updated 11/3/2006 5:35:52 PM ET 2006-11-03T22:35:52

Shares of Whole Foods Market Inc. tumbled 23 percent Friday to its lowest level in a year after the organic and natural foods retailer warned of slower growth in sales next year.

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Whole Foods has enjoyed a great run, as health-conscious shoppers paid premium prices for its fancy and organic produce. But analysts have warned that slowing consumer spending and tougher competition from mainstream grocery stores could squeeze Whole Foods.

After the close of trading Thursday, the Austin-based company reported that it earned $39.8 million, or 28 cents per share in the quarter that ended Sept. 24, up from $9.1 million, or 6 cents per share a year earlier. Excluding a $3 million one-time charge, the company said it would have earned 29 cents per share, matching the forecast of analysts surveyed by Thomson Financial.

Revenue rose to $1.29 billion from $1.12 billion a year earlier, but fell short of analysts' $1.32 billion prediction.

Sales at stores open at least a year — a critical measurement in retailing — rose 8.6 percent after three years of double-digit increases, including a 13.4 percent jump in the same period last year.

Whole Foods forecast that same-store sales will grow 6 to 8 percent in fiscal 2007, which began in late September.

The company blamed the slower growth ahead on competitive pressures, saying it had reached an inevitable period of slowdown after recent robust growth.

Noting those heady days of double-digit same-store sales growth, Analyst Mark Husson of HSBC Securities said the "party is over for the foreseeable future, perhaps forever, as competition is reeling Whole Foods in."

Whole Foods has cut some prices to try to shed its haughty image as "Whole Paycheck." Husson said the company didn't deserve the nickname, then added that its fresh food items are good but "not that much better than, say, Safeway's."

Bank of America analyst Scott A. Mushkin cut his rating on the stock from "buy" to "neutral," telling clients in a note there is "extreme uncertainty" whether planned new stores can perform well enough to support a higher stock price.

Mushkin cut his 12-month price target for the shares from $77.50 to $43 and also reduced his estimates of how much the company will earn the next two years.

Morgan Stanley analyst Mark Wiltamuth cut his price target on the stock from $70 to $63, citing the slowdown in same-store sales increases and rising estimates of costs to open new stores.

Wiltamuth said "the bar has now been reset" for Whole Foods as it enters what Chairman and Chief Executive John P. Mackey described as a "transition year."

Mackey opened the first Whole Foods in 1980 in Austin and has led its growth to about 188 stores in the United States, Canada and the United Kingdom.

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