Propose two adjustments to the Deutsche Bank forecast and prepare a discounted cashflow analysis, explain your results and whether this indicates a buy or sell recommendation.
Exhibit 7 WHOLE FOODS MARKET Deutsche Bank Model (millions of USD, except per share figures) Actual 2011 Actual 2012 Actual 2013 Forecast 2014 Forecast 2015 At Fiscal Year End Store Growth 4.0% 7.7% 8.1% 10.5% 12.6% Sales Growth EBITDA Margin Tax Rate 12.2% 8.5% 38.1% 15.7% 9.0% 38.4% 10.4% 9.5% 38.8% 11.1% 9.4% 39.0% 14.0% 9.8% 39.0% 7.0 10.5 Current Asset Turnover Current Liabilities Turnover Net PP&E / Store Annual Dep. & Amort. / Store 5.6 10.9 6.5 6.5 10.7 6.7 0.94 7.0 10.5 6.7 0.94 7.1 10.5 6.7 0.94 6.4 1.00 0.93 Stores 311 335 362 400 450 10.108 859 311 11.699 1,055 311 12,917 1.222 339 14,351 1,352 376 Sales EBITDA Dep. & Amort. EBIT Taxes Net Income Shares Outstanding Earnings per Share 548 209 339 350 0.97 744 286 458 364 1.26 883 343 540 372 1.45 976 381 596 372 1.60 16,360 1,600 423 1,176 459 717 372 1.93 Current Assets Current Liabilities Net Working Capital Net PP&E 1,453 880 573 2,103 977 1,126 1,980 1,088 2,050 1,238 812 2,304 1,406 898 892 1,997 2,193 2.428 2,680 3,018 Return on Capital 13.2% 13.8% 16.3% 17.1% 18.3% Source: Company Financial Reports, Deutsche Bank Analyst report and casewriter estimates WHOLE FOODS MARKET Long-Tein Financial Ratio Forecast for Whole Foods Market Forecast 2016 10.0% 12.0% 9.7% Actual 2013 8.1% 10.4% 9.5% 38.8% Forecast 2019 10.0% 10.0% 9.4% At Fiscal Year-End Store Growth Sales Growth EBITDA Margin Tax Rate Current Asset Tumover Current Liabilities Turnover Net PP&E / Store Annual Dep. & Amort / Store Actual 2011 4.0% 12.2% 8.5% 38.1% 7.0 10.5 6.4 1.00 Forecast 2014 10.5% 11.1% 9.4% 39,0% 7.0 10.5 6.7 0.94 Forecast 2022 10.0% 8.0% 9.3% 2012 7.70 15.7 9.0% 38.494 5.6 10.9 6.5 0.93 Forecast 2015 12.6% 14.0% 9.8% 39.0% 7.1 10.5 6.7 0.94 Forecast 2017 10.0% 11.0% 9.5% 39.0% 7.3 10.5 6.5 0.94 Forecast 2018 10.0% 10.0% 9.5% 39.0% 7.4 10.5 6.4 0.94 Forecast 2020 10.0% 9.0% 9.4% 39.0% 7.6 10.5 6,0 Forecast 2021 10.0% 9.09% 9.3% 39.0% 7.6 10.5 5.8 0.93 Forecast Steady State 2023 2024 10.0% 8.0% 3.40% 9.3% 39.0% 39.0% 7.6 10.5 5.4 0.89 6.5 10.7 6.7 0.94 7.2 10.5 6.7 0.94 10.5 6.2 0.94 7.6 10.5 5.6 0.91 0.94 311 Stores Sales EBITDA Dep. & Amort. EBIT 10.108 859 335 11,699 1,055 311 362 12,917 1,222 339 400 11,351 1,352 376 976 450 16,360 1,600 423 495 18.323 1,777 466 545 20,339 1,932 512 1.120 599 22,372 2,125 564 1,562 659 24,610 2,313 725 26,825 2,522 682 798 29.239 2,719 742 1.977 199****** ***** **** *** 878 31,578 2,937 799 2,138 965 34,101 3,172 859 2,312 311 518 883 1,176 1,312 1,693 1,810 2391.02 Current