Whole Foods sales, profit rise but outlook misses

By Lisa Baertlein

LOS ANGELES (Reuters) - Upscale grocer Whole Foods Market Inc (WFMI.O: Quote, Profile, Research) warned its 2010 profit would miss Wall Street's target as it grapples with a raging price war and weak consumer spending and its shares tumbled 8 percent.

The company, which also reported better-than-expected quarterly profit on Wednesday, said sales trends are improving, but cautioned its own effort to compete on price could drag down earnings in the new fiscal year.

The grocery industry has become intensely competitive as rivals such as Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research), Kroger Co (KR.N: Quote, Profile, Research), Safeway Inc (SWY.N: Quote, Profile, Research) and Supervalu Inc (SVU.N: Quote, Profile, Research) battle for customers by slashing prices.

Whole Foods, known for selling local fare, prepared food and pricey gourmet items, forecast 2010 earnings in the range of $1.05 to $1.10 per share, below analysts' call for a per share profit of $1.11.

Executives said sales comparisons will be easier in the first half of the year, but that expense comparisons will be difficult in the second half.

"We're just taking a cautious, conservative attitude," John Mackey, Whole Foods' co-founder and chief executive said on a conference call on Wednesday.

For the first five weeks of fiscal 2010, Whole Foods' total sales were up 5 percent. Same-store sales increased 1.6 percent and identical store sales, which exclude remodels and relocations, rose 0.4 percent.

"We believe our sales have stabilized and officially turned the corner," Mackey said on a conference call with analysts.