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Whole Foods Valuation

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Whole Foods Valuation

  1. 1. Whole Foods Market Inc.Group100Dylan TuckerGerrit ThurstonKeith DuranteRobyn HwangWhitney FletcherWill BergenValuation Project
  2. 2. 1Whole Foods is undervalued by 25%; werecommend an acquisition at $120 per share• Expand in customer demand• Cultivated strong brand loyalty• Well-positioned, giving an operational advantage_________________________________________________________________Company Market Financial Analysis Value Drivers Valuation
  3. 3. 2CompanyMarketFinancial AnalysisValue DriversValuation
  4. 4. Whole Foods has established a niche inthe natural and organic foods industryRetail GroceryHypermarketWalmartSupermarketKroger, SafewaySpecialty StoresLocal stores3Company Market Financial Analysis Value Drivers Valuation_______________________________________________________
  5. 5. 4Whole Foods has established a niche inthe natural and organic foods industryRetailGroceryHypermarketWalmartSupermarketSpecialtyStoresWholeFoodsCompany Market Financial Analysis Value Drivers Valuation_____________________________________________________
  6. 6. Mergers, acquisitions, and expansion haveallowed Whole Foods to grow and prosper overtimeSaferWay1978Allegro Coffee(stock mergercomplete), 1997Acquired Wild OatsMarket, 2007Whole Foodsincorporated,1980Expansion into U.K(purchase of Fresh& Wild, 2004 and2011Launchedprivatebrand, 365EverydayValue, 1996Top 100company(FORBES), 14thconsecutiveYear, 2012Went public onNASDAQ, 19925Company Market Financial Analysis Value Drivers Valuation
  7. 7. 6Whole Foods has an established customerbase and aims to expand it in the futureHigh IncomeLow IncomeHealth ConsciousNot Health ConsciousKroger SafewayCompany Market Financial Analysis Value Drivers Valuation_________________________________________________________WalmartHarrisTeeter
  8. 8. 7Whole Foods has an established customerbase and aims to expand it in the futureHigh IncomeLow IncomeHealth ConsciousNot Health ConsciousKroger SafewayCompany Market Financial Analysis Value Drivers Valuation_________________________________________________________WalmartHarrisTeeter
  9. 9. 8MarketFinancial AnalysisValue DriversValuationCompanyMarket
  10. 10. 9Company Market Financial Analysis Value Drivers Valuation-10.00%-5.00%0.00%5.00%10.00%15.00%20.00%25.00%2005 2006 2007 2008 2009 2010 2011 2012 2013PercentagechangeinRevenueWhole Foods is outgrowing Retail Groceryand Natural/Organic IndustryRetail Grocery IndustryNatural and Organic IndustryWhole Foods
  11. 11. 10Company Market Financial Analysis Value Drivers Valuation-10.00%-5.00%0.00%5.00%10.00%15.00%20.00%25.00%2005 2006 2007 2008 2009 2010 2011 2012 2013PercentagechangeinRevenueRetail Grocery IndustryNatural and Organic IndustryWhole FoodsWF Averaged 18% Revenue Growth
  12. 12. 11Company Market Financial Analysis Value Drivers Valuation-10.00%-5.00%0.00%5.00%10.00%15.00%20.00%25.00%2005 2006 2007 2008 2009 2010 2011 2012 2013PercentagechangeinRevenueWhole Foods maintained positive growthrevenue during poor economyRetail Grocery IndustryNatural and Organic IndustryWhole Foods
  13. 13. 12-10.00%-5.00%0.00%5.00%10.00%15.00%20.00%25.00%2005 2006 2007 2008 2009 2010 2011 2012 2013PercentagechangeinRevenueWhole Foods is outgrowing Retail Groceryand Natural/Organic IndustryRetail Grocery IndustryNatural and Organic IndustryWhole FoodsCompany Market Financial Analysis Value Drivers Valuation
