Whole Foods 2013
Whole Foods grocery store worker Tim Owen trims the tops of organic carrots in the produce section of a store in Ann Arbor, Michigan. Reuters

Whole Foods released its third-quarter earnings report Wednesday afternoon, posting a lower-than-expected comparable-store sales growth figure. But the company announced plans for a major new delivery initiative that could help the company boost its flagging growth over the next year.

Whole Foods Market Inc. (NASDAQ:WFM) reported an increase in comparable-store sales of 3.9 percent, short of the 4.7 percent growth expected by analysts.

Whole Foods co-chief executive officer Walter Robb admitted during the company’s Wednesday earnings conference call with reporters that “our 3.9 percent comp increase represents strong headwinds” from the economy and other factors. But he expressed confidence about the long-term health of the company.

“Our business model is producing industry-leading sales per square foot, healthy returns on invested capital and strong operating cash flow,” he said. “We are seeing signs of stability in our sales trends and believe our strategic initiatives will help generate further momentum and produce increasing returns on invested capital over the long term.”

Robb also announced that “We will offer home delivery … in 15 major markets,” and that the company will invest in improving its online and mobile offerings over the course of the next year. The first phase of the initiative is expected to launch Sept. 1.

Though the planned move into delivery represents a major shift for the company, it wasn’t entirely unexpected. Susan Lee, a project manager at the global strategy agency Brand Union in New York, N.Y., predicted such an announcement in a conversation with International Business Times after the company’s disappointing Q2 earnings report was released in May.

“I’m waiting to hear some major announcement from Whole Foods over the next month or so to say what it is that they’re planning on doing that is going to be the next revolutionary thing … I’m waiting for them to announce something along the lines of delivering,” she said at the time. “That’s the only way they’ll be able to get the edge over the possibility of big box retailers getting into the same space they’re in is if they do something revolutionary.”

Even more worrying for the Austin, Texas-based chain’s future growth is the fact that to-date Q4 comparable-store sales growth (between July 7 and July 27) came in at only 3.1 percent, according to Brian Yarbrough, consumer staples analyst at Edward Jones Investments.

“The quarter-to-date number is the worst number they’ve seen since the recession … These numbers are lower than your straight-up Kroger, your regular grocery chain,” he said.

“All the stores eight years old and older all the way up to 15 years are seeing the biggest slowdown, so you kind of wonder if it’s the law of large numbers. The younger stores continue to do well, but you wonder if for the older stores they’re just so productive that it’s harder to get positive comps on top of positive comps there.”

Meanwhile, Whole Foods reported diluted earnings per share of $0.41, up from $.038 in Q2, and the company softened its predictions for the fiscal year, lowering anticipated 2014 sales growth from between 10.5 and 11.0 percent to between 9.6 and 9.9 percent.

Whole Foods is facing major challenges as the specialty and organic food market becomes more crowded and traditional grocery stores like Safeway Inc. (NYSE:SWY) and Kroger Co. (NYSE:KR) and even mega-retailers like Walmart Stores, Inc. (NYSE:WMT) and Target Corp. (NYSE:TGT) move into the lucrative space, analysts say.

But the situation is not yet “a doomsday scenario” for Whole Foods, according to Kevin Abbas, a financial analyst at Sageworks, a Raleigh, North Carolina, financial information company.

“They’re still growing market share in that organic space, and it’s a space that’s growing still,” he said. “They have the ability, it’s just a question of whether they make the right calls of where they’re focusing their investment and how they’re doing their pricing.”

Many experts believe that Whole Foods has an image problem, as many shoppers consider its products too expensive. Even co-chief executive John Mackey acknowledged as much in comments to the U.K.’s Independent newspaper when the company announced its Q2 earnings.

“We were overly optimistic in our ability to compare against the record-breaking results we have produced for the last few years,” Mackey said. “So we’re going to be investing more aggressively in price going forward, while continuing to take our expenses down and continuing to innovate and differentiate.”

Robb echoed those comments Wednesday, saying that the company -- which saw an increase in same-item prices of about 2 percent in Q3 -- will continue to find ways to cut prices, though “we’re not suggesting a race to the bottom.”

Gary Lee, CEO of the InReality customer experience and design firm, says the company needs to find innovative ways to provide a better shopping experience if it hopes to return to its former glory.

“[A]s grocery stores in general are making investments to enrich the customer experience with digital signage, improved deli / produce sections and other customer-pleasing additions, Whole Foods has to focus on more than just cost-cutting,” Lee said via email. “Whole Foods needs to look at the entire customer experience of shopping their stores, from how customers navigate the stores, to opportunities to delight them with product selection, education and buying decisions.”

The company appears to be aware of the need to take such steps, as a representative announced on the Wednesday conference call that “We’re going touch up to 200 stores next year with retouching and remodeling, and we’re really touching the oldest stores in the company."

Whole Foods shares closed Wednesday at $39.11, up 3.80 percent on the day, but had fallen 2.97 percent to $37.95 in after-hour trading as of 5:45 p.m.