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Major Whole Foods investor has to-do list for company


Highlights

JANA Partners LLC now owns about 9 percent of Whole Foods stock.

Whole Foods shares were up 10 percent in regular trading Monday, closing at $34.17.

JANA Partners LLC, now one of the biggest investors in Whole Foods Market, doesn’t appear willing to wait for the grocer to complete a turnaround and wants the company to consider all its options – including a possible sale.

A number of factors, including intensified competition, have hit the Austin-based grocer hard, leading to struggles in recent quarters. A March report from a Barclays analyst, for instance, suggested Whole Foods had lost 14 million customers since 2015 – many of them to Kroger, which has stepped up its organic offerings.

Kroger pulled out of the Austin market decades ago, but still has a strong presence in other Texas cities, including Dallas and Houston, as well as numerous other communities coast to coast.

Other key competitors include Trader Joe’s and Sprouts. Trader Joe’s has three Austin-area locations, while Sprouts has five stores in Central Texas.

JANA Partners, which owns about 9 percent of Whole Foods stock, said in a securities filing Monday that, essentially, enough is enough. Other smaller investors also signed off on the filing, where JANA Partners, which says it has “substantial experience analyzing and investing in the grocery sector,” describes Whole Foods stock as “undervalued.”

In its fiscal first quarter, Whole Foods recorded record sales of $4.9 billion, but saw its net income decline and also lowered its earnings projections for the year.

Other companies JANA Partners has been actively involved with in recent years include Randalls owner Safeway, pharmaceutical giant Bristol-Myers, Walgreens, PetSmart and oil and gas producer Apache Corp.

“Whole Foods Market welcomes investment in the company and is open to the views and opinions of all of our shareholders,” spokeswoman Brooke Buchanan said in a written statement provided to the American-Statesman. “We value constructive dialogue toward our shared goals of creating shareholder value, successfully executing on our strategic priorities and taking actions that will position the company for continued success. We are committed to driving value for all Whole Foods Market shareholders and will continue to act to achieve this important objective.”

JANA Partners has a seven-item to-do list for Whole Foods, designed to address what it says is the grocer’s “chronic underperformance for shareholders.”

The firm is seeking shakeups of Whole Foods management and the company’s board. Last year, the company ended its unusual co-CEO arrangement, with Walter Robb stepping out of that role. John Mackey is now sole CEO.

JANA Partners also wants Whole Foods to review its real estate holdings, including “discussing the issuer’s ‘365’ small store format and opportunities to improve returns on invested capital.”

The Austin area’s first 365 store is set to open this month at The Parke, Endeavor Real Estate Group’s new mega-shopping center in Cedar Park. The smaller stores – there are just a handful so far – are designed to appeal to cost-conscious shoppers.

Founded in Austin in 1978, Whole Foods has 462 stores worldwide and 87,000 employees.

The Cedar Park store will be the sixth Whole Foods location in Central Texas.

The other Central Texas Whole Foods stores are in Bee Cave, the Arboretum area in Northwest Austin, The Domain in North Austin, Arbor Trails in Southwest Austin and its flagship location in downtown Austin at 525 N. Lamar Blvd.

The retailer has closed a handful of stores across the country this year, as well as three regional kitchens in Everett, Mass.; Landover, Md.; and metro Atlanta, plus a centralized catering kitchen in Austin as it looks to reduce costs.

In a report last month, UBS analysts said the chain had become “a victim of its own success” and that Whole Foods “needs to move from a growth phase to an efficiency phase.”

“We don’t think the (Whole Foods) shares have properly reflected that the days of the company generating double-digit sales and (earnings per share) growth are likely over, at last for the foreseeable future,” the report said. “Most consumable retailers are focusing on fresh and stepping up their game. This will continue to put pressure on (Whole Foods) given its premium price points.

The report pointed out that prices at Whole Foods were, on average, 13 percent higher than at Ralph’s, a California-based division of Kroger.

JANA Partners’ other demands for Whole Foods include “addressing core operating deficiencies in areas including customer loyalty and analytics,” “improving in-store execution, including labor scheduling and management,” “evaluating opportunities to re-engineer the issuer’s suboptimal and cost-disadvantaged grocery procurement and distribution strategy, such as by internalizing distribution or pursuing other hybrid strategies” and “initiating a review of strategic alternatives particularly in light of the issuer’s apparent unwillingness to engage in discussions with third parties regarding such alternatives.”

Whole Foods shares were up 10 percent in regular trading Monday, closing at $34.17.



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