Whole Foods Market: An End to Healthy Foods? Disappointing Q2 Earnings

Whole Foods Market (NASDAQ: WFM) which is named for its excellent organic and healthy food super market service is now deeply in trouble. The niche market was so popular when people believed eating organic food is good for health. Based on explanations from nutrition and health science, the organic food is supposed to erase concerns for diseases and other health problems.

However, recently scandals and FDA alerts for these organic food providers has put a huge grey mask on the industry. While the competitor’s are rushing into the market and customers transfer behaviors more frequently, Whole Foods Market just became one of the victims. The disappointing Q2 results shows both slips in revenue and profits. Same organic food provider, chipotle also faces this problem.

 

Whole Foods Market Inc. on Wednesday gave weak projections for the current quarter as it booked its fourth-consecutive decline in quarterly profit.

Shares, up 0.4% this year, fell 4.6% to $32.10 in after-hours trading and down even 9% during the Thursday.

In the latest period, Whole Foods reported a 2.6% decline in comparable sales, against analysts’ projected 2.3% decline, according to FactSet. So far this quarter, it said, comparable sales were down 2.4%. The Austin, Texas, company has projected it will post its first annual decline in comparable sales since 2009.

The company defines comparable sales, a key industry metric, as sales at stores it has owned for at least 57 weeks, up from 53 weeks previously.

The high-end grocer, whose name became synonymous with natural and organic foods, has been beset by a sales slowdown as competitors expanded into what had been a niche market. In addition, it has faced a series of setbacks and bad publicity, including a price scandal last year in New York that led to a $500,000 fine and a recent warning from U.S. health regulators over food safety at a Massachusetts plant that makes prepared foods and other products for more than 70 stores in eight states along the East Coast, from New Jersey to Maine.

Over the 12 weeks ended July 3, Whole Foods reported a profit of $120 million, or 37 cents a share, compared with $154 million, or 43 cents a share, a year earlier. The most-recent quarter’s results were based on 11% fewer shares outstanding.

Revenue rose 2% to $3.70 billion.

Gross profit margin narrowed to 34.7% from 35.6% a year earlier.

In the current quarter, Whole Foods expects to make 23 cents to 24 cents in adjusted profit with sales increasing 2% from the year-earlier period. Analysts surveyed by Thomson Reuters project 25 cents a share in adjusted profit on $3.56 billion in sales, a 3.6% increase from the year-earlier period.

We should also put chipotle into the comparable table. As the biggest healthy fast food provider on the market, it gained a huge success during the uptrend of organic food. Now, it face the losing of customers and investigations from regulators based on recent poisoning customers scandals. Stock price went down a lot this year. For these two companies, it is clear to see the struggle. Concerns for health good are really about the health right now. How to get over this hurdle for organic food provider would be the huge task in the next stage for both companies. 

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