Whole Foods Market Inc. reported another quarter of dismal results Wednesday, but the company's battered stock rallied on news that Los Angeles-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 get board seats and become actively involved in steering the firm.
Green is buying into Whole Foods at a point of withered investor expectations for the once-high-flying firm, whose shares hit a seven-year closing low of $10.02 on Monday, down 75% year to date.
But in after-hours trading Wednesday 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 because strapped consumers have traded down in their spending.
The company Wednesday 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 for store closings.
Whole Foods gave a downbeat forecast for fiscal 2009, estimating that it would earn 95 cents to $1 a share. Analysts had expected $1.04.
John Mackey, Whole Foods' chief executive, 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.