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Whole foods market inc


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Whole Foods Market Profile

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Whole foods market inc

  1. 1. Whole Foods Market Inc.550 Bowie St.Austin, TX 78703,United StatesPhone: 512-477-4455Fax: 512-482-7000http://www.wholefoodsmarket.comIncorporated in TexasStores in 38 US states and Canada. California alone has sixty stores, with the totalnumber of stores at 2992010 Sales: % of TotalGrocery: 33Prepared Foods: 19Other Perishables: 48Whole Foods MarketsSelected Product Categories: Bakery Body care Educational products Floral Grocery Household products Meat and poultry Nutritional supplements Pet products Prepared foods Produce Seafood Specialty (beer, wine, cheese) TextilesMorningStarWhole Foods closed out fiscal 2010 on a strong note, and positive momentum is onits side. Comparable-store sales growth increased 7.1% last fiscal year, andoperating margin improved 1.4 percentage points. The bounceback was muchstronger than we anticipated, and we believe this speaks to the firms knack for
  2. 2. innovation and brand strength. However, we believe delivering consistent resultswill be difficult for the firm even as the domestic economy recovers.Whole Foods Market is the largest U.S. retailer of natural and organic foods. The firmoperates about 300 stores in the United States, Canada, and England. The stores sellhigh-grade conventional and organically grown produce and grocery products;environmentally safe household items; meat, poultry, and seafood free of growthhormones and antibiotics; bakery goods and takeout meals; and vitamins,homeopathic remedies, and body-care products.Hoovers:http://www.wholefoodsmarket.comWith food and other items that are free of pesticides, preservatives, sweeteners, and cruelty, Whole FoodsMarket knows more about guiltless eating and shopping than most retailers. The worlds #1 natural foodschain by far -- now that it has digested its main rival Wild Oats Markets -- the company operates about 300stores in 38 US states, as well as in Canada and the UK. The stores emphasize perishable products, whichaccount for about two-thirds of sales. Whole Foods Market offers some 2,200 items in four lines of private-label products (such as the premium Whole Foods line). Founded in Austin, Texas, in 1980, WholeFoods Market pioneered the supermarket concept in natural and organic foods retailing.Bulls Say MORNING STARWhole Foods possesses a strong brand that resonates with consumers not only seeking a high-qualityshopping experience, but also desiring stores that deliver on demands for health and wellness, premiumfresh foods, and environmental friendliness.Even with the less productive Wild Oats stores and weak same-store sales, Whole Foods generated around$760 in sales per square foot in 2009, significantly higher than that of the average supermarket.According to Natural Foods Merchandiser, sales of organic products increased 17.1% from 2007 to 2008.Whole Foods has plenty of room remaining to grow as it improves its density in large markets and expandsfurther into secondary markets.Read LessBears SayWhole Foods has a much wider customer base than it had during past economic downturns, and its top lineis proving to be much more sensitive to economic conditions.Unlike low-price leaders such as Wal-Mart WMT, Whole Foods dominates because of its brand image,which is trickier to manage and less impervious to competitive threats.The company has a high-price image among some consumers that may limit its long-term growth potential.Conventional grocery chains such as Safeway SWY have remodeled stores at a rapid clip and attempted tonarrow the gap with premium grocers like Whole Foodsin terms of shopping experience, product quality,and selection of takeout foods.In August 2007 Whole Foods acquired its main competitor -- Boulder, Colorado-based Wild Oats Markets-- in a deal valued at about $565 million (plus $106 million in debt). In early October the company sold 35
