John Mackey Will Be Sole CEO of Whole Foods Market -- Update

By Annie Gasparro

Whole Foods Market Inc. is eliminating its dual-CEO leadership structure, likely putting further pressure on co-founder John Mackey who will become the sole leader of the struggling grocery chain.

The shake-up on Wednesday came as the high-end grocer reported its first annual decline in comparable sales -- a key metric for retailers -- since 2009, signaling that competition remains stiff and efforts to lower its food prices aren't luring enough new customers.

"Competition is everywhere; everybody's feeling it," said Mr. Mackey. He said that in addition to traditional stores, online ordering like Amazon Fresh and meal kits like Blue Apron are taking a toll on Whole Foods, too. That, coupled with lower commodity costs that kept food prices down, and lackluster consumer demand, made for a tough year.

His co-CEO, Walter Robb, will step down from his position at the end of the year and remain on the board of directors and as a senior adviser to the company. Mr. Robb has shared the chief executive duties for the past six years of his 25-year career with Whole Foods, which was one of the few companies to have a dual leadership structure.

The board decided a more streamlined structure of having a single chief was "the right thing at this juncture," Mr. Robb said on a conference call with investors.

Shares in Whole Foods were up 3.9% in after-hours trading.

In recent years, Whole Foods has cut prices, increased promotions and started a loyalty program -- all tactics of mainstream supermarkets like Kroger Co. and Wal-Mart Stores Inc. -- as it seeks to rid itself of its image as an overpriced chain. Meanwhile, those more traditional supermarkets have encroached on Whole Foods' territory by offering more organic, fresh and prepared foods.

Whole Foods also has run into food safety concerns including warnings from U.S. health authorities over a Massachusetts plant that produces prepared foods and fears that two cases of hepatitis A were potentially linked to the prepared-foods section of a Whole Foods in Detroit.

For fiscal 2016, which ended in September, Whole Foods' same-store sales retreated 2.5%, wider than the 2% fall predicted by the company. The only other time the company posted an annual slide in same-store sales was in 2009, when the metric dropped 3.1%.

Whole Foods is optimistic that its efforts will gain momentum over the next year as it uses more data to determine which discounts to offer and mails its first nationwide discount flier in a few weeks. For the fiscal year just started, Whole Foods anticipates same-store sales to be flat to down 2% and total revenue to rise 2.5% to 4.5%.

But these investments in becoming more value-oriented are taking a toll on its profit margin, which Whole Foods expects to decline by 0.6 of a percentage point over the next year. That comes despite widespread cost-cutting at the corporate and store levels.

Whole Foods is hoping its new, less-expensive spinoff chain, 365 by Whole Foods Market, will be a hit with younger Americans who are willing to buy store branded foods and don't demand all the frills of a traditional Whole Foods stores. But executives said they had a lot to learn and some key adjustments to make before opening the fourth location next spring.

Overall for the latest quarter, Whole Foods reported a profit of $88 million, or 28 cents a share, compared with $56 million, or 16 cents a share, a year earlier. Revenue rose 1.7% to $3.5 billion. Analysts surveyed by Thomson Reuters had projected 24 cents a share on $3.50 billion in revenue.

The company also said Chief Financial Officer Glenda Flanagan would retire from the post after 29 years at the end of the 2017 fiscal year. She will also continue in a senior adviser role and help with the search for a new CFO, likely to begin in January. Mary Ellen Coe, vice president of sales and product operations for Alphabet Inc.'s Google, has also joined the Whole Foods board.

Ezequiel Minaya contributed to this article.

Write to Annie Gasparro at annie.gasparro@wsj.com

(END) Dow Jones Newswires

November 02, 2016 19:15 ET (23:15 GMT)

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