  14. 14. Whole Foods has kept a high gross profit marginin comparison to competitors130.0%5.0%10.0%15.0%20.0%25.0%30.0%35.0%40.0%2008 2009 2010 2011 2012GrossProfitMargin%Whole Foods MarketKrogerSafewayHarris TeeterGross Profit Margin per yearCompany Market Financial Analysis Value Drivers Valuation_____________________________________________________________
  15. 15. 14MarketFinancial AnalysisValue DriversValuationCompanyFinancial Analysis
  16. 16. Whole Foods is positionedto be very profitable in the futureCompany Market Financial Analysis Value Drivers Valuation_______________________________________________________1. Strong Potential For Store Growth2. Increase In Sales3. Operating Margin Will Improve152009 2010 2011 2012 2013 2014 2015 2016 2017Sales Revenue 80.3 90.1 101.1 113.8 128.5 144.3 162.5 182.9 206.0Operatingexpense 77.4 85.6 95.6 107.2 120.5 135.5 152.5 171.6 193.1Total Stores 284 299 311 334 364 397 431 465 500Free Cash Flows 1.5 2.6 2.3 3.0 3.8 4.7 5.3 6.3 7.4
  17. 17. Store Growth ProjectionsCompany Market Financial Analysis Value Drivers Valuation01002003004005006002009 2010 2011 2012 2013 2014 2015 2016 201716
  18. 18. Company Market Financial Analysis Value Drivers Valuation01002003004005006002009 2010 2011 2012 2013 2014 2015 2016 2017 Aggressive Growth Strategy, is it possible? Favorable leases due to real estate market Positioned well internally to fund expansion. Many markets ready to accept new retailers.Store Growth Projections17
  19. 19. Whole Foods Is Building Capital010020030040050060070080090010002007 2008 2009 2010 2011Debt Cash & Invesments1. Cash/Investments 2. Stock Buy-Backs 3. Dividends 4. Accelerate GrowthCompany Market Financial Analysis Value Drivers ValuationStrategy:____________________________________________________________18
  20. 20. Revenue Growth is Strong2009 2010 2011 2012 2013 2014 2015 2016 2017Sales Revenue 80.3 90.1 101.1 113.8 128.5 144.3 162.5 182.9 206.0Growth % .98% 12.1% 12.2% 14.0% 16.0% 13.0% 13.0% 13.0% 13.0%Sales Revenue is comprised of:1 Identical Store Sales Growth2 New Store Sales Increase in Transactions Increase in Basket SizeCompany Market Financial Analysis Value Drivers Valuation 19
  21. 21. Revenue Growth is Strong2009 2010 2011 2012 2013 2014 2015 2016 2017Sales Revenue 80.3 90.1 101.1 113.8 128.5 144.3 162.5 182.9 206.0Growth % .98% 12.1% 12.2% 14.0% 16.0% 13.0% 13.0% 13.0% 13.0%Sales Revenue is comprised of:1 Identical Store Sales Growth2 New Store Sales Increase in Transactions Increase in Basket Size Average Growth:4%3%7%8.7%8.1%14.5%11.5%10.3%5.8%3.6%-4.3%6.5%8.4%-10.0%-5.0%0.0%5.0%10.0%15.0%20.0%02 03 04 05 06 07 08 09 10 11Identical Stores Sales GrowthCompany Market Financial Analysis Value Drivers Valuation 20
  22. 22. New Stores Are PerformingExtremely WellOpened three stores under their new design and EPV specs:24Company Market Financial Analysis Value Drivers Valuation
  23. 23. New Stores Are PerformingExtremely WellOpened three stores under their new design and EPV specs:• Smaller in size (14% smaller) Low Occupancy CostsCompany Market Financial Analysis Value Drivers Valuation 25
  24. 24. New Stores Are PerformingExtremely WellOpened three stores under their new design and EPV specs:• Smaller in size (14% smaller) Low Occupancy Costs• Experience Growth Team Staffed & Stocked wellCompany Market Financial Analysis Value Drivers Valuation 26
  25. 25. New Stores Are PerformingExtremely WellOpened three stores under their new design and EPV specs:• Smaller in size (14% smaller) Low Occupancy Costs• Experience Growth Team• Strong Brand NameStaffed & Stocked wellHigh Initial SalesCompany Market Financial Analysis Value Drivers Valuation 27
  26. 26. New Stores Are PerformingExtremely WellOpened three stores under their new design and EPV specs:• Smaller in size (14% smaller) Low Occupancy Costs• Experience Growth Team• Strong Brand NameStaffed & Stocked wellHigh Initial Sales14% higher sales overallCompany Market Financial Analysis Value Drivers Valuation 28
