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Whole Foods Investors Were Warned

And when you consider that the growth was driven primarily by new store openings, it makes the 10% growth less impressive. That is because new stores tend to perform well because of initial excitement. That doesn't necessarily last.

Last year, Whole Foods posted 6.9% same-store sales growth. On Tuesday the second-quarter number was 4.5%, signaling that growth has slowed dramatically. And unfortunately, management didn't guide with the sort of confidence to suggest it has a solution to fix it.

Management spooked investors by cutting its 2014 forecast, which had been already lowered. That marks the third consecutive quarter of lowered guidance. Revenue is expected to increase between 10.5% and 11% on an estimated 5% to 5.5% same-store sales growth.

Recall, the prior outlook called for revenue growth of 11% to 12% on same-store sales growth of 5.5% to 6.2%. I don't believe this revision is a coincidence. It's possible management is being overly cautious. But I believe Walmart's recent interest in this growing industry has a lot to do with Whole Foods' lack of confidence.

Walmart's plan to offer Wild Oats organic products at a 25% discount will add significant pressure to Whole Foods' margins. I won't speculate to what kind of damage Walmart might do, given that management has yet to fully deploy Wild Oats. But Walmart doesn't enter markets expecting to lose.

For now, Whole Foods investors have some decisions to make. I wouldn't be in a rush to sell the stock here, given the recent decline. Averaging down will be a good strategy. But another quarter of weak sales and worsening guidance will be tough to stomach.

>>Read More: Tesla's Plunging, But It's Not Way You Think

At the time of publication, the author held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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