Whole Foods Financial Analysis

Whole Foods Financial Analysis

Abstract

The following undergraduate paper is an evaluation of the public company Whole Foods Market Inc. from a financial perspective for the purpose of determining whether or not this company is a sound investment. In making this determination, several factors are considered. First, a company overview, including its history and brief biography of its Co-CEOs, is provided to gain insight and an understanding of where the company came from, where it stands currently, and the direction it is going. Second, a comparison of key financial ratios between Whole Foods and their three primary competitors- Safeway, Costco and The Kroger Co. is made to determine the fiscal health and stability of the company from an industry average standpoint. In conducting this analysis, six basic financial analysis metrics are used to determine the performance of the company: P/E Ratio, Free Cash Flow Ratio and Profit Margin, as well as Inventory Turnover, Sales per Square Foot and Current Ratio, which are especially important ratios when looking at the service sector, specifically retail (The Retail Owners Institute). Finally, subsequent to this analysis, a risk analysis is conducted, including an evaluation of the company’s beta coefficient in comparison to those of its competitors to determine if there is an acceptable level of risk associated with this investment.

Company History

Whole Foods Market Inc. was founded in Austin, Texas by John Mackey, Rene Hardy, Craig Weller and Mark Skiles in 1980. Mackey and Hardy had started a grocery business named SaferWay in 1978 with a $45,000 loan from friends and family. In just two years, they turned it into one of the most successful grocery stores in Austin, generating over $1 million in annual revenue out of a humble space of just 1,100 square feet. In 1980, they partnered with Craig Weller and Mark Skiles, owners of Clarksville Natural Grocery, another Austin-based grocery store specializing in natural foods. The two companies joined forces and merged to form Whole Foods Market Inc. and opened their first store in September of 1980. The company enjoyed almost instant success as this market was virtually untapped with less than half a dozen natural food grocery stores in the country (Whole Foods Market). In 1984, the company began to expand; opening stores in Dallas, Houston and New Orleans and then went to the West Coast, opening a store in Palo Alto, California in 1989.

During the 1990’s, Whole Foods continued to open stores from the ground up, but also made several key acquisitions of competitors and went public (NASDAQ: WFM) with an IPO of $2.13 in January of 1992. The new millennium saw Whole Foods go global, expanding to Canada in 2002 and then into Europe, when they opened seven stores in the United Kingdom in 2004. Then in