Assets Current Liabilities Net Working Capital Net PP&E 1,453 880 573 1,997 2,103 977 1,126 2.193 1,980 1.088 892 2.428 2,050 1.238 812 2.680 2,304 1.406 898 3.018 2,545 1.576 969 3.320 2,786 1,753 1,0.3.3 3,023 1.926 1,095 3,837 3,281 2.123 1,158 4.089 3,530 2315 1,215 4.352 3,847 2.526 1,322 4.628 4,155 2.728 1,427 4,915 4,487 2.946 1,541 1,594 5.214 5390.94646 3,542 866.12 223 1033.00 252 NOPAT Change in PP&E - Change in NWC Free Cash Flow 595.61 252 -801 423.37 717.43 338 86 293.46 800.08 302 1571 34139 952.73 294 126 532.51 1122.18 264 120 738.45 1206.05 1304.19 1410.56 276 287 298 107 212 114 823.84 804.65 997.95 TV - Constant G 35140.0142 Implied EBITDA 11.08 1458.52 177 52 1228.85 61 579.14 718.39 Steady State Growth Rate WACC 3.40% 6.90% PV of the Forecast Period PV of the Terminal Value Enterprise Value Equity Value No Debt) Shares Outstanding Implied Price per Share $4.138.04 $18,031.21 $22.169.25 $22,169.25 372 $59.59 Average Sales Growth Average EBITDA Margins 50% 40% 10% 30% 8% 20% 6% 10% Am 4% 0% 2% -10% -20% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Whole Foods Market Whole Foods Market Other natural & organic Conventional grocer Supercenters and wholesalers Other natural & organic --- Conventional grocer Supercenters and wholesalers Other Natural & Organic is composed of Sprouts and Fresh Market. Conventional grocer is composed of Kroger, Safeway, and SuperValu. Supercenters and wholesalers is composed of WalMart and Costco. Sales Growth 2003 17% 2004 23% 2005 22% 2006 19% 2007 18% 2008 21% Whole Foods Market Other natural & organic Conventional grocer Supercenters and wholes 2009 1% 8% -5% 2010 12% 13% 0% 2011 12% 14% 4% 8% 2012 16% 41% -15% 7% 2013 10% 25% -5% 3% 6% 1% 7% 5% 11% 34% 12% 10% 7% 5% 7% 8% 0% 5% EBITDA Margins 2005 2006 2009 2010 2012 2013 2003 9% 2004 9% 2007 7% 8% 8% 2008 6% 8% 7% 8% 9% 9% Whole Foods Market Other natural & organic Conventional grocer Supercenters and wholes 9% 2011 8% 7% 3% 7% 8% 3% 9% 8% 4% 7% 4% 3% 3% 4% 5% 7% 5% 7% 6% 7% 6% 7% 7% 7% 7% 8% 7% Source: Company SEC Filings. WHOLE FOODS MARKET Selected Financial Data for Comparable Companies (in millions of USD, except beta; financial statement data as of fiscal year 2013) Risk Free Rate M.R.P. 3.40% 5% Market Cap of Total Debt Bond Credit Rating Cost of Debt Cost of Equity E/V Company Sales EBITDA Equity Beta D/V WACC Natural & Organic Whole Foods Market Sprouts Farmers Market The Fresh Market 12,917 2,438 1,512 1,222 187 138 14,481 4,102 1,554 0 304 25 0.70 0.75 0.80 N.A. BB- N.A. 4.29% 6.83% 4.29% 6.90% 7.13% 7.40% 100% 93% 98% 0% 7% 2% 6.90% 6.92% 7.32% 7.12% 32% Conventional Grocers Kroger Safeway Supervalu 98,375 