3 percent from Wednesday's close.
Whole Foods has grown into one of Austin's highest-profile companies. The retailer has 388 stores in the U.S., Canada and Europe and has about 2,800 employees in Central Texas and 84,000 worldwide. The company reported quarterly revenue of $3.4 billion, a record total that was a 10 percent increase from the same quarter a year ago and above Wall Street expectations. The company had earnings per share of 41 cents, above 38 cents reported during the same quarter a year ago and above expectations of 39 cents per share.
However, the retailer posted lower same-store sales growth, a key metric closely watched by Wall Street. Same store sales rose 3.9 percent for the third quarter, which was well below the company's projections of 5 percent to 5.5 percent. The retailer also cut its future outlook for same-store sales.
The slowdown, said co-CEO Walter Robb, was a result of a number of factors, including cutting prices and new Whole Foods stores dragging on older locations.
It "reflects continued headwinds from our value efforts, cannibalization, competition and the economy," Robb told analysts and investors in a conference call following the earnings release.
After years as the leader in natural foods, Whole Foods has seen traditional supermarkets, big-box stores and online retailers step up their organic and natural offerings.
The retailer laid out several new initiatives to combat its growing landscape of competitors. Those include a new delivery and pickup service in at least a dozen major markets, an online subscription grocery service, the company's first national advertising campaign this fall and plans to "refresh" some of its older stores.
Robb said the retailer's business model continues to show positive signs, with "industry-leading" sales per gross foot, healthy returns and strong operating cash flow. Whole Foods has also seen more signs of stability in sales trend, Robb said.
Ahead of Wednesday's earnings report, investors had been hopeful, as Whole Foods stock closed up up $1.43, or 3.8 percent to $39.11. The stock also saw heavy trading, with 15.6 million shares trading hands, more than twice the company's average volume.
After it reported disappointing second quarter earnings in May, Whole Foods shares had taken a beating, falling to a more than two-year low. Before the May earnings report, the stock's 52-week low was $45.43.
During a testy May conference call with analysts, Robb and co-CEO and co-founder John Mackey faced questions over what the retailer was doing to combat increasing competition. Analysts said it was time to detail a more specific plan to fight competitors than just one focused on growth.
On Wednesday, Robb said with new initiatives in hand, including price cuts and competitive price matches, Whole Foods will be looking at robust growth over the long term.
"While the current environment is very dynamic and competitive, we are managing and growing our business for long term," Robb said. "We are not suggesting a race to the bottom, but rather a thoughtful, strategic, surgical approach to improve our relative value positioning."
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