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Whole Foods sales hurt by bad publicity from overcharging

Whole Foods Market Inc. says its sales are hurting from bad publicity over its overcharging of customers in New York City.

The grocery chain known for its organic offerings noted that sales growth slowed sharply in the last two weeks of the quarter that ended July 5. That was after New York City officials said an audit found that the chain's stores were overcharging customers by overstating the weight of pre-packed products — a finding that made national news. The company said sales at established locations were still weak in the current quarter.

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"There's no magic bullet for restoring whatever trust was lost," co-Chief Executive Walter Robb said.

Robb noted that Whole Foods has taken actions to ensure the overcharging doesn't happen again. That includes training for workers and an offer to customers that products will be free if the prices are not accurate and not in their favor.

The company said Wednesday that sales rose 2.6% at established locations in the first 10 weeks of the quarter. The figure fell to 0.4% in the final two weeks of the period after the New York City audit became public.

In the first three weeks of the current quarter, the figure was up just 0.6%.

For the full fiscal year, Whole Foods now expects sales at established locations to rise in the low single-digit percentages, down from the previous forecast of growth in the low- to mid-single digits.

The Austin, Texas, company is trying to find new ways to drive up sales as organic foods become more widely available. It's also trying to appeal to a broader audience by shaking its "Whole Paycheck" image and offering more affordable prices.

In May, the company said it would open a new chain of smaller stores with lower prices starting next year. To emphasize the affordability, the chain will be named 365, after the company's 365 house brands.

For the third quarter ended July 5, Whole Foods earned $154 million, or 43 cents a share. That included an expense of a penny per share in relation to California's new paid sick leave law.

Analysts expected earnings of 45 cents a share, according to Zacks Investment Research.

Total revenue was $3.63 billion, also short of the $3.7 billion that analysts expected.

A year ago the company earned $151 million, or 41 cents a share, on revenue of $3.38 billion.

Shares of Whole Foods, which closed Wednesday at $40.82, down 12 cents, dropped $4.58, or 11.2%, to $36.24 in after-hours trading.

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