Whole Foods Sinks After SSS Growth Slows, Value Brand Plans Announced

NEW YORK (TheStreet) -- Shares of natural and organic grocer Whole Foods Market  (WFM) are sinking after the company reported weaker than expected second quarter same store results. It also announced it would begin launching lower-cost concept stores next year.

WHAT'S NEW: Last night, Whole Foods reported Q2 adjusted earnings per share of 43c and revenue of $3.65B, compared to analysts’ consensus estimates of 43c and $3.7B, respectively. Q2 same store sales growth was 3.6%, which was down from the 4.5% growth rate during Q1.

WHAT'S NOTABLE: The company reaffirmed its fiscal 2015 sales growth view of over 9%, versus consensus of $15.75B. It also backed its expectation for FY15 same store sales growth in the low to middle single digits. It sees square footage growth of 9%-10% based on 38-42 new stores, including five to six relocations. On its Q2 conference call, Whole Foods said it will launch a lower-cost concept. The company said that it will offer its "industry-leading quality standards at value prices," geared toward millennial shoppers while appealing to "anyone looking for high-quality fresh food at great prices." The company said it plans to begin opening stores next year, and sees a "fairly rapid expansion" from there.

ANALYST REACTION: This morning, analyst commentary was mixed. BofA/Merrill downgraded Whole Foods to Neutral and lowered its price target to $48 from $65 due to the uncertain same-store-sales outlook and new store concept impact for the core business. Three firms – Credit Suisse, Deutsche Bank and Canaccord – all lowered their respective price targets on Whole Foods. Conversely, RBC Capital upgraded Whole Foods to Outperform from Sector Perform and said the stock has reached an attractive long-term entry point. Although Whole Foods reported lower than expected Q2 comps, the firm thinks the company can accelerate, driven by easier comparisons and store refreshes. In addition, Oppenheimer said Whole Foods’ performance could still rebound. Oppenheimer said that the magnitude of the comp slowdown was much larger than it expected, however, it remains optimistic that an improving macro backdrop and benefits from company initiatives could help drive better performances as the year progresses. Oppenheimer cut its price target on Whole Foods to $50 from $57, but kept an Outperform rating on the shares.

PRICE ACTION: In late morning trading, Whole Foods fell $4.45, or about 9.3%, to $43.27 on nearly four times its average daily trading volume. Despite today's pull back, the shares have gained approximately 11% over the past 12 months.

OTHERS TO WATCH: Other organic grocers include The Fresh Market  (TFM) and Sprouts Farmers Markets  (SFM), which each slid about 2% in morning trading.

Reporting by Dana Kenyon.

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