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Whole Foods Market is getting crushed this morning

Whole Foods Market (WFM) is getting crushed this morning after fiscal Q2 earnings release yesterday afternoon.  Whole Foods' same-store sales rose weaker than the Street expected coming in at 4.5%, compared with the 5.4% increase in the prior quarter.  The stock is down more than 20% in early trading.  The weak same-store sales growth has caused the company to cut 2014 earnings forecasts.  

In the earnings conference call, executives are urging investors to temper their expectations as growing competition cuts into sales.  Numerous times in the call, executives talked about competition from lower price retailers selling organic foods.  WFM leadership is “optimistic” they can stay in front of these retailers by “evolving” and improving their value while cutting costs.

Here’s Walter Robb, WFM Co-CEO, discussing competition this quarter verse prior quarters,

“I think it’s important to understand that competition has accelerated. There’s no question about it. We’ve seen the conventional supermarket companies like Kroger and Wegmans and HEB, they certainly have upped their game in natural and organic foods. We’ve seen new entrants get public money such as Sprouts, Fresh Market, Natural Grocer, they’re expanding more rapidly. Trader Joe’s continues to expand.

So I’d say competition is more intense right now than possibly we’ve ever experienced before. But it’s also important to understand the Whole Foods Market is still gaining share. I mean, we’re still growing our comps at a much faster rate than the rate of inflation.

So we’re just not gaining it as fast as we have gained it in previous years. …”

John Mackey, WFM’s other Co-CEO, made it clear that a change in strategy is very important in the near term, “We’re resetting expectations for this year and for the first time, laying out our strategic vision for the next several years. This is not guidance, but rather a framework around how we intend to manage our business over the intermediate term.”

With what seems like almost every food retailer offering natural and organic options, WFM has to adapt quickly to remain the leader in the category.