Whole Foods Market released its second-quarter earnings report Wednesday, but that turned out not to be the day’s big story involving the Austin-based retailer with 465 stores and 87,000 employees worldwide.
As part of its “accelerated path to delivering shareholder value,” Whole Foods shook up its leadership structure — replacing five directors, naming a new board chair and making official the hiring of a new chief financial officer.
Whole Foods CEO John Mackey also outlined several initiatives aimed at helping the company he co-founded in 1978 meet newly stated financial goals for 2020 – goals meant to appease stockholders who’ve become increasingly impatient with Whole Foods as it struggles with increased competition.
“We are accelerating our path to enhanced value creation to deliver better returns for our shareholders,” Mackey said in a written statement. “Today’s announcement is a powerful combination of accelerated initiatives and new cost savings with clear timelines to deliver.”
Those initiatives include: rolling out Whole Foods’ customer loyalty program to all U.S. stores by the end of 2017; relying on the latest technology and data analytics to guide purchasing, with a goal of “lower costs, lower prices and higher sales;” and $300 million in cost savings by the end of 2020, on top of the savings the grocer has reaped in recent months by taking steps such as closing three regional kitchens and its centralized Austin catering kitchen.
If all this sounds familiar, it should. Many of Wednesday’s announcements – a new board makeup, the hiring of a CFO, the customer loyalty program and improved technology, for example – are things that investors, in particular two major stockholders, have been calling for over the past several quarters as Whole Foods has seen sales stagnate.
One of those major stockholders, Jana Partners, had advanced its own candidates for the board, but Jana Partners told Bloomberg News Service and The Wall Street Journal that those individuals won’t be joining the board because of restrictions Whole Foods reportedly sought to put in place as part of a settlement effort.
“We decided it made the most sense to let Whole Foods remove more than half of its underperforming board while maintaining all of our options going forward, rather than tying our hands now,” Jana Partners said in a written statement. “We will now be watching carefully to see how they address the management issues at Whole Foods and to ensure that the board is seriously pursuing all avenues to maximizing shareholder value.”
The new board members are Ken Hicks, Joe Mansueto, Sharon McCollam, Scott Powers and Ron Shaich. Gabrielle Sulzberger, a Whole Foods board member since 2003, has been named the board’s new chair.
“The five new independent directors have distinguished track records as value creators and as experienced leaders,” Sulzberger said. “Our new directors join a board that is focused on being responsive to our shareholders and is committed to achieving the significant opportunities ahead.”
Departing as board members are John Elstrott, Morris “Mo” Siegel, Jonathan Sokoloff, Ralph Sorenson and William A. “Kip” Tindell III.
The company’s new CFO is Keith Manbeck. He arrives from the Kohl’s department store chain, where he has been senior vice president of digital finance, strategy management and business transformation since 2014.
One thing not mentioned Wednesday was the possibility of Whole Foods putting itself up for sale. Jana Partners had called for that option to be on the table. So did mutual fund manager Neuberger Berman. Reports have identified as possible suitors the Albertsons, Kroger and Publix grocery chains.
Online giant Amazon also revealed recently that it looked at Whole Foods last year but decided not to make an offer.
Mackey’s 2020 plan calls for $18 billion – up from about $16 billion last year – in total sales, comparable store sales growth greater than 2 percent and cash flow from operations of more than $1.2 billion, among other metrics.
Getting there will take some work, though, looking at numbers from recent quarters, including the newly released ones from the second quarter of fiscal 2017.
Total sales were up 1.1 percent to a record $3.7 billion, but comparable store sales fell 2.8 percent with stores reporting 3 percent fewer transactions. At least part of that drop, Whole Foods said, was due to Easter falling in the company’s third quarter this year.
Net income was $99 million and diluted earnings per share were 31 cents.
The company said it took a $30 million charge related to the closings of a handful of stores and corporate facilities.
For fiscal 2017, Whole Foods is now projecting sales growth of 1 percent or more, a drop of 2.5 percent or less in comparable store sales and diluted earnings per share of at least $1.30.
Shares of Whole Foods closed at $36.25, down 32 cents, or about 1 percent in regular trading Wednesday. In after-hours trading, shares were up about 3 percent.
Mackey on Wednesday sought to reassure shareholders that better days are ahead.
“We are on a path to return to positive comparable store sales and earnings growth next year,” Mackey said. “The board will continue its comprehensive review of all opportunities to create value. We look forward to continuing our dialogue with shareholders and providing future updates on our progress.”
Whole Foods board members
Joining the board:
• Ken Hicks, former chairman, president and CEO of Foot Locker.
• Joe Mansueto, founder and executive chairman of Morningstar.
• Sharon McCollam, former executive vice president and chief administrative and chief financial officer of Best Buy.
• Scott Powers, held leadership positions at State Street Corp. from 2008 to 2015.
• Ron Shaich, founder, chairman and CEO of Panera Bread Co.
Leaving the board:
• John Elstrott, member since 1995; chair since 2009.
• Morris “Mo” Siegel, member since 2003.
• Jonathan Sokoloff, member since 2008.
• Ralph Sorenson, member since 2008.
• William A. “Kip” Tindell III, member since 2008.