36,139 17,155 4,428 1,579 720 23,679 11,311 7,899 4,451 1,876 2,531 0.70 0.75 1.00 BBB BBB 4.80% 4.80% 7.83% 6.90% 7.15% 8.40% 68% 64% 43% 36% 57% 5.62% 5.63% 6.32% 5.85% B- AA Supercenters and Wholesalers Wal-Mart Target Costco 476,294 72,596 105,156 35,742 6,452 3,999 251,747 55,245 36,806 14,089 49,257 4,985 0.60 0.75 0.75 A 4.29% 4.39% 4.39% 6.40% 7.15% 7.15% 82% 72% 91% 18% 28% 9% 5.72% 5.91% 6.74% 6.12% A+ Sources: Value Line, Mergent Online, YCharts, Yahoo! Finance, Standard and Poor's, SEC company filings, and casewriter estimates. Exhibit 7 WHOLE FOODS MARKET Deutsche Bank Model (millions of USD, except per share figures) Actual 2011 Actual 2012 Actual 2013 Forecast 2014 Forecast 2015 At Fiscal Year End Store Growth 4.0% 7.7% 8.1% 10.5% 12.6% Sales Growth EBITDA Margin Tax Rate 12.2% 8.5% 38.1% 15.7% 9.0% 38.4% 10.4% 9.5% 38.8% 11.1% 9.4% 39.0% 14.0% 9.8% 39.0% 7.0 10.5 Current Asset Turnover Current Liabilities Turnover Net PP&E / Store Annual Dep. & Amort. / Store 5.6 10.9 6.5 6.5 10.7 6.7 0.94 7.0 10.5 6.7 0.94 7.1 10.5 6.7 0.94 6.4 1.00 0.93 Stores 311 335 362 400 450 10.108 859 311 11.699 1,055 311 12,917 1.222 339 14,351 1,352 376 Sales EBITDA Dep. & Amort. EBIT Taxes Net Income Shares Outstanding Earnings per Share 548 209 339 350 0.97 744 286 458 364 1.26 883 343 540 372 1.45 976 381 596 372 1.60 16,360 1,600 423 1,176 459 717 372 1.93 Current Assets Current Liabilities Net Working Capital Net PP&E 1,453 880 573 2,103 977 1,126 1,980 1,088 2,050 1,238 812 2,304 1,406 898 892 1,997 2,193 2.428 2,680 3,018 Return on Capital 13.2% 13.8% 16.3% 17.1% 18.3% Source: Company Financial Reports, Deutsche Bank Analyst report and casewriter estimates WHOLE FOODS MARKET Long-Tein Financial Ratio Forecast for Whole Foods Market Forecast 2016 10.0% 12.0% 9.7% Actual 2013 8.1% 10.4% 9.5% 38.8% Forecast 2019 10.0% 10.0% 9.4% At Fiscal Year-End Store Growth Sales Growth EBITDA Margin Tax Rate Current Asset Tumover Current Liabilities Turnover Net PP&E / Store Annual Dep. & Amort / Store Actual 2011 4.0% 12.2% 8.5% 38.1% 7.0 10.5 6.4 1.00 Forecast 2014 10.5% 11.1% 9.4% 39,0% 7.0 10.5 6.7 0.94 Forecast 2022 10.0% 8.0% 9.3% 2012 7.70 15.7 9.0% 38.494 5.6 10.9 6.5 0.93 Forecast 2015 12.6% 14.0% 9.8% 39.0% 7.1 10.5 6.7 0.94 Forecast 2017 10.0% 11.0% 9.5% 39.0% 7.3 10.5 6.5 0.94 Forecast 2018 10.0% 10.0% 9.5% 39.0% 7.4 10.5 6.4 0.94 Forecast 2020 10.0% 9.0% 9.4% 39.0% 7.6 10.5 6,0 Forecast 2021 10.0% 9.09% 9.3% 39.0% 7.6 10.5 5.8 0.93 Forecast Steady State 2023 2024 10.0% 8.0% 3.40% 9.3% 39.0% 39.0% 7.6 10.5 5.4 0.89 6.5 10.7 6.7 0.94 7.2 10.5 6.7 0.94 10.5 6.2 0.94 7.6 10.5 5.6 0.91 0.94 311 Stores Sales EBITDA Dep. & Amort. EBIT 