  3. 3. Henrys Farmers Market and Sun Harvest stores to a subsidiary of Los Angeles-based Smart & Final forabout $166 million. The stores, in California and Texas, were acquired with Wild Oats.The company launched a bi-monthly magazine called Whole Foods Market Magazine at its midwesternstores in 2008. On the heels of its disappointing third-quarter results in August 2008, shares of thecompanys stock fell to a six-year low and Whole Foods suspended its dividend. Blaming the pooreconomy, the company announced the layoffs of some 50 employees at its Austin headquarters in August2008. Overall, in fiscal 2008 the company introduced about 300 new private-label items.For the first time in its 29-year history, Whole Foods reported negative same-store sales in the quarterended December 2008 as traffic in its stores fell.In March 2009 the company reached a settlement in its long-running dispute with the FTC over itsacquisition of Wild Oats in 2007. Whole Foods agreed to sell 32 stores, including 19 Wild Oats locationsthat had already been closed. In exchange, the FTC dropped its crusade to undo the merger. In December2009 John Elstrott was named chairman of Whole Foods Market after Mackey voluntarily relinquished thechairmanship, which he had held since 1980. In May 2010 Walter Robb, formerly co-president ofthe company, was promoted to co-CEO of Whole Foods, a title he now shares with Mackey.In another move to put its troubles behind it, in late 2009 Whole Foods enigmatic founder, vegan-capitalistJohn Mackey, voluntarily relinquished the chairmans title to lead director John Elstrott. (The move cameabout two years after the companys shareholders proposed splitting the offices of chairman and CEO.) InMay 2010, the board promoted Walter Robb to co-CEO, a job he now shares with Mackey. By steppingdown as chairman, Mackey put a difficult and embarrassing chapter in his companys history behind it,including an investigation by the US Securities and Exchange Commission over his use of a fake onlineidentity and a battle with the Federal Trade Commission (FTC) over the Wild Oats takeover.Green Equity Investors owns about 10% of Whole Foods Market.Amounts are as of Dec 31, 2010 and compensation values are for the last fiscal year ending on that date. Pay is salary, bonuses,etc.Exercised is the value of options exercised during the fiscal year.Currency in USD.Mr. John P. Mackey , 58Co-Founder, Co-Chief Exec. Officer and Director 45.00K 77.00KMr. Walter Robb , 57Co-Chief Exec. Officer and Director751.00K 95.00KMr. A. C. Gallo , 58Pres and Chief Operating Officer 751.00K 139.00KAssociated NAICS Codes445210 Meat Markets445220 Fish and Seafood Markets445230 Fruit and Vegetable Markets445291 Baked Goods Stores445292 Confectionery and Nut Stores445299 All Other Specialty Food StoresAssociated SIC CodesHelp5421 Meat and fish markets5431 Fruit and vegetable markets5441 Candy, nut, and confectionery stores5451 Dairy products stores5461 Retail bakeries
  4. 4. NAICS CodesHelp445230 Fruit and Vegetable Markets445299 All Other Specialty Food Stores (primary)US SIC CodesHelp54110000 Grocery stores (primary)The US retail grocery industry includes about 65,000 supermarkets and othergrocery stores with combined annual revenue of about $470 billion. Majorcompanies include Kroger, Safeway, and SUPERVALU as well as Ahold, the USdivision of Netherlands-based Royal Ahold. The industry is concentrated: the 50largest companies generate about 70 percent of revenue.What are the companys biggest cost-savings opportunities in the supply chain? Because grocery retailing is generally a high volume/low margin business, effective supply chain management is key to keeping costs low.Who are the companys most important suppliers? While large companies buy directly from manufacturers, small chains and independent retailers rely on wholesalers. Depending on product mix, companies may buy from many distributors and use food brokers.What trade programs have been the most effective for the company? Volume discounts allow big chains to keep prices low. Manufacturers typically offer additional trade funds, which allow grocery stores to discount or promote certain products without sacrificing margins.Competition from Alternative Retailers — As alternative retailers realized thetraffic-driving power of food sales, the competitive set for grocery stores expandedand the battle over food dollars became more intense. By buying in enormousvolume, mass merchandisers and warehouse clubs have become low price leaders:Wal-Mart is the largest food retailer in the US and holds an estimated 30 percent ofthe grocery market, according to Janney Capital Markets. In addition, time-starvedconsumers are spending a greater percentage of food dollars away from home atrestaurants. Take-out food has helped restaurants cut into grocery stores share ofthe food market.S&PWhole Foods Market21-Oct-11• Nasdaq National Market Symbol WFM•In S&P 500Business