  27. 27. 2009 2010 2011 2012 2013 2014 2015 2016 2017Sales Revenue 80.3 90.1 101.1 113.8 128.5 144.3 162.5 182.9 206.0Growth % .98% 12.1% 12.2% 14.0% 16.0% 13.0% 13.0% 13.0% 13.0%Sales Revenue is comprised of:1 Identical Store Sales Growth2 New Store Sales Increase in Transactions Increase in Basket Size Average Growth:4%3%7%2012 2013Total Stores 334 364Opened stores 23 30New StoreGrowth:7% 9%Company Market Financial Analysis Value Drivers ValuationRevenue Growth is Strong29
  28. 28. 2009 2010 2011 2012 2013 2014 2015 2016 2017Sales Revenue 80.3 90.1 101.1 113.8 128.5 144.3 162.5 182.9 206.0Growth % .98% 12.1% 12.2% 14.0% 16.0% 13.0% 13.0% 13.0% 13.0%Sales Revenue is comprised of:1 Identical Store Sales Growth2 New Store Sales Increase in Transactions Increase in Basket Size Average Growth:4%3%7%2012 2013Total Stores 334 364Opened stores 23 30New StoreGrowth:7% 9%7% 7%14% 16%Total SalesGrowth:Company Market Financial Analysis Value Drivers ValuationRevenue Growth is Strong30
  29. 29. 2009 2010 2011 2012 2013 2014 2015 2016 2017Sales Revenue 80.3 90.1 101.1 113.8 128.5 144.3 162.5 182.9 206.0Growth % .98% 12.1% 12.2% 14.0% 16.0% 13.0% 13.0% 13.0% 13.0%Sales Revenue is comprised of:1 Identical Store Sales Growth2 New Store Sales Increase in Transactions Increase in Basket Size Average Growth:4%3%7%2012 2013Total Stores 334 364Opened stores 23 30New StoreGrowth:7% 9%7% 7%14% 16%Total SalesGrowth:Company Market Financial Analysis Value Drivers ValuationRevenue Growth is Strong31
  30. 30. 2009 2010 2011 2012 2013 2014 2015 2016 2017Sales Revenue 80.3 90.1 101.1 113.8 128.5 144.3 162.5 182.9 206.0Growth % .98% 12.1% 12.2% 14.0% 16.0% 13.0% 13.0% 13.0% 13.0%Sales Revenue is comprised of:1 Identical Store Sales Growth2 New Store Sales Increase in Transactions Increase in Basket Size Average Growth:4%3%7%2012 2013Total Stores 334 364Opened stores 23 30New StoreGrowth:7% 9%7% 7%14% 16%Total SalesGrowth:Company Market Financial Analysis Value Drivers ValuationRevenue Growth is Strong32
  31. 31. Company Market Financial Analysis Value Drivers Valuation92.00%92.50%93.00%93.50%94.00%94.50%95.00%95.50%96.00%96.50%97.00%2009 2010 2011 2012 2013 2014 2015 2016 2017Operating expense as apercentage of revenue3. Operating margin will improve____________________________________________________________33
  32. 32. Company Market Financial Analysis Value Drivers Valuation92.00%92.50%93.00%93.50%94.00%94.50%95.00%95.50%96.00%96.50%97.00%2009 2010 2011 2012 2013 2014 2015 2016 2017Operating expense as apercentage of revenueDecrease inCOGSDecrease inoccupancycosts3. Operating margin will improve____________________________________________________________34
  33. 33. Company Market Financial Analysis Value Drivers ValuationDecrease in COGS3. Operating margin will improve____________________________________________________________35
  34. 34. Company Market Financial Analysis Value Drivers ValuationDecrease in COGSData managementtechnology3. Operating margin will improve____________________________________________________________36
  35. 35. Company Market Financial Analysis Value Drivers ValuationDecrease in COGSData managementtechnologyRelationship withsuppliers3. Operating margin will improve____________________________________________________________37
  36. 36. Company Market Financial Analysis Value Drivers ValuationDecrease inoccupancy costs3. Operating margin will improve____________________________________________________________38
