Whole Foods announces ‘accelerated’ initiatives to increase profitability

Austin, Texas-based Whole Foods Market, the embattled retailer rumored to be sold to Albertsons, The Kroger Co. and Amazon, announced Wednesday a comprehensive shareholder update regarding new and accelerated initiatives to increase profitability, improve operational performance, and enhance shareholder value, including 2020 financial targets.

On the same day, Whole Foods also announced its seventh consecutive quarter of declining comparable-store sales. While total sales increased 1.1 percent to a record $3.7 billion in the second quarter, comparable store sales decreased 2.8 percent.

“We are accelerating our path to enhanced value creation to deliver better returns for our shareholders,” said John Mackey, co-founder and CEO of Whole Foods Market, in a statement. “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.”

Last month, Jana Partners LLC, which has built up an 8.8 percent stake in Whole Foods, urged Whole Foods to overhaul its operations or sell. Whole Foods has responded, saying it has identified 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 calendar year end (CYE) 2017. The new program combines the best elements of the company’s My 365 Rewards and pilot programs, which have successfully driven increased trips and bigger baskets from participants by providing more personalized and relevant communications as well as new digital experiences.

• Restructuring purchasing program by CYE 2017 and implementing category management across all U.S. stores by fiscal year end (FYE) 2018.

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

• Realizing $300 million in additional cost savings by FYE 2020.

Along with announcements to improve operations, Whole Foods said it has appointed Keith Manbeck as executive vice president and chief financial officer and also announced a “significant refreshment” of its independent board of directors. Manbeck brings more than 20 years of financial and operational experience at leading companies, including Kohl’s and Nike. He succeeds Glenda Flanagan, who is retiring but will continue as a senior advisor.

New members of Whole Foods’ board of directors include Ken Hicks, former chairman, president and CEO of Foot Locker; Joe Mansueto, founder and executive chairman of Morningstar; Sharon McCollam, former executive vice president and chief financial officer of Best Buy; Scott Powers, who held leadership positions at State Street Corp.; and Ron Shaich, founder, chairman and CEO of Panera Bread Co.

Gabrielle Sulzberger was named chair of the board, and Mary Ellen Coe was appointed chair of the nominating and governance Committee.

Whole Foods said it expects to return to positive comparable store sales and earnings growth by the end of fiscal year 2018. Based on the implementation of new and accelerated initiatives, the company said is aiming for total sales of over $18 billion and store comps greater than 2 percent for fiscal 2020.