SummaryCORPORATE OVERVIEW. Whole Foods Market, established in 1980, has grown into the largest U.S.retailer of natural and organic foods, with $9.0 billion in sales in FY 10 (Sep.). Reflecting a series of storeopenings and acquisitions, the company has expanded from a single Austin, TX, store in 1980 to a chain ofabout 300 stores in 37 states plus Washington, DC, Canada, and the United Kingdom. The company strivesto differentiate its stores from those of its competitors by tailoring its product mix, customer service attitudeand store environment to appeal to health conscious and gourmet customers.CORPORATE STRATEGY. The company opens or acquires stores in existing regions, and in metropolitanareas in which it believes it can become the leading natural foods supermarket retailer. In developing new
  5. 5. stores, WFMs seeks to open large format units of 35,000 sq. ft. to 50,000 sq. ft., located on premium sites,often in urban, highly populated areas. Although approximately 30% of its store base consists of acquiredstores, the company expects more of its future growth to come from developing new stores. As ofDecember 2010, WFMs had signed leases for 56 stores averaging approximately 37,800 square feet in size,which is about 0.3% larger than its existing store base average. It operated about 11.4 million square feet ofretail space, and had about 2.1 million square feet (18.7% of existing sq. ft.) of retail space underdevelopment at December 2010.Stores average about 37,600 sq. ft., and offer a selection of some 30,000 food and non-food products. Eachstore contributes an average of almost $31 million in annual sales and averages about 8.1 years old.Products sold include natural and organic foods and beverages; dietary supplements; natural personal careproducts; natural household goods; and educational products. Natural foods can be defined as foods that areminimally processed, largely or completely free of artificial ingredients, preservatives and other non-naturally occurring chemicals, and as near as possible to their whole, natural state. Organic foods are basedon the minimal use of off-farm inputs and on management practices that restore, maintain and enhance theecology.Hoovers: Top Competitors:Company/Gross Revenue/ Net Profit Margin/ Net Operating Cash FlowWhole Foods: 9,005.79 Millions 3.30%Kroger: 82,189.oo M 1.37%Safeway 41,050.00 M 1.44%Trader Joe’s – Privately Owned: Hoovers> Trader Joes> Company OverviewXTrader Joes CompanyMonrovia, CA United StatesThis company is covered by Alexandra Biesada. (bio)Company Description800 S. Shamrock Ave.Monrovia,CA 91016,United StatesPhone: 626-599-3700Fax: 626-301-4431http://www.traderjoes.comWhen it comes to grocery chains, Trader Joes isnt your average Joe. With about 350 stores in some 25states, the company offers upscale grocery fare such as health foods, organic produce, and nutritionalsupplements. To keep costs down, its stores have no service departments and average about 10,000-15,000sq. ft. The companys specialty is its line of more than 2,000 private-label products (70% of sales),including beverages (its signature Charles Shaw brand wine sells for $2 a bottle), soup, snacks, and frozenitems. Started by Joe Coulombe as a Los Angeles convenience store chain in 1958, the company wasbought in 1979 by German billionaires Karl and Theo Albrecht, who founded the ALDI food chain.The US specialty food store industry includes about 25,000 stores with combinedannual revenue of $20 billion. Major companies include Whole Foods Market and
  6. 6. Trader Joes. The industry is fragmented: the 50 largest companies account for 15percent of sales.Hoovers:Basic Financial Information Public Company Type NASDAQ: WFM Headquarters Fiscal Year-End September Financial Filings SEC 2010 Sales $9.01B 1-Year Sales Growth 12.13% 2010 Net Income $245.83M1-Year Net Income Growth 67.46% Prescreen Score Low Risk Auditor Ernst & Young LLPWhole Foods .comMergers/Acquisitions: Whole Foods Market Whole Food Company Wellspring Grocery Bread & Circus Mrs. Goochs Fresh Fields Bread of Life Amrion Merchant of Vino Allegro Coffee (e-commerce subsidiary) Natures Heartland Food for Thought Harrys Farmers Market Select Fish Fresh & Wild Wild Oats© Markets From 2010 Annual SEC filing 10k We have one operating segment, natural and organic foods supermarkets. As of September 26, 2010 we operated 299 stores in the United States, Canada, and the United Kingdom. Our stores average 37,600 square feet in size and nine years in age, and are supported by our Austin headquarters, regional offices, distribution centers, bakehouse facilities, commissary Products
