By David Benoit and Heather Haddon
An activist investor has amassed a large stake in Whole Foods
Market Inc. and wants it to accelerate its turnaround and explore a
possible sale, increasing pressure on the upscale organic grocer to
find its footing after its rapid growth stalled.
Jana Partners LLC, which has built up an 8.8% stake in Whole
Foods along with several allies, wants the chain to improve its
technology and operations to better compete with larger rivals,
shake up its board and explore how much potential bidders might be
willing to pay, according to a Monday regulatory filing.
Whole Foods "is open to the views and opinions of all of our
shareholders," a company spokeswoman said. "We are committed to
driving value for all Whole Foods Market shareholders and will
continue to act to achieve this important objective."
Jana's campaign is the latest quandary for Whole Foods, which
has struggled to make the transition from highflying upstart with a
loyal following into a large, national chain with the kind of
back-office systems tracking customers and inventory that rivals
use to keep costs down and sales up.
Whole Foods' stock has lost nearly half of its value since
peaking in 2013, and as of Friday's close had risen just 1.5% in
the past 12 months, compared with a 15% gain in the S&P 500.
The stock jumped 10% to $34.17 on Monday. Its sales, meanwhile,
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.
Jana has lined up possible board nominees, according to the
filing, four months before the deadline to launch a board fight.
That suggests that Jana, which has quietly reached settlements with
several companies this year to install new directors, will be
aggressive in demanding change at Whole Foods.
The fund's board candidates include longtime industry analyst
Meredith Adler, Thomas "Tad" Dickson, the former chief executive of
Harris Teeter Supermarkets, and Glenn Murphy, who led the
turnaround of Gap Inc. as the retailer's chief executive.
The fund is also working with well-known chef, food writer and
entrepreneur Mark Bittman and Diane Dietz, the former chief
marketing officer of Safeway Inc., which Jana helped shake up in
2013.
Mr. Bittman and Ms. Dietz, along with the three board
candidates, all purchased shares in Whole Foods as part of Jana's
campaign.
Jana hasn't yet met with Whole Foods' current board or
executives, according to people familiar with the matter, departing
from its usual approach of working with management and boards
behind the scenes. The hedge fund, founded by Barry Rosenstein in
2001, has played a role in changing the boards of Bristol-Myers
Squibb Co., Tiffany & Co. and Blackhawk Network Holdings Inc.,
all without the kind of public fight associated with activist
investors.
Jana's campaign will amplify the grumblings of other Whole Foods
shareholders. Some investors have said the company should consider
selling itself and have broached as possible buyers rival Kroger
Co. and Amazon.com Inc., which is building out a physical
grocery-store chain.
After Monday's bump, Whole Foods' market value stands at around
$11 billion.
Mutual-fund giant Neuberger Berman, which owns about 2.4% of
Whole Foods, has been privately pushing for faster change at the
company, The Wall Street Journal has reported. The firm has
complained that the chain hasn't fully capitalized on its
popularity among millennials or on selling prepared foods, areas
where it outdoes its rivals.
At Whole Foods' annual meeting in February, the board was
re-elected but faced a high protest vote. Two directors garnered
around 85% support, while an advisory vote on executive
compensation got 84%, levels that signal investor angst.
Some investors say that while the company is taking the right
steps, it is moving too slowly to catch up to rivals that are years
ahead in retail technology and customer management. They have
indicated that management had to perform this year or risk a louder
call for change this fall.
"We think [Whole Foods] needs to move from a growth phase to an
efficiency phase," UBS analysts wrote in tagging the company with a
sell rating last month. "The entrepreneurial culture that served it
well in its growth mode now needs to be more process-oriented. That
can be a rough transition."
The broader grocery industry is struggling with increased
competition and a slump in food prices that has eaten into profits.
But Whole Foods has struggled in particular as it has lost ground
in the natural and organic market that it once dominated.
As pressure has mounted, Whole Foods has cut costs and abandoned
an ambitious plan to nearly triple its number of stores. It has
tried various marketing gambits to retain customers. The company,
which is based in Austin, Texas, began testing a loyalty program in
2014, and intends to expand it nationally from a pilot in the
Dallas area.
Chief Executive John Mackey has said he expects these efforts to
reverse the company's fortunes. But Whole Foods lowered its sales
and profit forecasts for the year in February.
Write to David Benoit at david.benoit@wsj.com and Heather Haddon
at heather.haddon@wsj.com
(END) Dow Jones Newswires
April 11, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Whole Foods Market, Inc. (NASDAQ:WFM)
Historical Stock Chart
From Mar 2024 to Apr 2024
Whole Foods Market, Inc. (NASDAQ:WFM)
Historical Stock Chart
From Apr 2023 to Apr 2024