Whole Foods Unveils ‘Accelerated Path’ for Growth

New CFO, 5 new directors named; Q2 comps sag

May 10, 2017, 05:33 pm By Jim Dudlicek, EnsembleIQ

With new activist investors looking to turn things around, Whole Foods Market announced a laundry list of goals, including a return to positive comps by next year and $18 billion in sales by fiscal year 2020.

“We are accelerating our path to enhanced value creation to deliver better returns for our shareholders,” said John Mackey, co-founder and CEO of the Austin, Texas-based natural and organic food retailer. “Today’s announcement is a powerful combination of accelerated initiatives and new cost savings with clear timelines to deliver. We are on a path to return to positive comparable store sales and earnings growth next year. Our increased dividend and new share repurchase authorization demonstrate our board’s confidence in our long-term growth strategy and continued ability to generate strong cash flow. 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.”

As part of this new blueprint for success, Whole Foods appointed Keith Manbeck, veteran of retailer Kohl’s and athletic wear giant Nike,  as its new chief financial officer. Manbeck succeeds the retiring Glenda Flanagan, who will continue to serve as a senior advisor.

Additionally, the company appointed five new independent directors, and named current directors Gabrielle Sulzberger to chair the board and Mary Ellen Coe as the new chair of its nominating and governance committee.

The new directors are Ken Hicks, former chairman, president and CEO of Foot Locker; Joe Mansueto, founder and executive chairman of Morningstar; Sharon McCollam, former EVP, CFO and chief administrative officer of Best Buy, Scott Powers, EVP of State Street Corp.; and Ron Shaich, founder, chairman and CEO of Panera Bread Co.

“With today’s additions to the board, and changes in our board’s leadership, we are well positioned as we enter the next phase of our evolution,” Mackey said. “We believe that we have the right plan – and the right team – to execute on our initiatives at an aggressive pace, deliver results and enhance value for our shareholders.”

Sulzberger added, “The five new independent directors have distinguished track records as value creators and as experienced leaders. Our new directors join a board that is focused on being responsive to our shareholders and is committed to achieving the significant opportunities ahead.”

Strategic Changes

The announcements come as pressure as mounted in recent weeks on Whole Foods to change course amid lackluster performance.

Last month, investment firm Jana Partners LLC teamed with several food retail experts to purchase a nearly 9 percent stake in the retailer, collectively making them the chain’s second-largest investor and positioning them to shake up operations.

Shortly thereafter, mutual fund manager Neuberger Berman, which holds a 2.4 percent share in the grocer, urged its board to “immediately engage advisors” to review their options, including a sale or joint venture. Albertsons Cos. and The Kroger Co. have been floated as potential buyers.

While total sales increased 1.1 percent to a record $3.7 billion for the 12-week second quarter that ended April 9, comparable store sales decreased 2.8 percent in Q2. Year to date, total sales increased 1.5 percent to $8.7 billion while comps fell 2.6 percent.

Released along with the latest financials on Wednesday was “a detailed path to sustained top-line growth,” supported by category management and pricing initiatives, enhanced marketing and Affinity programs, and “disciplined organic growth.”

Key components include:

- Accelerating Affinity rollout to all U.S. stores by the end of 2017. The new program combines the best elements of the company’s My 365 Rewards and pilot programs, aimed at driving increased trips and bigger baskets by providing more relevant communications and new digital experiences.

- Restructuring purchasing program by year’s end and implementing category management across all U.S. stores by the end of next year.

- Returning to positive comps and earnings growth by the end of 2018, and providing FY 2020 financial targets based on the execution of new and accelerated initiatives.

For 2020, Whole Foods has its sights set on total sales exceeding $18 billion, comparable store sales growth greater than 2 percent and cash flow from operations of more than $1.2 billion.

Additionally, the retailer is seeking $300 million in additional cost savings by the end of 2020 through standardization of in-store processes and labor allocation; support function efficiencies; and supply chain optimization through an accelerated order-to-shelf rollout. These savings are planned in addition to the $270 million already realized as part of the company’s prior cost reduction plan, which is on track to reach $300 million by year’s end.

Leadership Changes

As Whole Foods’ new CFO, Manbeck brings more than 20 years of financial and operational experience at leading companies, most recently serving as SVP of digital finance, strategy management and business transformation at Kohl’s Corp., where he helped lead key transformation initiatives credited for three years of double-digit comp growth.

“We are confident Keith’s financial and operational expertise will allow him to hit the ground running as we move forward with our plan to improve financial and operational performance,” Mackey said.

The new board appointments brings the panel to 12 directors, 10 of whom are independent and six of whom were added in the last seven months. They include nine directors who are current or former CEOs or CFOs and four female directors.

Founded in 1978, Whole Foods Market operates more than 460 stores in the United States, Canada and the United Kingdom.