Whole Foods tries putting itself on comeback path

Beth Jinks and Craig Giammona
Bloomberg News

Whole Foods Market Inc., the embattled organic-grocery chain, is doing what it can to avoid a fight with activist investor Jana Partners.

The company appointed five new directors to its board and replaced its chairman, part of a broader effort to revamp operations and put Whole Foods on a comeback path. The board’s newcomers include Ron Shaich, the chief executive officer of Panera Bread Co., and Joe Mansueto, the founder of Morningstar Inc.

Whole Foods is seeking to stave off a looming battle with Jana, which announced an 8.3 percent stake in the supermarket chain last month and vowed to push for changes — including a possible sale of the business. That’s pressured Whole Foods co-founder John Mackey to prove he can mount a turnaround after seven quarters of sliding sales.

“We believe that we have the right plan — and the right team — to execute on our initiatives at an aggressive pace, deliver results and enhance value for our shareholders,” Mackey said in a statement Wednesday.

The shake-up includes naming current director Gabrielle Sulzberger to the chairman role. She will replace John Elstrott, who served on the board since 2009. Whole Foods also hired Kohl’s Corp. executive Keith Manbeck as chief financial officer, effective May 17. The previous CFO, Glenda Flanagan, announced her plan to retire last year.

The overhaul coincided with Whole Foods releasing its second-quarter results. Earnings amounted to 37 cents a share in the period, matching analysts’ estimates. Sales came in at $3.74 billion, just above the $3.73 billion estimate.

Whole Foods also trimmed its forecast, saying earnings would be at least $1.30 a share this year. It had previously targeted $1.33. Revenue will climb 1 percent or more, compared with an earlier goal of 1.5 percent.

The board changes aren’t part of an agreement with Jana, a representative for the investment firm said. The grocery chain asked the shareholder to accept a two-year standstill request in exchange for putting some of its proposed candidates on the board, but that deal was rejected. Jana said that it opted instead to keep all its options open pending further changes at the company.

When it disclosed its stake, Jana assembled a team of retail and food experts to help diagnose and fix what’s ailing the grocery chain. The firm has also lined up board members for a potential proxy fight that would occur next year. The average tenure on the Whole Foods board was roughly 14 years, which had raised alarms among corporate-governance advocates.

Whole Foods hired the boutique investment bank Evercore Partners to help defend itself against Jana, a person familiar with the situation said.

Mackey faces an uphill battle in trying to turn around Whole Foods. Though the company pioneered the market for organic groceries, it’s losing market share to mainstream supermarkets, which often charge lower prices.

But the executive has taken it upon himself to revitalize the chain he helped start in 1980. After six years of sharing a co-chief executive officer role with Walter Robb, Mackey took the job on a solo basis at the end of 2016.

He’s also pursuing a sideline as an author and food advocate. Mackey’s new book, “The Whole Foods Diet,” makes the case for the health benefits of a vegan lifestyle.

That project, coming at a time of crisis for Whole Foods, has raised eyebrows on Wall Street. A recent research note from Barclays Plc questioned whether Whole Foods management was spread too thin by “non-core initiatives,” mentioning Mackey’s book tour as an example.

In a bid to help shed its image for being overpriced, Whole Foods launched a new store format last year called 365 that is aimed at younger, budget-conscious shoppers. So far, the company has opened three locations on the West Coast and another in Texas. But it has said little about results at the stores, which are named for Whole Foods’ private label brand.