Whole Foods Final Report - Whole Foods Market The Deutsche Bank Report FBE 421 Question 1 Review Case Exhibit#7 Do you believe that the forecasted

Whole Foods Final Report - Whole Foods Market The...

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Whole Foods Market: The Deutsche Bank ReportFBE 421 Question 1: Review Case Exhibit #7. Do you believe that the forecasted return on capital (ROC) is optimistic, pessimistic, or just right? We believe that the forecasted return on capital for Whole Foods is optimistic for the followingreasons: -Forecasted store growth for 2014 and 2015 is much higher than it was between 2011 -2013. -2015 sales growth seems a bit high, despite the 15.7% sales growth in 2012. Thecompany may have done something that caused a temporary increase in sales growth.ROC could be inflated for the 2014 and 2015 forecast. Sales grew by 10.41% between2012 and 2013 and was forecasted to grow by about 11% between 2013 and 2014. The11% increase in sales was a bit aggressive because sales growth decreased by 5% from15% to 10% between 2012 and 2013. Having inflated sales inflates ratios such asNOPAT, EBIT, and Taxes, but does not do anything to depreciation. This in turn leavesthe forecasted financial statement’s ROIC and net income to be higher than it should havebeen. -The analyst should have projected the sales growth to be somewhere between 5%-10%.As there were new market entrants to the natural and organic sector such as currentgrocery stores who began to sell more natural and organic foods, it is only logical forthem to take part of the market share and decrease Whole Foods’ market share. Question 2: Does Whole Foods have a track record of success? If so, what is the evidence?Since its inception, Whole Foods has had a track record of success as a company, constantlygrowing, profiting, and establishing itself as the market leader within its category of natural andorganic groceries. Despite working in a low-growth industry, Whole Foods sustained growththrough the 90s and 2000s by increasing store count and store sales. For instance, since 2010same-store sales have grown by at least 7%, which is far above any other established grocer.Moreover, Whole Foods has also achieved higher margins compared to competitors, “EBITDAmargins for Whole Foods, Sprouts, and Fresh Market respectively are 9.5%, 7.7%, and 9.1%.

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