Whole Foods profit drops, halts dividend

The sign for the Whole Foods grocery store is seen in Lakewood, Colorado September 11, 2007.

ATLANTA (Reuters) - Whole Foods Market WFMI.O, the leading U.S. natural foods grocer, posted a lower quarterly profit that missed Wall Street estimates on Tuesday and suspended its dividend as sales growth slowed, pushing down its stock 17 percent in extended trading.

The former Wall Street darling, which woos high-end shoppers with organic and natural produce at premium prices, cut back its plan to open stores and said it would sell more value items since high gas prices and a weak economy discourage some customers from driving to its stores.

Whole Foods, which a year ago bought rival Wild Oats Markets for $565 million, also forecast current-quarter and full-year profits below analysts' estimates and cut its store growth for 2009.

Results "are not good," said Edward Jones analyst Stephanie Hoff, noting that comparable-store sales growth for the fiscal third quarter was well short of expectations.

"You have a company that used to post above the main-line grocery stores posting more in-line with grocery, so I think that's suggesting a share shift," she said.

But "I don't think that it means it's a permanent shift," Hoff said. "I just think the economy is weighing on everybody."

Whole Foods said sales at established stores rose 1.5 percent in the first four weeks of the current, fiscal fourth quarter. Should that trend continue, the chain said comparable-store sales would rise 5 percent for the full year, down from growth of 7.5 percent to 9.5 percent it forecast earlier this year.

LESS DRIVING

Chairman and Chief Executive John Mackey said higher gasoline prices and the U.S. housing slowdown have led to the weakest comparable-store sales he has seen since he started Whole Foods about 30 years ago.

"With the price of gasoline right now, ... people aren't driving as far, as frequently to our stores as they used to," Mackey said during a conference call.

Consumers' willingness to trade down pose a challenge for the grocer, which had wowed the market for years with its fresh, high-quality meats and produce. The company's shares have fallen 55 percent in the last two years.

Whole Foods, whose high prices have earned it the moniker "Whole Paycheck" among some customers, is cutting costs as well as increasing its value offerings to change its image. "We think that we are misperceived," Mackey said.

The Austin, Texas-based company posted fiscal third-quarter net income of $33.9 million, or 24 cents per diluted share, compared with its year-earlier net income of $49.1 million, or 35 cents a share.

Analysts had expected a profit of 31 cents a share, according to Reuters Estimates.

Charges related to the Wild Oats acquisition lowered earnings by about 3 cents per share, Whole Foods said.

Revenue rose nearly 22 percent in the quarter to $1.8 billion, below the $1.9 billion analysts had expected.

Comparable store sales rose 2.6 percent and identical store sales, excluding two relocated stores and two major expansions, rose 1.9 percent. Those figures are used to gauge health at grocery stores.

Whole Foods suspended its cash dividend and added it was cutting store growth for fiscal 2009 to about 15. The company had previously planned 25 to 30 new stores for 2009.

The chain bought Wild Oats to strengthen its position against mainstream grocers that are carrying more organic, natural and prepared foods. The company said it was mulling how to respond to a U.S. appeals court ruling in late July that overturned a lower court decision allowing the Wild Oats buyout to proceed.

Whole Foods forecast a profit of 13 cents to 15 cents a share for the fourth quarter and 93 cents to 95 cents a share for the full year. Analysts expected 27 cents a share for the quarter and $1.15 a share for the year, according to Reuters Estimates.

For 2009, Whole Foods forecast profit of $1.08 to $1.14 a share on sales growth of 6 percent to 10 percent. Analysts expect profit of $1.53 a share for 2009.

The company's shares fell about 17 percent to $18.93 in trading after the bell from their $22.92 close on Nasdaq.

(Reporting by Karen Jacobs, editing by Richard Chang)