  7. 7. We offer a broad and differentiated selection of high-quality natural and organic products with a strong emphasis on perishable foods. Our product selection includes, but is not limited to: produce, seafood, grocery, meat and poultry, bakery, prepared foods and catering, specialty (beer, wine and cheese), coffee and tea, nutritional supplements, vitamins, body care and educational products such as books, floral, pet products and household products. We estimate our stores carry on average approximately 20,500 SKUs. kitchens, seafood-processing facilities, meat and produce procurement centers, and a specialty coffee, tea brewing operation. Our Quality Standards We aspire to become an international brand synonymous with not just natural and organic foods, but also with being the highest quality food retailer in every community in which we are located. We believe our strict quality standards differentiate our stores from other supermarkets and enable us to attract and maintain a broad base of loyal customers. Store Brands Our store brands currently feature approximately 2,200 SKUs led by our primary brands, 365 Everyday Value and 365 Organic. While some of our store brands yield greater margins than their national brand alternative, their primary purpose is to help differentiate our product selection and provide more value offerings to our customers. In addition to our nationally driven programs, we have a number of store- made and regionally made fresh items sold under the Whole Foods Market label; we offer specialty and organic coffee, tea and drinking chocolates through our Allegro Coffee Company subsidiary, and we have developed a grouping of “exclusive” and “control brand” products to fill out our family of brands. Total sales of store- branded products across all categories were approximately 11% of our retail sales in both fiscal years 2010 and 2009.SeasonalityThe Company’s average weekly sales are typically highest in the second and third fiscal quarters and lowest inthe fourth fiscal quarter. Gross profit is typically lower in the first fiscal quarter due to the product mix of holidaysales, and in the fourth fiscal quarter due to the seasonally slower sales period during the summer months.Growth Strategy We are a Fortune 500 company, ranking number 284 on the 2010 list. Our sales have grown rapidly due to historically high identical store sales growth, acquisitions, and new store openings from approximately $92.5 million in fiscal year 1991, excluding the effect of pooling-of-interests transactions completed since 1991, to approximately $9.01 billion in fiscal year 2010, a compounded annual growth rate of approximately 27%. Economic Conditions The global economic crisis adversely impacted our business and financial results in fiscal year 2009. Our results of operations may be materially impacted by changes in overall economic conditions that impact consumer confidence and spending, including discretionary spending. There can be no assurance that various governmental activities to stabilize the markets and stimulate the economy will restore consumer confidence or change spending habits. Future economic conditions affecting disposable consumer income such as employment levels, business conditions, changes in housing market conditions, the availability of credit, interest rates, tax rates, fuel and energy costs, the impact of natural disasters or acts of terrorism, and other matters could reduce consumer spending or cause consumers to shift their spending to lower-priced competitors.Competitive Environment Our competitors include but are not limited to local, regional, national and international supermarkets, natural food stores, warehouse membership clubs, small specialty stores and restaurants. Their businesses compete with us for products, customers and locations. In addition, some are expanding more aggressively in marketing a range of natural and organic foods. Some of these potential competitors may have been in business longer or may have greater financial or marketing resources than we do and may be able to devote greater resources to sourcing, promoting and selling their products. As competition in certain areas intensifies, our results of operations may be negatively impacted through a loss of sales, reduction in margin from competitive price changes, and/or greater operating costs such as marketing.
