Another Large Investor Calls on Whole Foods to Explore Sale
April 27 2017 - 12:50PM
Dow Jones News
By David Benoit and Heather Haddon
Another big investor is calling on Whole Foods Market Inc. to
explore a sale.
Mutual-fund manager Neuberger Berman, which owns a 2.7% stake in
the organic grocery chain, sent a letter to the company's board
this week urging it to "immediately engage advisors" to review
options including a sale or joint venture.
The letter, which Neuberger provided to The Wall Street Journal,
comes a few weeks after activist investor Jana Partners LLC
disclosed a nearly 9% stake in Whole Foods and called for a similar
review. Neuberger has been in talks with Whole Foods since last
year but hasn't previously gone public with its suggestions for the
chain, which is adopting strategies used by traditional grocer to
boost flagging sales.
Though their interests align, Neuberger and Jana aren't working
together to put pressure on Whole Foods, according to people
familiar with the matter. They hadn't spoken about their respective
ideas to revive the company before Jana disclosed its stake, the
people said.
A Whole Foods spokeswoman said the company welcomes shareholder
input.
"We remain committed to continuing to take actions to drive
shareholder value and position Whole Foods Market for the future,"
she said.
Whole Foods shares have dropped sharply since peaking in 2013.
The Austin, Texas, company's sales have fallen over the past 18
months. Same-store sales -- a key retailer metric -- fell 2.5%
during its fiscal year that ended in September 2016.
Shares are up about 22% since Jana launched its campaign earlier
this month.
Unlike Jana and other activist investors, Neuberger typically
avoids public confrontations with the companies in which it
invests. The New York investment adviser manages some $267 billion
in client assets.
In an interview, Neuberger portfolio managers Charles Kantor and
Marc Regenbaum said Whole Foods' has a valuable brand and a
dominant prepared-foods business that set it apart from its rivals.
Yet they said the company has fallen behind rivals in adopting new
retail technology that could help it increase sales and profit
margins.
"The competition would give their right arms to have the
demographics at Bryant Park," said Mr. Kantor, referring to Whole
Foods' new store down the street from Neuberger's offices in
Midtown Manhattan. "They would give their right arms for traffic
and they would give their right arms to have people who sit there
for an hour and have lunch."
After sales began to slow in 2015, Whole Foods executives
formulated a nine-point plan to cut costs and focus on its most
loyal customers. The company walked away from plans to triple the
number of stores in the U.S., announced it would close
underperforming locations and slash 1,500 jobs.
It also cut prices on goods, a concession that traditional
supermarkets were luring away it customers with cheaper natural and
organic products. Whole Foods is now adopting the data analytics,
centralized purchasing, shelf management and advertising schemes
that traditional grocery chains have used to draw in customers for
years.
Whole Foods Chief Executive John Mackey said the company's
performance should begin to improve in a year, after the longest
stretch of same-store sales declines since going public in 1992. It
next reports earnings on May 10.
Whole Foods already has adopted some of Neuberger's suggestions,
including eliminating its dual CEO structure, searching for a new
finance chief, naming a new director and hiring retail experts.
In the letter, Neuberger raised concerns about Mr. Mackey
remaining the company's sole CEO but didn't go into detail. Mr.
Mackey, who co-founded Whole Foods nearly four decades ago, was
instrumental in transforming health food from a niche market into a
booming retail sector but the business has struggled to regain
ground lost to conventional supermarkets in recent years.
Mr. Mackey told the Journal that he and former co-CEO Walter
Robb both discussed stepping up to lead the company, but they
ultimately decided Mr. Mackey would remain.
"It wasn't what my heart called me to do," Mr. Mackey said about
leaving Whole Foods.
The investment manager also wants Whole Foods to add directors
with experience in retail operations, technology, finance and real
estate.
Jana voiced similar concerns and suggested three potential board
nominees. The hedge fund also assembled a group of food and retail
experts to advise it on the campaign.
Write to David Benoit at david.benoit@wsj.com and Heather Haddon
at heather.haddon@wsj.com
(END) Dow Jones Newswires
April 27, 2017 12:35 ET (16:35 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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