Whole Foods Market on Tuesday cut its 2014 same-store sales and earnings forecast for the third time amid rising competition in the natural and organic grocery sector that it dominates, and shares tumbled almost 15 percent.
Austin, Texas-based Whole Foods also urged analysts and investors to lower expectations as it works to more aggressively lower prices and stay out in front of retailers such as Wal-Mart Stores, Trader Joe's, and Fresh Market.
"We were overly optimistic ... particularly in light of the rapidly changing competitive landscape," John Mackey, Whole Foods' co-chief executive said on a conference call.
Americans, particularly those with more formal education, increasingly want to know where their food comes from and how it is made. They often are willing to spend more money on locally grown and organic foods, areas where Whole Foods has been a retailing pioneer.
Eager to cash in on that trend, retailers have been mimicking plays from Whole Foods, which for several years has grown robustly despite the weak U.S. economic recovery.
For example, in Los Angeles' waterfront community of Marina Del Rey, mainstream grocer Kroger's Ralphs market has sold packaged, organic kale and Aidells artisan sausages at lower prices than a nearby Whole Foods store.
Elsewhere, Wal-Mart's U.S. division plans to introduce 100 Wild Oats-branded organic products ranging from olive oil to canned black beans in half of its 4,000 stores in coming months. Walmart, which caters to lower income shoppers and sells more groceries than other retailers, said those products would be priced on par with conventional rivals and at least 25 percent below branded organic foods.
Mackey said that Whole Foods continues to gain share as organics move from niche to mainstream and would strive to lead the sector. Whole Foods has already announced it would be the first U.S. retailer to commit to labeling or eliminating foods made with genetically modified ingredients.
Whole Foods' same-store sales, a major gauge of performance for retailers, rose a weaker-than-expected 4.5 percent for the fiscal second quarter ended April 13, compared with the 5.4 percent rise in the prior quarter. They were up 4.3 percent for the six weeks ended May 4.
Executives blamed severe winter weather and the shift in the timing of Easter for some of the sales disappointment.
Second-quarter net income was flat at $142 million, or 38 cents per share, compared with a year earlier.
Whole Foods' new 2014 forecasts call for earnings per share in the range of $1.52 to $1.56, down from $1.58 to $1.65 previously, and same-store sales growth of 5 to 5.5 percent, down from 5.5 to 6.2 percent previously.
The same-store sales outlook is below the 8 percent growth rate Whole Foods investors have grown accustomed to, making it a Wall Street favorite and the envy of grocers worldwide.
Shares in Whole Foods fell 14.6 percent in extended trading to $40.96. Shares in the company hit an all-time high of around $63 in October. (Click here for the latest quote.)