Whole Foods Promotes Robb to Co-CEO

ELLIOT ZWIEBACH

AUSTIN, Texas — Whole Foods Market here shuffled two top management titles last week as the company's financial results showed signs the impact of the recession may be fading.

Walter Robb was named co-chief executive officer — sharing the position with the chain's co-founder, John Mackey — and A.C. Gallo was named president and chief operating officer. Both previously shared the title of co-president and chief operating officer.

Mackey said the promotions do not mean he plans to slow down but simply acknowledges to the outside world the roles both executives already had been filling for some time. “My goal is to keep this team together for another decade or so,” Mackey said.

That team, he said, also includes Glenda Chamberlain, executive vice president and chief financial officer, and Jim Sud, executive vice president of growth and development. “We have operated with leadership by consensus for years,” Mackey explained.

Analysts contacted by SN said they anticipate little change in the company's direction.

“The reporting relationships and collaborative style of decision-making is not going to change,” Andrew Wolf, managing director at BB&T Capital, Richmond, Va., said. “It was probably a case of either promoting Robb and Gallo or taking the risk of losing them to other companies, and it's certainly prudent to have a succession plan in place.”

While Mackey is likely to remain the dominant figure at Whole Foods, Wolf added, “his influence may be slightly diminished.”

“And the changes acknowledge the growing influence of other executives in top management and also demonstrate there are checks and balances in place among the top leadership team.”

Chuck Cerankosky, an analyst with Northcoast Research, Cleveland, said he views the promotions as “a natural progression.”

“Whole Foods has a well-functioning team, but the company is getting bigger, and it decided to make a few changes and this is the result. But it doesn't suggest any changes in Whole Foods' direction,” he said. “Mackey is a creative guy who's been engaged in professional management for 30 years, and he'll decide when he wants to leave. It won't happen soon, but these changes will ensure that he's comfortable with and confident in the management team that will succeed him.”

The second quarter that ended April 11 was one of Whole Foods' strongest in years, with net income jumping 91.3% to $67.5 million, sales rising 13.4% to $2.1 billion and comparable-store sales up 8.7%. For the 28-week half, net income increased 81.4% to $122.6 million, sales climbed 9.7% to $4.7 billion, and comps were up 5.7%.

However, Mackey cautioned investors to restrain their euphoria “because we were going up against negative comps — and most conventional operators didn't drop as much as we did, so part of it is simply a rebound effect.”

Mackey said Whole Foods experienced its first increase in basket size in six quarters, while transaction counts were also up. He also said branded-product sales growth has been outpacing private-label growth over the last two quarters, “and we are seeing some indications of customers starting to selectively trade up to higher-priced items in certain areas.”

According to Scott Van Winkle, an analyst with the Boston office of Canaccord Genuity, Toronto, “Whole Foods has its mojo back. We all knew it was back — we just didn't know how much.”

He said he attributes the improvements to “the hard work Whole Foods has done over the past year to improve its value perception, [which is] paying dividends and driving the stronger-than-expected top-line performance. Of course, the recovery in the high-end consumer is clearly a driver as well.”

Karen Short, a New York-based analyst with BMO Capital Markets, Toronto, said she had been concerned that expectations for Whole Foods' performance might be too high, “but Whole Foods rose to the occasion, delivering the entire ‘checklist’ [of expectations].”

Whole Foods also boosted its financial guidance for the second half, with identical-store sales growth projected to increase between 6.5% and 8.5% and earnings per share projected to be $1.33 to $1.37, driven by higher average weekly sales.

Mackey also said that only three of 32 stores that were ordered divested by the Federal Trade Commission had found buyers, which means the other 29 will remain Whole Foods properties without further obligation to the FTC. Of those stores, 19 are not in operation.

Q2 RESULTS