Like many retailers these days, Whole Foods Market (NASDAQ:WFMI) released a quarterly earnings report that wasn't exactly great, but still exceeded expectations.

Fiscal second-quarter net income dropped 32%, to $27.3 million, or $0.19 per share. (Analysts had expected $0.18 per share.) Revenue dipped 0.5%, to $1.86 billion, and same-store sales fell 4.8%. Gross profit dipped to 34.7% of sales, from 34.9% last year this time.

On a positive note, Whole Foods was able to generate $98.1 million in free cash flow, far exceeding its reported profit. And it's moving on after its protracted wrangling with the Federal Trade Commission regarding its acquisition of Wild Oats. However, as I outlined in late 2008, Whole Foods does include a fair amount of risk related to its debt load from that acquisition, among other pitfalls.

Like many retailers, Whole Foods will have to fire up its sales again -- a particular challenge in this economic environment. Many investors were heartened by Whole Foods' ability to hold up as well as it did, given its reputation for pricy groceries (and its "Whole Paycheck" nickname). Granted, Whole Foods has been working to convey that it does have values in its aisles, but its upscale reputation is an added wild card, especially in a bargain-conscious consumer environment that has hurt high-end retailers such as Saks (NYSE:SKS) and Nordstrom (NYSE:JWN).

With consumers pinched for cash, it's not surprising that Wal-Mart Stores (NYSE:WMT) has found it easier to lure shoppers. Then again, Wal-Mart's most recent quarter saw net income remain flat year over year. In the retail sector, it seems everyone's having a challenging time.

But Whole Foods has it worse than most. It must contend with all kinds of competitors, from Wal-Mart and conventional grocers such as Safeway (NYSE:SWY) and Kroger (NYSE:KR), which are increasingly offering organic products, to Trader Joe's, regional organic grocers, and mom-and-pop shops.

Whole Foods is trading at 31 times trailing earnings, which admittedly sounds pricey compared to peers, especially in a recession. (Wal-Mart's P/E is 15, Safeway's is 9, and Kroger's is 11.) Even forward earnings estimates put the stock at a 22 multiple. Still, I believe that Whole Foods is an innovative company with healthy long-term prospects, and I'm looking forward to seeing how it evolves in an atypical economic climate.

I believe in this company (and stock) for the long term. But with consumers reining in spending just as the company most needs to jumpstart growth, Whole Foods certainly has its work cut out for it.

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Alyce Lomax owns shares of Whole Foods Market. The Fool has a disclosure policy.