Whole Foods hits the wall, comps turn negative

Whole Foods is trying to get its groove back, but after reporting weak fourth quarter results it is not clear when that will be as the company expressed concern about the competitive climate and the impact on its profit margins.

The nation’s leading national and organic grocer continues to see weakness in its same store sales which have deteriorated this year. Fourth quarter comps declined 0.2% following a meager 1.3% increase in the third quarter. For the quarter ended Sept. 27, total sales increased 6% to $3.4 billion while profits tumbled. Net income declined to $56 million, or 16 cents a share, from $128 million, or 35 cents a share, in the fourth quarter the prior year.

"In the face of increasing competition, we are not standing still. We have made measurable progress on many of our strategic initiatives over the past year, while producing industry-leading sales per gross square foot of $970, a record $1.1 billion in cash flow from operations, and healthy returns on invested capital," said John Mackey, co-founder and co-CEO of Whole Food. "Through our strong balance sheet and robust cash flow, we self-funded our new store development and strategic investments while returning close to $700 million to our shareholders through dividends and share repurchases."

Knowing its results would displease investors, the company borrowed a page from Walmart’s recent playbook and announced plans for a $1 billion stock buyback program and increased its dividend by 4%. Walmart took a similar action in October when it announced plans to spend $20 billion buying back stock the next two years after it warned next year’s profits could decline as much as 12%.

Despite the current weakness, Whole Foods maintained its view that the U.S. can support 1,200 of its stores and even more than that with its new 365 format.

"There has never been a time where customers have had more interest in what they eat, where it comes from and who's growing it. Our company mission, commitment to transparency, and culture of innovation are more relevant than ever, and we see tremendous growth potential as food consciousness continues to evolve," said Walter Robb, co-CEO of Whole Foods Market. "We recognize the need to move faster and go deeper to rebuild traffic and sales and create a solid foundation for long-term profitable growth and are taking the necessary steps to better communicate our differentiation, improve our value perception, and fundamentally evolve our business."