John Mackey may no longer come across as the brash upstart who led Whole Foods Market to dominate the natural food segment of the industry, but he still has a lot to brag about. Even a cursory glance at the chain’s most recent quarter reveals solid finances and an intelligent growth strategy.
“We are pleased to report another outstanding quarter, producing the best results in our company’s 32-year history,” Whole Foods’ co-chief executive officer said in relaying the second-quarter earnings in May. At the same time, the Austin, Texas-based retailer announced it was increasing growth outlook for the fiscal year, from 13.5%-15% to upwards of 15.6%.
Net earnings for the quarter came in at $117.7 million, or 64 cents a share — blasting Wall Street’s expectations of 59 cents out of the water. Even before the quarter ended, analysts were bullish about the leadership of Mackey and his well-honed executive team.
“We believe WFM is a best-in-class retailer warranting a best-in-class multiple,” wrote BMO Capital Markets’ Karen Short, in an April note to investors. She listed seven reasons for her optimism, including the chain’s self-funded 8% unit growth. “These factors make WFM a core holding for growth investors in both the near and longer term,” she continued.
Mackey’s high ranking on this year’s list reflects the growing clout Whole Foods wields as a mainstream operator that just happens to excel at selling premium-priced natural, organic and gourmet foods. Growth has made the chain a formidable competitor in any market it enters, capable of siphoning customers from any and all formats within its market area.
“Whole Foods is making an effort to provide high-quality and unique products at more accessible price points that provide a value proposition competitive with conventional grocery,” noted Janica Lane, a partner in Partnership Capital Growth, the San Francisco-based merchant banking firm specializing in wellness products and services.
Though he shares his leadership role with co-CEO Walter Robb, Mackey very much embodies the spirit of Whole Foods. He has spent the past two years restoring the chain’s reputation as a destination for health education with programs such as Health Starts Here and its fee-based Wellness Club, which includes classes, lectures and dietary advice.
Mackey can afford to indulge his passion for Whole Foods’ healthy side, having taken steps to recruit and retain some of the industry’s more experienced talent. Aside from Robb, the company bolstered its executive team this past year by promoting proven loyalists David Lannon and Ken Meyer — both regional presidents who came up through the ranks after Whole Foods acquired the retailers they worked for.
Mackey is helping to lead a team that is determined to grow from its current base of 317 stores to publicly-stated goal of 1,000 units. The emerging strategy emphasizes smaller stores in secondary markets.
“These smaller stores are more intimate yet can still hold a diverse array of products,” observed Lane. “The smaller footprint also opens up new potential sites for Whole Foods, giving the chain the ability to locate in areas that may be closer to the community.”
That expansion could easily include overseas. As recently as its Q2 report, the retailer stated that it sees strong potential in both the United Kingdom and Canada, where it currently has seven (soon to be seven) and seven stores, respectively.
“Given Whole Foods’ ‘dry powder’ — cash on the balance sheet, a strong stock price, little debt and an undrawn line of credit — it seems that now could be a good time to consider acquisitions,” said Lane. “These could be interesting markets for acquisitions and would likely not have the same antitrust issues as any large U.S. acquisition would.”