  37. 37. Company Market Financial Analysis Value Drivers ValuationDecrease inoccupancy costsLess expensiveleases on newstores16% increasein profits persq. ft.3. Operating margin will improve____________________________________________________________39
  38. 38. Company Market Financial Analysis Value Drivers Valuation3. Operating margin will improveDecrease inoccupancy costsLess expensiveleases on newstoresRenegotiatingcurrent leases16% increasein profits persq. ft.____________________________________________________________40
  39. 39. Whole Foods is positionedto be very profitable in the futureCompany Market Financial Analysis Value Drivers Valuation______________________________________________________0501001502002502009 2010 2011 2012 2013 2014 2015 2016 2017Sales revenue0.000%2.000%4.000%6.000%8.000%2009 2010 2011 2012 2013 2014 2015 2016 2017Operating margin02004006002009 2010 2011 2012 2013 2014 2015 2016 2017Number of stores0123456782009 2010 2011 2012 2013 2014 2015 2016 2017Free cash flows41
  40. 40. 42MarketFinancial AnalysisValue DriversValuationCompanyValue Drivers
  41. 41. 43Company Market Financial Analysis Value Drivers ValuationHealth conscious living is here to stay$25,000$30,000$35,000$40,000200020032006200920122015Per Capita Disposable IncomePer CapitaDisposableIncomeConventionalRetail GrocersOrganic IndustryGrowth•Low-cost andunhealthy•Older generationrecognizing healthissues•Younger generationfeels littleconnection to retailgrocers•U.S. disposableIncome Increase•Baby Boomers areprioritizing health•83% organicpurchases forhealth reasons•Millennialsincreasing spendingpower•Farmersmarkets 17%growth
  42. 42. 44Whole Foods has cultivated positive imagethat connects with their market segmentCompany Market Financial Analysis Value Drivers Valuation__________________________________________________________Brand Awareness Drivers Program / Initiative•Company aims to increaseCredibility•Prioritize social andenvironmental compassion•Ethical codes / qualitystandards foster positivepublic perception•Committed to providing aunique and freshexperience•Whole Planet Initiative•Whole Kids Foundation•Whole Trade Guarantee•Shopping at Whole Foodsis part of the “organic”experience
  43. 43. 45Whole Foods’ is advantageously situatedin regards to its suppliers• Strong relationships with suppliers•United Natural Foods Incorporated - 31% of whole foods supplies•Whole Foods has developed a “buying backwards” supply strategy•Allegro, Bread of Life, Fresh & Wild•Effective distribution infrastructure•Whole Foods has increased relationships with local suppliers•Project: LocalCompany Market Financial Analysis Value Drivers Valuation_____________________________________________
  44. 44. 46Risks to consider____________________________Risks ResponseNew entrants Brand image and marketexperienceLarger competitors’ pressure onsuppliersGood relationship with suppliersLow switching costs of consumers Brand image and marketexperienceSensitivity to governmentregulation and environmentalfactorsKnowledgeable and responsiveImportance of brand image Good understanding and historyCompany Market Financial Analysis Value Drivers Valuation
  45. 45. 47MarketFinancial AnalysisValue DriversValuationCompanyValuation
  46. 46. Scenario analysis suggests stock price valuecould fall between $82-206 per sharePessimistic Base OptimisticRevenue Growth Rate 9% 13.1% 17 %Weighted Average Cost ofCapital6% 5.2% 4.4%Perpetuity Growth Rate 1.4% 1.8% 2.3%Equity Value Per Share $82.18 $120.39 $206.10Current Share Price $95.76_____________________________________________________________________________________________________________________________________________Company Market Financial Analysis Value Drivers Valuation 48
