Standard & Poor's Ratings Services revised the outlook on Whole Foods Market Inc. (Nasdaq: WFM) to negative from stable. We affirmed the 'BBB-' corporate credit rating.

At the same time, we assigned a 'BBB-' issue rating to the company's new $500 million revolving credit facility.

"The outlook revision reflects our expectations that Whole Foods' credit protection measures could weaken below our previous forecast over the next two years because of less conservative financial policies combined with weaker operating performance," said credit analyst Kristina Koltunicki. "We anticipate that the company will encounter difficulties in achieving its operational goals in light of its shift in strategic priorities. This includes focusing more on price investments and expense management in response to declining sales trends. Based on our revised view of results for strategic performance, we now assess the company's management and governance score as "fair" (from "satisfactory")."

The negative outlook reflects our view that credit protection measures could erode further than our previous expectations, as competition in the natural and organic food space has become more intense with pressure from traditional grocers and financial policies at the company have become less conservative. If the company is unable to successfully execute its strategies to increase sales volumes with price investments, leverage could increase to levels stated for a downgrade.

We could lower our ratings on Whole Foods if the company's operating results weaken further owing to an increase in competition or strategic missteps by management that lead to lower sales volumes and overall profitability. This includes sustaining leverage above 3.3x over the next two years. We could also lower our ratings if the company does not improve its balance sheet as we expect, by pursuing other debt-financed shareholder friendly activities, which would signal a change in financial policy to be more aggressive.

We could revise our outlook to stable if the company is able and committed to improving its credit measures and demonstrates a financial policy that will allow it to maintain an intermediate financial risk profile, which includes adjusted debt-to-EBITDA in the low 3.0x-area on a sustained basis. An outlook revision to stable could also occur if Whole Foods demonstrates same-store sales stabilization and profitable growth through new store openings.