News & Observer | newsobserver.com | Profit falls 13% at Whole Foods

Published: May 15, 2008 12:30 AM
Modified: May 15, 2008 05:42 AM

Profit falls 13% at Whole Foods

'Aspirational consumers' feel pinch

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DALLAS - Walking up to the wood beam-arched entrance of her local Whole Foods Market on Wednesday, Barbara Flesher was stopped cold by a mound of Del Monte cantaloupes.

"Look at that -- they're $3.99," Flesher said. At another store that morning, "they were 99 cents. Del Monte. The same thing.

"Whole Foods is good; everything in there is fabulous, but the prices are very high," she said. "I don't buy my produce there any more."

Judging from Whole Foods Market's latest financial report, issued Tuesday, Flesher is not alone, and that could spell trouble for the upscale retailer of organic and natural foods.

Shares of Whole Foods tumbled nearly 14 percent Wednesday after the Austin-based company said its fiscal second-quarter profit fell 13 percent, missing Wall Street estimates, and same-store sales grew but at a slower pace than recent years.

Whole Foods was once thought immune from an economic downturn, as its high-income customers continued to shop for arugula, pecan feta salad and cage-free eggs. But analysts say Tuesday's results show that's changing.

A Goldman Sachs analyst said it was the first time in recent memory that economic trends seemed to hurt Whole Foods sales. An analyst from RBC Capital Markets said the disappointing same-store sales confirmed his belief that traffic in the stores has slowed due to the weak economy.

Craig Johnson, a consultant to retailers and retail investors, said Whole Foods is suffering just like department store chains Nordstrom and Neiman Marcus -- because upper middle-class shoppers who enjoy touches of luxury in their lives are struggling.

"The true luxury shopper who buys Gucci or Prada isn't affected, but the aspirational consumer is," Johnson said. That's forcing some consumers who used to buy fancy produce and prepared meals at Whole Foods to change their shopping habits, he said.

Late Tuesday, the Austin-based grocer said profit in the quarter ended April 13 fell to $40 million, or 29 cents per share, from $46 million, or 32 cents, a year earlier. Analysts had expected the company to earn 30 cents per share.

Revenue rose 28 percent to $1.87 billion as the chain added Wild Oats stores it bought last year, but that was less than analysts expected.

Whole Foods shares fell $4.68 to $28.96 Wednesday after sinking to a 52-week low of $28.85 earlier in the session.

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