Whole Foods Shareholders to Meet to Discuss Growth Declines -- Update

By Heather Haddon and David Benoit

Whole Foods Market Inc.'s annual shareholders meeting convened Friday amid investor concern about the organic-food retailer's ability to address decelerating sales growth and steep reductions in its share value.

Some investors are saying the Austin, Texas-based company is at an inflection point as it works to improve its performance in the increasingly competitive grocery industry. Absent improvement it could face a challenge to the board in about six months' time, according to people familiar with the matter.

A Whole Foods spokeswoman declined to comment.

Protest votes against directors without a competing slate of nominees -- as was the case Friday -- are unlikely to unseat current board members but can embolden activists and critics to try to campaign in the following year, especially if performance hasn't changed.

Shareholders approved the most closely watched proxy resolutions Friday, including ones pertaining to the former co-CEO's severance package and two board members questioned by analysts over their record for attendance and independence.

The vote came just a week after Whole Foods delivered a downbeat financial outlook, with executives dropping plans to expand to 1,200 stores in the U.S. and announcing the largest number of stores closures at one crack in the company's nearly 40-year history.

The entire grocery industry is sluggish as increased competition has eaten into margins and slowed growth. Food-retail stock prices are down an average of 2.17% year to date, according to FactSet data.

But mainstream grocers' expansion into natural and organic products has particularly hurt Whole Foods in a sector it once dominated. The company's stock has lost more than half its value since its most recent peak in 2013.

Whole Foods founder and CEO John Mackey pledged last week to use data and promotions to lure back core shoppers to its 469 stores in the U.S., Canada and the U.K.

Mr. Mackey on Friday faced investors alone for the first time in six years after the company recently ended its dual-CEO leadership structure.

Wall Street analysts last week were largely positive on the company's shift to more fiscal discipline.

"A recovery seems likely," said Laura L. McGonagle, senior vice president at Trillium Asset Management, a Boston investment firm that owns Whole Foods shares.

But others believe the company has a long way to go to turn around its bottom line and expect pressure on leadership to grow.

Neuberger Berman, a top-10 investor with about 2.4% of Whole Foods stock, has been privately pushing for faster change at the company, people familiar with the matter said. The firm believes Whole Foods resonates better with millennials and sells more prepared foods than rivals, but that management hasn't kept up with the chain's growth, the people said.

"Where are the next-generation kids who are talking about farm to table? They are trying to embrace that crowd in a groovy way but they've missed the boat. That's a problem," said Julie Goodridge, founder and chief executive for Boston-based NorthStar Asset Management, which decreased its stake in Whole Foods to 1% from 3% last fiscal quarter after owning the company's stock since 1992.

Ahead of Friday's vote, proxy advisers added to the pressure by raising concerns about Whole Foods' board attendance, executive pay and the "coziness" of its board, according to Glass Lewis & Co.

Glass Lewis raised red flags over the board's independence last month and recommended against the severance package for Walter Robb, who stepped down as co-CEO in December but remains on the company's board. Mr. Robb didn't respond to requests for comment.

On Friday, 84% of the voting shareholders approved the compensation allowances for Whole Foods' board, including Mr. Robb's $10 million severance package. All of the board members were re-elected with at least 84% of the vote.

Write to Heather Haddon at heather.haddon@wsj.com and David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

February 17, 2017 19:05 ET (00:05 GMT)

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