Analysis and Predictions: Whole Foods Markets

Analysis and Predictions: Whole Foods Markets

Larry Jenkins

Business Finance 543

Dr. Mohammed Sharifzadeh

Analysis and Predictions: Whole Foods Markets

Company Overview

Whole Foods Market (WFM) is a popular national group of supermarkets based in Austin, Texas. In it's 32 years, Whole Foods has risen to the 8th most popular grocery retailer in the United States and expanded to multiple locations in both Canada and the United Kingdom. Unlike most major grocery retailers in North America, the company emphasizes natural and organic products. The company is well known for environmental and social responsibility and is listed as the Environmental Protection Agency's Top 25 Green Power Partners (EPA). The average store size is 38,00 square feet, much larger than the average organic and natural foods store. The company's offices include it's headquarters in Austin, as well as other regional offices. It also distribution centers, meat and produce procurement centers, bakehouse facilities, seafood-processing facilities, commissary kitchens, and a specialized coffee and tea procurement and roasting operation which help supply its stores. Whole Foods Market currently employes 72,700 workers throughout it's corporate, retail, and operational facilities (NYT).

Whole Foods is known as perhaps the most prominent "green" company in the United States, with consistent efforts towards sustainability. The company boasts the use of recycled and minimal packaging, local produce, sustainable farming, and wind energy. It is also known for having the industry's strictest standards when it comes to organics, especially in regards to GMO labeling. Once thought to be a niche market, the company works to become the industry standard by demonstrating value, but more importantly quality. Whole Foods Markets maintains a healthy online presence, an important part of its overall market strategy. The company websites has several blogs, forums, and recipe indexes, including the ad, coupon, and location sections found on a typical grocery retailer's website. Whole Foods Markets prides themselves as the premier retailer on the popular social networking website, Twitter {Stakeholder's Letter 2012) and has over 1,888,000 "likes" on the world's most popular social networking site, Facebook. The company also prides itself in being diverse. It is known for hiring people of all appearances, including those with body modifications and heavy tattoos, unlike many other corporations.

Financial Standings and Threats

In the past three years, the company has enjoyed an overall gain in assets; however, the company's assets are moving more toward investments away from liquid assets. While investing can lead to increased profitability, there is not guarantee of gain or even return of assets. Liquid assets are more reliable and often seen as a truer representation of worth. Investment based assets are especially less reliable in the bear market economy the nation faces. The largest overall shifts were definitely in both short and long term investment funds. Perhaps Whole Food's best indicator of market longevity, or at the very least, market upturn would be it's debt. The company's long term debt drastically decreased from a $508,288,000 in 2010's fiscal close to a meager $23,110,000 by the fiscal end of 2012. That's a decrease over over ninety-five percent. In addition, the companies assets have nearly doubled, from $1,638,970,000 in 2010 to $3,077,132,000 in 2012. Not only do was there a growth in assets, but there has also been a steady decrease in profit, an equally as important growth indicator, in the last few years -- from $969,825,000 (gross) in 2010 to $1,348,000,000 in 2012, or an almost thirty-nine percent increase. Net income also increased. It moved from $117,992,000 in 2010 to $146,000,000 in 2012 (Yahoo Finance).

This is a remarkable growth considering the general economic downtown of the past decade, as well as the additional strain on the market since the economic downturn of 2008. This is especially significant because Whole Foods can be considered a "premium" retailer in the food and grocery industry. In economic downturns it is more typical to see brands that advertise and stand for value and low costs thrive than it is to see brands that are considered fine goods grow and strengthen (Rangwala 2011) However it should also be noted that this could turn around on the company, especially if the market falls further.

Whole Foods also faces significant and growing competition. Being part of a vibrant, growing industry and market share also lends itself to competition. There are similar stores, such as Trader Joes, arguable the company's largest competitor. Furthermore, once exclusive products are popping up in more stores, including more traditional grocery stores like Kroger, as well as "big box" corporations like Wal-Mart. Additionally, major grocery chain Kroger has recently launched and heavily marketed it's own line of foods deemed as "healthy," "natural," and some of which are labeled as "organic" called Simple Truth. More affordable, accessible goods of a similar nature to product base of Whole Foods Market is definite threat to the company's growth potential, and if the company does not either price more competitively or further demonstrate it's products' overall value it may fall behind.

Stock Price Analysis

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Whole Foods Markets' Stock, publicly traded as WFM, has unsurprisingly done well historically. Prices have steadily risen, and, unlike many other companies, WFM has not seen a significant, if any, downturn during the lasting economic recession. However the market fluctuates it's stock steadily rises. The five year stock price chart below supports such:

Whole Foods Market Stock over Five Years, in Dollars

(NYT)

With sales approaching $12 billion, translating to sales per gross square foot

of $932, 25 new stores, eight new markets, the company grows rapidly and so does its stock price potential. WFM holds "eleven consecutive quarter of comparable store sales growth of 7.8% or better, improved operating margin 94 basis points to 6.4%, generated over $1 billion in EBITDA, and grew diluted

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