Whole Foods Inc.
In summer of 2015, I attended the Bridge Program at Dartmouth's Tuck School Of Business: a highly selective four week intensive program taught by MBA faculty where I gained a strong foundation in economics, accounting, spreadsheet modeling, marketing, and strategy, among other topics.
For the capstone project, my team and I did a valuation analysis on Whole Foods Market, Inc. (WFM) and presented our findings to corporate executives
Valuation
What are we looking at?
What are we looking at?
During the research phase it became clear that the principal influence on Whole Foods' future was the increased competition the growing organic foods market, creating a downward pressure on the price of goods.
What does that mean for WFM?
What does that mean for WFM?
Whole Foods was (and is) positioned as the the most expensive organic foods retailer in the market which was likely to their overall disadvantage as 79% of organic food consumers identified price as the defining factor in their purchasing decision. That being said, although the gross annual profit was increasing, the rate at which it was increasing was decreasing at a compound annual growth rate (CAGR) of 0.52%. Thus, we looked at opportunities to possibly reduce costs of goods sold (COGS) as a factor in the price difference with its competitors, but later discovered that WFM already pays the least.
But, can they expand?
In spite of the increased competition in the market slowing WFM's store sales growth rate, they intended to increase the rate at which they open stores by a CAGR of 2%. However, we expect that it will be challenging to find places to open stores that avoid cannibalization and fit its extensive list of requirements.
Valuation
For the valuation, we saw how major costs are anticipated as a function of revenue, and that capital expenditures and revenue are expected to grow with the anticipated expansion. For this reason we valued WFM at 30$/share, making COGS the most influential component on WFM value per share.
More work
