Whole Foods Market Cash Flows Statement Analysis

Case #4: Class 4 Financial Analysis of Whole Foods Markets

Names:  Katherine Aguilar, Missy Fiesler, Stuart Lewis, Lindsey Ratcliff and Dalia Seidner

Part A.

The goal of this case is to use tools and information to analyze and understand the historical performance of Whole Foods Market (ticker WFM) from 2006 through 2013 in order to know what happened to them and why—to tell the story of WFM.  

Familiarize yourself with the amounts, changes, inflows, outflows, and trends in Cash Flows over this period: Answer the following with a few complete and concise sentences.

Determine and discuss your specific reason (2-3 sentences each) for your belief of the three primary uses of cash for WFM over this period. Briefly note whether you agree with these uses of cash for WFM. (You cannot provide more than three items for this answer.)  

The first and largest use of cash is development costs of new locations. Whole Foods growth strategy during this period was quick expansion, which means increased use of cash for investing activities. Transferring some cash to store expansion created increased value for stakeholders.

The second use of cash is for dividends paid. The company paid higher dividends in 2006, which declined significantly from 2007-2008. No dividends were paid in 2009 and 2010 likely due to a slow economy. Dividends paid gradually decreased in 2011 and 2012 and increased significantly again in 2013.

The last primary use of cash is for long term debts and capital leases which is a result of the company’s store development and expansion strategy. Regardless of meeting sales targets each quarter, the company’s lease obligations will exist and must have cash on hand to pay.

Examine how WFM changed its dividend policy in 2009. Discuss what you believe is the most likely explanation (that is, realistic and likely for WFM) for this choice.

Whole Foods acquired Wild Oats Market for $565 million in 2007 and the economy began to slow in 2008. Because of this, cash was limited. At this time, the company decided to forgo paying dividends to stockholders in 2009. Whole Foods will pay debtors and preferred stockholders before paying common stock holders. Since this was difficult economic times, the company cut common stock dividends paid since they are not required to pay out dividends.

Determine and discuss your specific reason (1-3 sentences) for your belief of the primary source of financing for WFM over this period.  

The primary source of financing was through issuance of common stock. In 2009 Whole Foods issued $4 million worth of common stock which increased to as much as $370 million in 2012.

Assess WFM’s operating cash flows in 2009 and 2010. Which year is better? Why? What are the main underlying drivers of any differences?  

Although minimal, Whole Foods had higher cash flows in 2009 than in 2010. At this time, the company was likely working hard to pay off debt and pay dividends to stockholders.