Whole Foods Market, Inc. has reported worse than expected results for the 16-week first quarter ended January 15, 2017 with total sales up 1.9 per cent to a record US$4.9 billion. Comparable store sales decreased 2.4 percent, falling short of analyst's expectations, WFM's sixth consecutive same-store sales decline. Net income was US$95 million, or 1.9 percent of sales.
Whole Foods Market's management has dropped previous plans to expand to 1200 stores in the US, while announcing the largest number of store closures (9) in the almost 40 years since WFM was founded.
WFM is faced with increased competition from mainstream and discount grocers moving into natural and organic products, and a deflationary environment.
“In this increasingly competitive marketplace, we are committed to taking every step necessary to improve comps and deliver higher returns for our shareholders,” said John Mackey, co-founder and CEO of Whole Foods Market.
“To this end, we are refining our growth strategy, refocusing our efforts on best serving our core customers, and moving faster to fully implement category management. Evolving our purchasing operating model while developing data-rich, customer-centric category management capabilities is critical to our go-forward merchandising, pricing, marketing and affinity strategies."
The company also cut its outlook for the full year based on slower sales growth and additional costs. Whole Foods now expects sales growth of "1.5 percent or greater," compared with its prior forecast of a 2.5 percent to 4.5 percent increase.
Gross margin declined 43 basis points to 33.6 percent driven by increases in occupancy costs and cost of goods sold as a percentage of sales.
In the first quarter, the Company opened 13 stores, including two relocations. So far
in the second quarter, it opened three stores, including one relocation, and expects to open three additional stores, including one relocation.
The Company also closed one commissary kitchen and will be closing nine stores and it’s last two remaining commissary kitchens during the quarter. The Company recently terminated two leases and signed four new leases and currently has 93 stores in development.
"While the competitive landscape continues to be very dynamic, two-year comps have continued to moderate, and it is uncertain how long the deflationary environment will continue," WFM said.
At its fourth quarter and full year 2016 results, WFM said that up to 22 new stores were planned to open in the first half of the 2017 year, while plans to jump from 12 to 40 Canadian stores appeared to be put on hold.
WFM planned to open new stores in Toronto and North Vancouver, but it will not go ahead with openings in Calgary and Edmonton.
At the end of fiscal year 2016, WFM had sales of approximately US$16 billion and operated 467 stores in the United States, Canada, and the United Kingdom.