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Mackey takes reins

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AUSTIN, Texas — Whole Foods Market Inc. announced on November 2 that cofounder John Mackey will take the helm as sole chief executive officer, ending a six-year experiment with a dual-CEO structure. The announcement came as Whole Foods reported its first annual decline in comparable-store sales since 2009.

As part of the streamlining, Walter Robb will step down as co-CEO on December 31. He will remain on the Whole Foods board and will continue serving as a senior adviser to the company he joined in 1991.

Mackey, 63, has been one of the nation’s best-known evangelists for organic and natural food. He cofounded his first health food store in Austin in 1978. A merger with one of the city’s other natural grocery stores in 1980 lead to the creation of Whole Foods Market. Mackey built the company into a national chain with more than 460 locations. Whole Foods’ success caught the attention of mainstream supermarket chains, which have made significant investments in healthier food ­options.

Whole Foods has been fighting a losing battle to get more shoppers in its stores in recent years. Comparable-store sales have declined for five consecutive quarters, and they aren’t expected to return to growth in the next year. For fiscal 2016, which ended in September, same-store sales declined 2.5%. For the current year, Whole Foods expects same-store sales to be flat to down 2% and revenue to rise between 2.5% and 4.5% as the company uses more data to determine which discounts to offer and mails its first nationwide discount flier later this month.

The company has also launched a loyalty program and is building out a lower-price store concept called 365. The first 365 by Whole Foods store opened in May near Los Angeles, followed by two more on the West Coast. Results have been mixed, but the company said it has time to assess what’s working ahead of the planned opening of the fourth store, in Austin, next spring.

For its latest quarter, Whole Foods reported a profit of $88 million, or 28 cents a share, compared with $56 million, or 16 cents a share, a year earlier.

“In Q4, sales increased 2% to a record $3.5 billion. We opened five new stores, including two 365 stores. We continued to make selective investments on key items to narrow pricing gaps while offering strong weekly deals, which were supported by the continuation of our enhanced ad campaign. We also successfully launched our new affinity rewards program in the Dallas/Fort Worth metro area,” Mackey said in a conference call to discuss the quarterly financial results. “In a heightened competitive and promotional environment, we have remained focused on our initiatives to build sales over the long term and are seeing encouraging signs of customers responding, as reflected in our third consecutive quarter of improving items per basket.”

Whole Foods’ mission and culture have never been stronger, Mackey told analysts. “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% return on invested capital.”

Whole Foods also announced on November 2 that executive vice president and chief financial officer Glenda Flanagan, the longest-ever serving female CFO of a Fortune 500 company, will retire from the role after 29 years at the end of the 2017 fiscal year. She will continue to serve the company as a senior adviser. In addition, the company announced that Mary Ellen Coe, vice president of sales and product operations at Google, has joined Whole Foods’ board of directors.

“Our strategy is to adjust our operating model to a lower-margin and lower-cost structure,” Mackey said on the fourth quarter earnings call. “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. Last November, we announced our goal to reduce our cost structure by $300 million run rate by the end of fiscal year 2017. 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.”


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