  47. 47. 49Whole Foods is undervalued by 25%; werecommend an acquisition at $120 per share• Expand in customer demand• Cultivated strong brand loyalty• Well-positioned, giving an operational advantage_________________________________________________________________Company Market Financial Analysis Value Drivers Valuation
  48. 48. Appendix501.Company (53-56)2.Market (57-60)3.Financial Analysis (61)
  49. 49. Appendix - History– completed a stock merger with allegro coffee in 1997– opened in Manhattan in 2001 with a 30,000 squarefoot store– 2002-2011 expanded into the UK and Canada– launched a premium body care line in 2008– what started as a small natural foods store with aninitial investment of $45,000 has become ablossoming company, who placed in the top 100 ofForbes magazine top companies for its 14thconsecutive year51
  50. 50. Appendix-Matrix• Whole Foods has an established consumerbase already, as depicted by the matrix above• successfully targeted Health Consciousconsumers with high income and a highwillingness to pay• they have used this market share to theiradvantage, as it has become an extremelyprofitable segment to target52
  51. 51. Appendix-Matrix• in the future, they hope to target lower income familiesand individuals who are still health conscious (organic andnatural food-sensitive purchasers)• they have moved towards this with various initiatives, mostprominently their Whole Deal Program, which seeks– value guide available in all stores featuring coupons and budgetconscious recipes with money saving shopping and cooking tips• issue deals which highlight everyday value pricing on high qualityproducts– farm to fork traceability allows customers to make moreinformed decisions• Whole Foods targets its locations specifically by an area’sdemographics– company targets locations specifically where 4053
  52. 52. Whole Foods has focused on providingorganic products at lower pricesWhole FoodsMarket365EverydayValue(through varioussuppliers)Whole FoodsMarket(private label)Control brands(e.g. Columbia RiverOrganics)Subsidiaries(e.g. Allegro CoffeeCo.)Products(perishables, householdsupplies, body care, etc.)____________________________________________________________11% of Whole Foods’revenue in 2010 and 2011Private label products inthe U.S. experiencingincreasing popularity54
  53. 53. Kroger19%Safeway8%Supervalu6%Publix5%Whole Foods2%Other60%Supermarket Market Share• Low switching costsfor consumers• Limited differentiationSupermarket industry remains verycompetitive____________________________________________________________55
  54. 54. Whole Foods Locations56
  55. 55. 57Whole Foods Foreign Growth
  56. 56. European MarketDecrease in GM Food Production2010: Over 148m hectares of GM crops planted in 29 countries-America largest with 66.8 hectares (2.8 more than 2009)-European countries subject to severe restrictions for growing GMcrops• With a properbusinessmodel, European marketshowspotential forlarge profits.• HigherDemand forqualityfood/greaterrestrictions58
  57. 57. Financial Analysis2009 2010 2011 2012 2013 2014 2015 2016 2017Sales Revenue 80.3 90.1 101.1 113.8 128.5 144.3 162.5 182.9 206.0Growth % .98% 12.1% 12.2% 14.0% 16.0% 13.0% 13.0% 13.0% 13.0%Operatingexpense 77.4 85.6 95.6 107.2 120.5 135.5 152.5 171.6 193.1Percent ofRevenue 96.4% 95.1% 94.6% 94.2% 94.0% 93.90% 93.85% 93.80% 93.75%Net Income 1.6 2.6 3.4 3.9 4.6 5.2 5.9 6.8 7.7Working Capital 2.3 2.4 2.8 3.2 3.7 4.0 4.5 5.1 5.7CAPX 3.2 2.6 3.6 3.9 4.3 4.7 5.1 5.5 5.9Stores indevelopment 53 52 62 70 80 85 86 88 90Opened stores 15 16 18 23 30 33 34 34 35Total Stores 284 299 311 334 364 397 431 465 500Free Cash Flows 1.5 2.6 2.3 3.0 3.8 4.7 5.3 6.3 7.459

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