Why Whole Foods market stock has crashed 34% in 2014

Whole Foods Market investors are having a tough year. After a solid 2013, the natural food retailer's stock has crashed 34% so far in 2014. While Whole Foods faces serious challenges, fear over the falling stock price have taken the focus away from what is really happening with the business. Let's take a look at both the hype and reality behind Whole Foods' stock decline in 2014, and look at the challenges that await investors on the road ahead.

Many pundits feel the entry of lower priced retailers, such as Kroger and Wal-Mart, into the organic food business is hurting Whole Foods on prices.

Organic food sales grew an estimated 11.5% last year, to $35.1 billion, and that growth rate is projected to grow faster over the next five years. While that means increased competition, it also means that the industry can support more than one winner. Yet, Whole Foods, which was recently ranked as the 23rd most valuable brand by Interbrand, should remain at the forefront of customers' minds, and shopping lists.The Whole Foods mix of pricing, store experience, and social consciousness should allow it to enjoy as much of the projected industry growth as anyone.

Whole Foods has also lowered its outlook for 2014 four times this year. Most recently, the outlook for total sales growth was set at a range of 9.6%-9.9%, and same-store sales at 4.1% to 4.4%. By contrast, it came into the year expecting total sales growth of 11%-13%, and same-store sales growth of 5.5%-7% for 2014. This uncertainty has rattled many skittish investors, and it's affected the stock significantly.

The bigger concern to long-term investors is Whole Foods' 2014 sales growth. Total sales growth has stagnated and same-store sales, a key metric for retailers, has declined in each quarter of 2014 (see chart below). Same-store sales growth in the second and third quarter of 2014, was the lowest result since 2010.

Most of Whole Foods' woes this year come back to one thing, it isn't growing as fast as expected. It remains to be seen if it can support growth to 1,200 stores, as it runs out of affluent new areas for growth. That said, the stock is not really priced for huge growth today.

Source: fool.com