Whole Foods Market, the US natural and organics retailer, has suspended its dividend and reined in its expansion plans after posting a slump in quarterly profits.

The company admitted yesterday (5 August) that the economic downturn had hit sales and forced it to reappraise its growth targets.

Operating income for Whole Foods' fiscal third quarter, which runs until 6 July, tumbled by 19.5% to $64.1m.

Sales were up 21.6% to $1.8bn but, on an identical-store basis, sales inched up by only 1.9%.

Chairman and CEO John Mackey said: "The challenging economic environment appears to be negatively impacting our sales."

In response, Whole Foods has decided to reduce the number of stores it expects to open during its next fiscal year and cut its budget for capital expenditure. The company also said it would suspend its quarterly dividend "for the foreseeable future".

Mackey added: "We have not undertaken any of these difficult decisions lightly. We are committed to improving our financial results and believe these proactive steps are necessary to manage through the current challenging environment, enabling us to emerge stronger and better-positioned to realise our growth potential and fulfill our long-term mission and core values."

One recent move to expand the business, last year's move into the UK, has suffered from teething troubles. Its six stores in the country booked a pre-tax operating loss of $18.4m for the last four quarters.

Whole Foods has targeted its UK stores to "approach" breaking even by its fiscal 2011 year and Mackey was sanguine about the initial results from the business.

"We initially lost money when we entered Canada as well," he said. "We believe the long-term growth potential in the UK is much greater than Canada. We are carefully evaluating all aspects of our operations in the UK, with the intent to improve our results over the short term and deliver strong returns over the long term."