Whole Foods Market, Inc. (WFM) stock is selling off hard today on news that the Food and Drug Administration has served the organic supermarket chain a warning letter regarding “serious violations” at one of its food preparation facilities.
WFM stock is down 4% in midday trading Wednesday. It’s the latest blow for Whole Foods stock, which is facing long-term headwinds in the form of increased competition and slowing growth.
Four years ago, revenue grew 15.7%; the next year it was 10.4%, followed by 9.9% and, last year, 8.4%. Analysts only expect sales to grow 2.7% this fiscal year.
This FDA letter is the latest in a long series of warning signs that should convince shareholders to dump their WFM stock once and for all.
WFM Stock: New Concerns
According to CNBC:
“FDA inspectors reportedly found various food products, including mushroom quesadillas, chives, beets and couscous that were exposed in areas where condensate was leaking from ceiling joints, doorways, pipes and fans.”
Employees also didn’t take proper sanitation protocol into consideration, failing to wash their hands between every task, allowing some cleaning fluid to get on food and not sanitizing food prep stations.
There’s good reason to believe that WFM stock will suffer as these chickens come home to roost.
Whole Foods responded to the allegations in March, but it appears that the FDA has responded in a warning letter dated June 8. The agency gave WFM 15 days to respond, saying the company had not “provide[d] documentation for our review, which demonstrates that all your noted corrective actions have been effectively implemented.”
This isn’t the first scandal that’s rocked Whole Foods. Last summer, New York City officials found that Whole Foods was mislabeling weights of its fresh foods, “leading to overcharges of under $1 to nearly $15 an item,” according to the Wall Street Journal.
Whole Foods stock would go on to crater in late July due to poor quarterly results that were made worse by fallout from the pricing scandal. Shares plunged 10% lower after the earnings announcement.
Unfortunately, the fallout from this FDA issue could turn out to be even worse for shareholders. Take a look at Chipotle Mexican Grill, Inc. (CMG) stock, for instance. Shares of the popular burrito chain are down nearly 50% from their peak less than a year ago, as customers have fled en masse after a series of food safety issues.
Granted, Chipotle’s food problems caused hundreds of people across the country to get sick, and there’s no such issue with Whole Foods … yet. But don’t be surprised if WFM stock spirals downwards as shoppers take to competitors.