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Whole Foods Bruised

TSC Staff

Shares of Whole Foods Market(WFMI Quote) slid in late trading Wednesday after the organic-foods chain posted an unexpected drop in profits and cautioned of potential troubles in its pending purchase of Wild Oats(OATS Quote).

For the quarter ended April 8, the Austin, Texas-based grocer earned $46 million, or 32 cents a share, down from $51.8 million, or 36 cents a share a year earlier. Analysts polled by Thomson Financial expected earnings of 36 cents a share for the most recent quarter.

The profit drop reflected in part a surge in costs for store relocations and openings. Those costs more than doubled to $15.6 million from $7.3 million a year earlier, as Whole Foods opened a record six stores in the quarter. The company currently has 194 stores.

Sales rose 12% to $1.46 billion from $1.31 billion a year earlier, but the top line missed Wall Street's target of $1.49 billion. Same-store sales rose 6%.

While sales rose by a healthy double-digit percentage, the growth was below Whole Foods' target for the year of 13% to 17%. Likewise, same-store sales were at the low end of Whole Foods' view of 6% to 8% for fiscal 2007 and also a marked slowdown from the 11.9% increase a year earlier.

Still, Whole Foods reiterated its sales-growth targets for the year.

Whole Foods shares were mashed last year after the company warned that 2007 would be a "transition year" as it deals with slower growth. The company's rapid expansion had previously made it a favorite on Wall Street.

To boost growth, Whole Foods agreed earlier this year to buy smaller natural-foods rival Wild Oats, but its plan may hit snags. Whole Foods disclosed last month that the Federal Trade Commission for the second time has requested more information on the deal.

The company said Wednesday that members of the FTC staff have voiced concerns about the potential anticompetitive effects of the transaction. Whole Foods said the FTC hasn't yet decided whether to challenge the purchase.

Shares of Whole Foods were falling $2.50, or 5.5%, to $43.30 in after-hours trading. Wild Oats shares were declining 20 cents, or 1.1%, to $17.90.