Whole Foods profit drops, halts dividend

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.