whole food market
...% of its total national power load from green power sources. Currently, some Whole Foods Market stores are using 100% green power while others, such as the Berkeley store, have solar panel to create renewable electricity on site. (Argus Analyst Report) According to the Austin Business Journal, Whole Foods Market may stop selling live lobsters if they can’t find a more human way to buy and sell them. Because of their commitment to animal compassionate standards, the firm wants to eliminate and avoid any unnecessary suffering as much as possible. One way to help resolve the issue is by reducing the time from boat to shopping cart to avoid the long term capture that many lobsters bear. (Bizjournal.com) Earnings and Growth Analysis According to the 2005 Argus Research company, Whole Foods Market’s second quarter net sales grew 20% to $1.1 billion from $900 million in the second quarter last year. Moreover, other comparable retailer’s sales grew 11.6% within the same period. The Earning per share for the second quarter were $0.61 compared to last year’s first quarter was $0.54 (17% increase) and net income for the first quarter 22% to $42 million. (Argus Analyst Report) According to management, the firm is expanding into additional markets and new supermarkets are opening with higher sales volume than the existing ones. To illustrate this fact, new stores have been averaging $598,000 in weekly sales while other stores average $539,000. In the same quarter, the company opened 40 stores resulting in 5.4 million in square footage in operation. One of the new stores include the firm’s largest supermarket in Austin, Texas with 80,000 square foot. This store is almost like a shopping mall which includes a parking lot of over 1,000 parking spots and sit-down eating areas for customers. (Argus Analyst Report) During the second quarter, the firm has signed seven new store leases averaging 50,000 square feet each. With 59 stores and 3.1 million square feet under development, the firm has made an increase of 41% in square footage under development from last year. According to Mr. Mackey, CEO of Whole Foods Market, the firm is mainly concentrating on increasing its square footage rather than expanding its number of stores and is goal is to increase it by 15% a year. Moreover, his ultimate future goal will be to relocate some of the older stores with less than 30,000 square feet. (Argus Analyst Report) According to Lee Valkenaar, WFMI’s executive VP of Retail Support, the Whole Foods private label brands is doing very well with the Whole Catch frozen fish filet, 365 brand crackers,, cereal, and tortilla chips. Although food retailers increase their gross margin with their private labels, Mr. Mackey said that his goal with the private label is mainly to increase the firm’s brand image rather than increasing its gross margin. (Argus Analyst Report) In the year 2005, the firm is expected to open between 15 and 18 new stores with cost ranging between $9 to $11 million in the second half. According to management, the sales growth is expected to be higher than the EPS growth. As of today, the firm is maintaining the non-GAAP EPS forecasts at $2.40 for the 2005 fiscal year (12% increase) and expects to be $2.85 for the fiscal year of 2006 (19% increase). (Argus Analyst Report) Corporate Governance According to Yahoo Finance, Corporate Governance Quotient is better than 32.7% of S&P 400 companies and 59.1% of Food & Staples Retailing companies. (Yahoo Finance) Company’s risks Competition is one of the main risks for Whole Foods Market, as more food retailers are introducing natural/organic products in their stores. Whole Foods Market’s direct competitors are Wild Oats Market and Wegmans which have been rapidly expanding over the past year. Moreover, other traditional supermarkets have larger consumer bases and greater financial resources for sourcing. Another type of competition could be caused by other channels. Since many Americans consume more meals outside of the home, organic restaurants could emerge at a fast rate especially if the organic market continues to grow. Whole Foods Market has been able to stay union free however there have been many efforts by unions to organize certain supermarkets therefore the unionization of Whole Foods’ workers is a possible threat to the company’s profitability. People buy natural/organic products for health and longevity benefits; however, there could be a risk if scientific studies show that organic product has no impact on health hence decreasing the popularity of organic food. The main concern about the firm is its growth strategy based on expanding new store growth and expansion into new markets, which might have a negative impact due to competition and a lack of attractive markets. Whole Foods Market is currently trading for high multiples; however the current stock price may be discounting the positive earnings drive at the company. According to Robblack, risk to the stock can be affected by a decrease in consumer demand for premium priced organic products due to declining consumer feeling associated to the weak economy. Another risk to the stock could be the margin reduction or lost in sales on selected products due to pricing pressure from conventional supermarkets. (Robblack’s Finance 101) Wild Oats Market Inc Industry Wild Oats Market is the second largest store in the United States that specializes in natural/organic products. According to the Datamonitor analysis, the U.S organic industry is expected to achieve $30.7 billion by 2007, with a five-year compound annual growth rate of 21.4% between 2002 and 2007. Moreover, according to the Natural Foods Merchandiser, sales of natural products reached $20.5 billion in 2003, where $4.3 billion was achieved by Whole Foods Market and Wild Oats Market. (Argus Analyst Report) In 2003, the case of “mad cow disease” in the United States influenced more consumers to buy more organic products which benefited the natural and organic market. Moreover, the industry has gained more market share as people are trying to be healthier by improving the quality of their diet and turned away from low-carb products. (Argus Analyst Report) Meanwhile, other retailers such as Fred Meyer and Albertsons are starting to incorporate a natural/organic section in their supermarkets. Comparison of Natural food retailers and Traditional groceries Natural Food Traditional grocery Industry growth 5% to 8% 0% to 2% Customer Profile - Highly educated - Upper income - Informed & committed - Will pay higher price for health - Spans the socioeconomic continuum - Non-committed to a particular store - Value driven Pricing - Premium - Highly promotional - Deflationary in selected categories Gross Margins 30% - 50% 25% - 30% Source: www.wildoatsmarket.com Company profile Wild Oats Market was established in 1987 in Boulder, Colorado with the purchase of Chrystal Market, a vegetarian only food store. At the time, the founders had no previous experience in the natural/organic market and had to rely on the wealth of natural product knowledge and on their employees’ experience. (Wild Oats Market.com) In 1991, Wild Oats Market opened its first supermarket in Santa Fe, New Mexico and renamed Chrystal Market to Wild Oats Vegetarian Market. In 1993 and 1994, the firm was voted one of the “500 Fastest growing Private Companies in America” by Inc. magazine. With a rapid growth, the company increased its market share through new acquisitions and in 1999 the firm opened 47 stores in a single year. Today the firm operates over 113 stores in the United States and Canada. (Wild Oats Market.com) Wild Oats Market provides a complete selection of natural/organic and gourmet foods, friendly household products, supplements, vitamins, herbal and homeopathic remedies, and body care products. Stores that operate within Wild Oats Market include Sun Harvest, Capers Community Markets, Wild Oats Natural Marketplace, and Henry’s Farmers Markets. (Wild Oats Market.com) Wild Oats Market offers two store formats: farmers market stores and natural foods supermarkets. The farmers market stores concentrate on price value, fresh produce, and natural living products. The natural foods supermarkets focus on natural/organic products and services. (Wild Oats Market.com) Earnings and Growth Analysis According to the press releases in Yahoo Fina...