Whole Foods' reported net income for the quarter quadrupled on sales increases of 8.6 percent at stores open at least a year. However, that sales growth was lower than analysts' estimates, which sent Whole Foods shares down 13 percent.
Part of the problem: increasing competition from other retailers with growing organic sections, including Trader Joe's and Wal-Mart. Whole Foods also said profit will be hurt by the cost of new store openings, slated to increase 26 percent to $2.4 million per store this year.
Whole Foods plans to introduce more specialty products in 2007. Its first, a mineral-based cosmetics line, bows later this week in the higher-margin Whole Body section. Whole Foods isn't just testing the waters with foundation, as many beauty companies have done recently. It is launching a complete color line, with 102 SKUs.
The brand, called Mineral Fusion, will consist of concealers, loose and pressed powders, eye shadows, cheek colors, lipstick, and face bronzers. No mere supermarket brand, it will also be priced at a premium, retailing for $15 to $37.
Mineral Fusion was co-created with Glominerals manufacturer Caleel & Hayden, and is now slated for exclusive sale at Whole Foods until March. Because it does not bear the Whole Foods name, Mineral Fusion may also be distributed to other retailers, including the Sephora cosmetics chain, according to Women's Wear Daily.
"The mineral story is hot ... an increasing number of women are buying makeup based on ingredients and not glamour ... so the whole category will grow," said beauty industry consultant Allan Mottus. "Whole Foods hasn't previously focused on beauty, and when you already have that customer in the store, you lose a sale by not servicing her.
"This may give Whole Foods a good opportunity to [spruce up] its beauty area," and stores positioning the Whole Body section prominently will likely see higher sales, he added.
Like many other niche players that have created categories, Bare Escentuals, which started the mineral makeup craze, may end up losing some share. However, Mottus believes its bigger threat comes from established beauty brands jumping on board--including Jane, Neutrogena, Physicians Formula, and L'Oreal.
The selling point behind Mineral Fusion and other mineral makeup brands: a mineral content, powder-like form made from crushed minerals and other natural ingredients, but without talc or preservatives.
"Bare Escentuals is clever, and it has a nice business on home shopping networks, but the stock is very rich," said Mottus. Indeed, after going public about a month ago, shares have gone from a $22 IPO to Friday's closing price of $31.16. Sales were $259 million last year.