Costs drive Whole Foods profit down 11%
The grocer opened a record six stores in the second quarter
Whole Foods Market Inc., the largest U.S. natural-foods grocer, reported second-quarter profit that fell more than analysts estimated on costs to open new stores and competition from traditional grocers.
Net income declined 11 percent to $46 million, or 32 cents a share, 4 cents short of estimates. Year-earlier earnings were $51.8 million, or 36 cents, Austin, Texas-based Whole Foods said yesterday in a statement. Sales rose 12 percent to $1.46 billion.
Whole Foods faced more competition from supermarkets such as Safeway Inc., which introduced an organics line, and specialty shops such as Trader Joe's. It spent $15.6 million on store openings, reducing profit by 7 cents a share. Whole foods opened a record six stores last quarter and plans to 18 to 20 new locations this year.
"They performed much better than anyone expected them to for such a long time," said Keith Patriquin, an analyst at Loomis Sayles & Co. in Boston, which manages about $20 billion, including Whole Foods shares. "They are now back to reporting on a consistent normal basis for a food retailer."
Whole Foods said staff at the Federal Trade Commission voiced concerns about antitrust issues related to the proposed purchase of Wild Oats Markets Inc., its largest rival. The FTC hasn't decided whether to challenge the deal, Whole Foods said.
In November, Whole Foods agreed to buy Wild Oats for $565 million, adding 110 stores in 24 states and British Colu-mbia. Shares of Whole Foods fell $3.35, or 7.3 percent, to $42.45 at 5:25 p.m. in trading after the close of the Nasdaq Stock Market.
Second-quarter sales at stores open at least a year rose 6 percent, the company said. Revenue was boosted by an earlier Easter this year, which shifted much of the holiday's sales to March from April.
Chief Executive Officer John Mackey said on a conference call yesterday that he was hopeful that sales growth at comparable stores had "bottomed out." He said results may be boosted as sales of private-label goods rise.
Whole Foods has 194 stores in the U.S., U.K. and Canada.
Profit was estimated at 36 ce-nts a share, the average of 11 projections compiled by Bloomberg. Sales were projected at $1.49 billion.
The company reiterated its forecast for sales this year to rise 13 percent to 17 percent with same-store sales climbing 6 percent to 8 percent. It said store opening costs may be as much as $74 million this year.
Whole Foods shares fell 39 percent last year, the first annual decline since 1999, as competition from Wegman's, Trader Joe's and Safeway Inc. cut into sales growth.
Shares of Whole Foods have dropped 2.4 percent this year compared with a 26 percent gain for Kroger Co., for biggest U.S. grocery chain, and 2.3 percent increase for Safeway, the third largest.