(Adds executive and analyst comments, survey data))
By Lisa Baertlein and Phil Wahba
Feb 12 Competition is cooling Whole Foods Market Inc's red-hot run, and the largest U.S. organic and natural food retailer stunned investors on Wednesday by cutting its 2014 sales forecast for the second time in three months.
Shares in the chain dropped 7.4 percent to $51.35 in extended trading.
Whole Foods has for years defied the U.S. consumer spending slowdown that has sent Wal-Mart Stores Inc, Kroger Co and other grocers scrambling to convince shoppers to spend more.
"Food retailing is more competitive than ever and with the growing demand for fresh, healthy foods, the offering of natural and organic products seems to be expanding everywhere in stores and online," Whole Foods co-Chief Executive Walter Robb said on a conference call with analysts.
Austin, Texas-based Whole Foods now expects 2014 same-store sales growth of 5.5 to 6.2 percent. In November, it lowered its forecast to 5.5 to 7 percent, citing the need to keep up with competitors.
That is below the 8 percent growth rate Whole Foods investors have grown accustomed to in recent years and which had made the retailer a Wall Street darling and the envy of grocers worldwide.
Same-store sales, a key gauge of performance for retailers, rose 5.4 percent for the fiscal first quarter ended Jan. 19. Those sales are up 5.6 percent so far this quarter.
Investment Technology Group restaurant analyst Steve West said Wednesday's results confirmed his suspicion that competitive creep was partly responsible for Whole Foods' decelerating growth in same-store sales.
"Maybe this is the new reality going forward," West said.
LOCAL AND ORGANIC
Americans, particularly those who are more educated, care increasingly about where their food comes from, spending more on locally grown and organic foods, two areas where Whole Foods has excelled.
That trend is backed by a recent study from consultancy AlixPartners. It showed that so-called "superusers" in the health and wellness category are most willing to pay a premium of 10 percent or more for locally sourced and organic food and beverages.
Eager to cash in on that demand, Walmart and other food sellers have been expanding their selections of organic and locally sourced products. Such efforts appear to have borne fruit, U.S. superusers surveyed by AlixPartners said they bought the majority of such products at traditional grocery stores.
AlixPartners defined superusers as those who spent 40 percent or more of their budget on food and beverage products from the health and wellness category.
Still, Whole Foods executives say they can stay ahead of the pack.
"It's true there's a little bit more competition out there now, but the market opportunity is so much greater than it used to be. There's room for lots of players," co-CEO John Mackey.
"We've been the leader for a long time and I think we're continuing to accelerate vis-a-vis our competitors."
To that end, experts say Whole Foods has made progress in its effort to shake its "Whole Paycheck" nickname.
Executives on Wednesday conceded that its pricing effort contributed to its less robust growth in closely watched sales at established stores during the latest quarter, but said it would reap benefits in the long-term.
Whole Foods also is responding to its customers' ever-changing tastes by doing things like selling fresh-squeezed juices and labeling or eliminating foods made with genetically modified ingredients, also known as GMOs.
The chain's fiscal first quarter net income rose more than 8 percent to $158 million, or 42 cents per share. Overall sales jumped 9.9 percent to $4.24 billion. Analysts were expecting $4.29 billion, according to Thomson Reuters I/B/E/S.
Whole Foods also lowered its 2014 profit forecast to a range of $1.58 to $1.65 per share from $1.65 to $1.69 previously. It said that, under the best case scenario, its gross margins would be unchanged for the rest of the year.
(Reporting by Lisa Baertlein in Los Angeles and Phil Wahba in New York; Editing by Nick Zieminski, Andre Grenon and Richard Chang)