AUSTIN, Texas – Whole Foods Market Inc. on Nov. 2 announced changes to its leadership structure, including the planned departures of Walter Robb as co-CEO and Glenda Flanagan as executive vice president and CFO. Robb, who joined the company in 1991 and has held his current role over the past six years, will remain on the board of directors and serve as a senior adviser after stepping down on Dec. 31, 2016. John Mackey, co-founder and co-CEO, will become the sole CEO of Whole Foods Market.
Flanagan will retire at the end of the 2017 fiscal year after 29 years in her role, having helped grow the company from six stores in 1988 to 464 stores and more than $15 billion in sales today. She also will serve as a strategic adviser.
The changes come during a challenging time for the Austin-based retailer, which in recent years has faced increasing competition from new players in natural and organic grocery.
Net income in the year ended Sept. 25 was $507 million, equal to $1.55 per share on the common stock, which compared with $536 million, or $1.49, in the prior year. Sales for the year totaled $15,724 million, up from $15,389 million, but comparable store sales for the year decreased 2.5 percent.
“In a year that presented many ongoing headwinds for food retailers, including deflation, increased competition from existing as well as new business models, and lackluster consumer demand, we produced industry-leading sales per square foot of $915 and a healthy 13 percent return on invested capital,” Mackey said during a Nov. 2 earnings call with financial analysts. “While sales were lighter than forecast, we achieved many of the fiscal year targets we provided in Q4 last year, including $1.52 in earnings per share, excluding buybacks, and an 8.6 percent EBITDA margin.”
Additionally, Whole Foods has made measurable progress on a number of strategic initiatives laid out a year ago, he said. For one, the company is more than halfway toward its two-year goal to reduce expenses by a $300 million run rate by the end of fiscal year 2017.
“As we have stated, our strategy is to adjust our operating model to a lower margin and lower cost structure,” Mackey said. “Every major conversation we have about investments in pricing, technology and marketing is accompanied by a conversation about lowering our cost structure through enhanced technology tools, labor restructuring and work process changes… We expect to reach our goal, but expect these savings to be more than offset by our investments to drive traffic and sales, as well as higher occupancy, depreciation and other costs.”
Net income in the fourth quarter ended Sept. 25 was $88 million, or 28 cents per share, up from $56 million, or 16 cents per share, in the year-ago period. Sales were $3,497 million, up from $3,438 million. Comparable store sales for the quarter declined 2.6 percent; however, Mackey said trends have begun to improve in the first quarter of fiscal year 2017, supported by new value and marketing efforts that appear to be gaining traction with consumers.
“Our priorities include progressing to an always-on unified marketing and media plan, using insights from our customer data and analytics to improve the relevancy, effectiveness and efficiency of our value and marketing investments; intensifying our personalization efforts, including the roll-out of our optimized rewards program to all US stores; taking a more strategic approach to our assortments, pricing and promotions, including the continued development of category management tools, processes and capabilities to better inform our investments; evolving our purchasing structure to a hybrid model, with global teams leading our category management efforts and regional teams focused on local products; leveraging our new culinary team's leadership and expertise to offer a full spectrum of the highest quality ready-made meal solutions, in-store or delivered to your door, including a pilot for curated meal kits; and offering our customers more convenience through expanded online delivery to more cities and additional ZIP codes in existing markets,” Mackey said. “We will keep innovating and creating opportunities for people to connect and find a sense of community in our stores and in the digital world. Promotions and price investments are an integral part of our conversation, but we are not participating in a race to the bottom.”
Regarding the competitive landscape, Mackey said, “If you think about it, you not only have strong conventional supermarkets like Kroger and HEB, and Wegmans, but you’ve also now got more of the discount natural food operators like Sprouts and Fresh Thyme and Lucky’s, and they are all growing. And then you’ve got more delivery fresh stuff like Amazon, and then you’ve got these meal kit operators like Blue Apron and HelloFresh and Plated, and so it’s a very competitive market out there and I like Whole Foods positioning.
“I like our positioning, frankly, better than anybody else’s, but I think everybody is feeling it. You’ve got this macro environment of deflation that people are trying to deal with, plus competition everywhere. Everybody is feeling that. I’m seeing everybody’s comps go down, everywhere. And it’s just a very competitive environment.”
