Sprouts Farmers Market sales warning sends grocers tumbling

A shopper exits a Sprouts Farmers Market in Los Angeles, California August 1, 2013. REUTERS/Jonathan Alcorn

(Reuters) - Shares of Sprouts Farmers Market Inc SFM.O plunged as much as 16.7 percent after the natural and organic foods retailer warned on quarterly sales, sending other U.S. grocers' stocks tumbling.

Sprouts Farmers Market said third-quarter sales were likely to be flat due to a prolonged deflationary environment, heavy promotions across the industry and fewer customers.

The company also said on Wednesday it expects full-year earnings per share of 83-86 cents, well below previous analyst estimates of 94 cents, according to Thomson Reuters I/B/E/S.

The market for fresh fruit and vegetables is fiercely competitive, with Sprouts Farmers Market, Whole Foods Market Inc WFM.O, Trader Joe's and other rivals undercutting prices aggressively to take sales from one another.

Upscale grocer Whole Foods also blamed competition and deflation when it reported its fourth straight quarter of same-store sales decline in July.

Wednesday's announcement dragged down shares in Casey's General Stores Inc CASY.O by 11.5 percent and Whole Foods by 5.1 percent.

The Dow Jones Food Retail and Wholesale index .DJUSFD fell as much as 2.7 percent. Shares in Sprouts Farmers Market have fallen 14 percent since the start of the year to Tuesday's close.

On Wednesday, Kroger Co KR.N, the biggest U.S. supermarket company, also took a hit after its price target was downgraded by RBC analysts, touching a more-than one-year low of $31.11.

Kroger is scheduled to report quarterly results on Friday.

Reporting by Richa Naidu in Bengaluru; Editing by Shounak Dasgupta