  8. 8. Discrepency between S & P, Hoovers, Morning Star who say that the ticker is WFM,While the webiste says that it’s WFMI5 Yr S& P chartInvestment Rationale/Risk August 01, 2011 more > Joseph AgneseFood Retail We believe the adoption of a new pricing strategy, increased lower-priced (value) product offerings, and the re-acceleration of square footage expansion in an improving economic environment will lead to above-average industry sales growth levels in FY 11 and beyond. Longer term, we expect the company to utilize free cash flow to pay off remaining debt. Risks to our recommendation and target price include lower-than-expected comparable-store sales growth on weaker-than-expected consumer demand and a slowdown in economic growth, with particular weakness for high-income individuals.Analysts Highlights more > Joseph AgneseFood Retail We expect FY 12 (Sep.) sales to increase 14% to $11.5 billion, from our estimate of $10.1 billion in FY 11, reflecting square footage growth of 7.5% from the opening of up to 25 net new stores, and as an increased selection of low-priced products and food inflation result in a comparable-
  9. 9. store sales advance of about 8.5%. We look for comparable-store sales to continue to be driven primarily by greater traffic due to favorable industry demand for natural and organic foods and as increased value offerings lure lower-income shoppers to stores. We believe margins will expand in FY 11 and FY 12, reflecting increased operating leverage and distribution efficiencies, despite our projection for a rise in new store opening costs as the company re-accelerates new store expansion. We see improved inventory management leading to lower shrink expense and contributing to increased labor productivity. We expect net interest income to rise in FY 11 and FY 12 due to the elimination of long-term debt and increased investment income. We project that FY 12 EPS will increase 17%, to $2.25, from our estimate of $1.92 in FY 11.Investment Rationale/Risk August 01, 2011 We believe the adoption of a new pricing strategy, increased lower-priced (value) product offerings, and the re-acceleration of square footage expansion in an improving economic environment will lead to above-average industry sales growth levels in FY 11 and beyond. Longer term, we expect the company to utilize free cash flow to pay off remaining debt. Risks to our recommendation and target price include lower-than-expected comparable-store sales growth on weaker-than-expected consumer demand and a slowdown in economic growth, with particular weakness for high-income individuals. Due to a stronger-than-expected rebound in comparable-store sales results in the first nine months of FY 11, we believe the stock should trade about in line with its seven-year historical P/E multiple of 33.5X. This P/E multiple is 2.4X the P/E multiple we project for the S&P 500, representing a 15% premium to its seven-year average premium of 2.1X. Applying a 33.5X multiple to our FY 12 EPS estimate of $2.25 results in a share value of $75, which is our 12- month target price.INDUSTRYWe think acceleration in food price inflation in 2011 may adversely affect marginsas consumers trade down and become increasingly sensitive to buying onpromotion to avoid higher prices. However, given only a moderate level of inflationthrough the first half of 2011, we believe an improved economic environmentresulted in improved transaction sizes and led to a reduction in pricing competition.Best positioned retailers include those who cater to high income and low incomedemographics, in our opinion. Consumer spending from higher income customershas remained at elevated levels in 2011. Additionally, discount retailers havebenefited from increased traffic as consumers trade down from traditional retailers.Financials from S & P 2010-2005LT Debt 508 739 929 736 8.6 12.9Total Cap. 2,882 2,780 2,435 2,195 1,413 1,379Total Assets 3,987 3,783 3,381 3,213 2,043 1,889Net Inc. 246 147 115 183 204 136Revenues (Million $) for Fiscal Year Ending Sep. 2011 2010 2009 2008 2007 2006 20051Q 3,004 2,639 2,466 2,457 1,871 1,667 1,3682Q 2,351 2,106 1,858 1,866 1,463 1,312 1,085
  10. 10. 3Q 2,400 2,163 1,878 1,841 1,514 1,338 1,1334Q N/A 2,097 1,829 1,789 1,743 1,291 1,115Year N/A 9,006 8,032 7,954 6,592 5,607 4,701Earnings Per Share ( $) for Fiscal Year Ending Sep. 2012 2011 2010 2009 2008 20071Q E0.59 0.51 0.32 0.20 0.28 0.382Q E0.56 0.51 0.39 0.19 0.29 0.323Q E0.57 0.50 0.38 0.25 0.24 0.354Q E0.53 E0.41 0.33 0.20 0.01 0.24Year E2.25 E1.92 1.43 0.85 0.82 1.29