whole foods market, inc. quick analysis
Post on 14-Jul-2015
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• U.S. Based Supermarket Chain
• Operates specifically within the “Natural and Organic Foods
Supermarkets” segment
• World’s leading retailer of natural and organic foods, currently holding a 15%
market share of the $65B segment
• Market segment is growing more rapidly than the overall retail grocery industry
• Whole Foods Market, Inc. was the first “Certified Organic Retailer”
• Currently operates 311 stores and employs 64,200 staff
• Differentiated Product Offering
• High quality natural and organic foods with a strong emphasis on
perishables, offered at multiple price points
• Publically traded on NASDAQ since 1992 – 18.6B Market Capitalization
• Has delivered returns to shareholders through dividends and price
appreciation (Stock price up > 1000% from 2008 low)
Key Risks
• Exposure to global macroeconomic factors• Fluctuations in consumer
spending, inflation, etc.
• Future labeling regulations• May no longer be able to market GMO
products as “natural”
• Could decrease brand loyalty
• Increased competition• Expansion of conventional grocery
retailers into organic and natural product offerings
• Any loss of key management could adversely affect growth trajectory, company culture, and overall business strategy
Key Merits
• Whole Foods is already the market leader in their segment• First-mover advantages
• Strong brand image and loyal customer base• Difficult for competitors to come in
and profit
• Well-trained and experienced employees and management• Commitment to employee satisfaction,
very low employee turnover rate
• Highly experienced Real-Estate sourcing team
• Leader in healthy eating awareness campaign• As awareness and concerns grow for
healthier eating , revenue growth in the segment will follow
Financial Analysis• Stable Top-Line Growth
• 5 year CAGR of 11.28% vs. an industry average below 4%
• Second highest in revenue growth only to The Fresh Market (TFM)
• Increasing Operating Efficiency and Profitability• Operating margins have steadily increased as expenses decline as a percent of sales
• Decreases in relocation, store closure, lease-termination, and pre-opening costs fueling the increase in operating efficiency
• Steadily increasing EBITDA, EBIT, and Net Income margins
• ROA and ROE Doubled Over 5 Years – Still Needs Improvement• ROE (11.45%) is below industry average (13.5%), and ROA (7.98%) is slightly below
their WACC (8%), suggesting a possible struggle to create shareholder wealth
• Increasing Liquidity• Expanding of current asset base to fund future growth opportunities
• Cash & cash equivalents and available-for-sale securities
• Deleveraging Capital Structure• Repayment of $490 million term loan resulting in increased debt capacity
Investment Summary
• Whole Foods Market, Inc.’s dedicated management team has stabilized an ambitious business strategy, poising the company to increase expansion rates and market share
• Whole Food’s leading market share in the natural and organic foods segment, as well as their growing brand recognition and customer loyalty has created a relatively difficult environment for competitors to profit
• As Whole Foods continues to enhance supplier relationships and streamline their operations, they will continue to foster increases operating efficiency and profitability
• With the rapid increase in organic and natural foods as an overall percent of the retail grocery industry, Whole Foods is in a position to capture the largest percent of that sales growth
• After careful analysis, the merits and financial performance of Whole Foods Market, Inc. appear to outweigh the corresponding risks, and thus would provide a good investment opportunity.
• These slides cannot be used with out the written consent of the uploader, William O’Hara.
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