Whole Foods gets capital boost from L.A. private-equity firm

This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

Whole Foods Market Inc. today reported another quarter of dismal results, but the company’s battered stock rallied on news that L.A.-based private equity firm Leonard Green & Partners will pump $425 million in capital into the retailer.

Green, a well-known investor in the retail sector, is buying preferred stock that is convertible into a 17% stake in Whole Foods’ common shares.

Two of Green’s principals -- Jonathan Sokoloff and Jonathan Seiffer -- will become actively involved in steering the company: They’re both getting seats on the chain’s board.

Green is buying into Whole Foods at a point of withered investor expectations for the once-high-flying firm. The company’s shares hit a seven-year closing low of $10.02 on Monday, down 75% year to date.

But in after-hours trading today the stock surged as high as $12.65, from $10.31 at the close of regular trading.

Sokoloff, in a statement, called Whole Foods ‘an exceptional company that has revolutionized how consumers shop for natural and organic products.’ He said Green would partner with management ‘to drive long-term growth, profitability and value for all shareholders.’

Austin, Texas-based Whole Foods has stumbled because of over-expansion (including via its much-maligned purchase of rival Wild Oats) and as many strapped consumers have traded down in their retail spending.

The company today said sales edged up just 2.5% in the quarter ended Sept. 28, to $1.79 billion. Earnings plunged to $1.5 million, or 1 cent a share, down 96% from a year earlier, largely because of one-time charges, including expenses related to store closings.

Whole Foods gave a downbeat forecast for fiscal 2009, estimating that it would earn between 95 cents and $1 a share. Analysts had expected $1.04.

John Mackey, Whole Foods’ CEO, said the investment from Leonard Green & Partners would help the company ‘manage through these difficult economic times while continuing to invest prudently in our long-term growth.’

Green manages a private-equity portfolio worth about $9 billion, including investments in retailers Neiman Marcus Group, Petco Animal Supplies, Sports Authority and David’s Bridal.

Green will earn an initial 8% annual dividend on the preferred stock investment. The stock is convertible to common shares at $14.50 a share.