Whole Foods (WFM) has fallen by nearly 17% since the company provided disappointing sales guidance when it reported earnings on Nov. 6. Players like Kroger (KR 0.94%) and The Fresh Market (TFM) are increasing their competitive pressure on the company, and this is a relevant risk to watch. However, Whole Foods is still a high-quality business with a lot of room to grow, so the recent dip is looking like a buying opportunity for investors.

The numbers
Sales for 2013 fiscal fourth quarter were $3 billion, an 11% increase versus the same quarter in the previous year on a comparative 12-week basis. Comparable-store sales grew by 5.9% year over year and same-store sales increased by 5.5% during the quarter. This was marginally below Wall Street analysts' expectations, but nothing too worrisome.

The company even managed to deliver growing margins thanks to effective inventory management and improved store-level performance. Gross margin increased by 37 basis points to 35.6% of sales and operating margin grew by 50 basis points to 6.4% of revenues. Earnings per share came in at $0.32, a penny above analyst estimations.

The biggest reason for negativity is that management reduced sales guidance for 2014. Revenues are now expected to be up between 11% and 13% versus a previous range of 12% to 14%, and comparable-store sales are expected to be in the range of 5.5% to 7% versus previous guidance of 6.5% to 8%.

The reasons
Co-CEO John Mackey pointed to several different causes for the disappointing sales and guidance: "While we cannot definitively say what drove the change, we know that several factors including strategic price matching, cannibalization, competition, and currency had a larger negative impact on certain regions in Q4."

Whole Foods is offering more discounts, matching competitors' prices, and adding lower-cost brands to its products assortment to expand into new markets and attract more price-sensitive consumers. New stores seem to be producing some cannibalization, too.

The company has achieved remarkable success in the healthy and organic food segment, and this usually attracts competition. Traditional supermarkets like Kroger have been increasing their presence in organics lately, and smaller-focused competitors like The Fresh Market are expanding rapidly to capitalize on growing demand for their products.

With more than 2,400 store locations and nearly $100 billion in sales, Kroger has a scale advantage that allows it to better leverage fixed costs to compete against smaller rivals. According to President W. Rodney McMullen, the natural and organic food segment is "by far the fastest-growing department on a percentage basis, and sometimes even on a dollar basis it's one of the bigger departments."

The Fresh Market is a materially smaller competitor -- it has 146 stores versus Whole Foods' 367 stores -- but it's growing quickly, as it plans to open a record 22 new stores this year. Total sales at The Fresh Market did better than Whole Foods, with an increase of 13.4% in the last quarter, but comparable-store sales grew by a smaller 3.1% during the period.

The opportunity
Whole Foods benefits from a leading brand in the industry and a reputation for quality. In addition, management is well known for its culture of innovation and efficiency. Even in spite of disappointing sales growth in the last quarter, the company managed to increase profit margins in a challenging environment.

It has been successfully expanding into smaller cities lately, a healthy indication when it comes to long-term growth potential. Management has recently raised its long-term expansion forecast to 1,200 stores in the U.S. alone versus a previous target of 1,000 stores in the country. That's nearly three times the numbers of stores it currently operates globally, and it would still leave room for further international growth.

Whole Foods is one of the major beneficiaries from the secular shift toward healthier nutrition. Even if the environment becomes more challenging for the company due to higher market penetration and increased competition, this profitable growth story is far from over.

Bottom line
Even if growth understandably slows down as the company becomes bigger and competition in the organic and natural food sector increases, Whole Foods is still a remarkably well-run company with a lot of room for expansion. Long-term investors may want to consider the recent dip in this high-quality company a buying opportunity for those who can handle the short-term volatility.