10.108 859 335 11,699 1,055 311 362 12,917 1,222 339 400 11,351 1,352 376 976 450 16,360 1,600 423 495 18.323 1,777 466 545 20,339 1,932 512 1.120 599 22,372 2,125 564 1,562 659 24,610 2,313 725 26,825 2,522 682 798 29.239 2,719 742 1.977 199****** ***** **** *** 878 31,578 2,937 799 2,138 965 34,101 3,172 859 2,312 311 518 883 1,176 1,312 1,693 1,810 2391.02 Current Assets Current Liabilities Net Working Capital Net PP&E 1,453 880 573 1,997 2,103 977 1,126 2.193 1,980 1.088 892 2.428 2,050 1.238 812 2.680 2,304 1.406 898 3.018 2,545 1.576 969 3.320 2,786 1,753 1,0.3.3 3,023 1.926 1,095 3,837 3,281 2.123 1,158 4.089 3,530 2315 1,215 4.352 3,847 2.526 1,322 4.628 4,155 2.728 1,427 4,915 4,487 2.946 1,541 1,594 5.214 5390.94646 3,542 866.12 223 1033.00 252 NOPAT Change in PP&E - Change in NWC Free Cash Flow 595.61 252 -801 423.37 717.43 338 86 293.46 800.08 302 1571 34139 952.73 294 126 532.51 1122.18 264 120 738.45 1206.05 1304.19 1410.56 276 287 298 107 212 114 823.84 804.65 997.95 TV - Constant G 35140.0142 Implied EBITDA 11.08 1458.52 177 52 1228.85 61 579.14 718.39 Steady State Growth Rate WACC 3.40% 6.90% PV of the Forecast Period PV of the Terminal Value Enterprise Value Equity Value No Debt) Shares Outstanding Implied Price per Share $4.138.04 $18,031.21 $22.169.25 $22,169.25 372 $59.59 Average Sales Growth Average EBITDA Margins 50% 40% 10% 30% 8% 20% 6% 10% Am 4% 0% 2% -10% -20% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Whole Foods Market Whole Foods Market Other natural & organic Conventional grocer Supercenters and wholesalers Other natural & organic --- Conventional grocer Supercenters and wholesalers Other Natural & Organic is composed of Sprouts and Fresh Market. Conventional grocer is composed of Kroger, Safeway, and SuperValu. Supercenters and wholesalers is composed of WalMart and Costco. Sales Growth 2003 17% 2004 23% 2005 22% 2006 19% 2007 18% 2008 21% Whole Foods Market Other natural & organic Conventional grocer Supercenters and wholes 2009 1% 8% -5% 2010 12% 13% 0% 2011 12% 14% 4% 8% 2012 16% 41% -15% 7% 2013 10% 25% -5% 3% 6% 1% 7% 5% 11% 34% 12% 10% 7% 5% 7% 8% 0% 5% EBITDA Margins 2005 2006 2009 2010 2012 2013 2003 9% 2004 9% 2007 7% 8% 8% 2008 6% 8% 7% 8% 9% 9% Whole Foods Market Other natural & organic Conventional grocer Supercenters and wholes 9% 2011 8% 7% 3% 7% 8% 3% 9% 8% 4% 7% 4% 3% 3% 4% 5% 7% 5% 7% 6% 7% 6% 7% 7% 7% 7% 8% 7% Source: Company SEC Filings. WHOLE FOODS MARKET Selected Financial Data for Comparable Companies (in millions of USD, except beta; financial statement data as of fiscal year 2013) Risk Free Rate M.R.P. 3.40% 5% Market Cap of Total Debt Bond Credit Rating Cost of Debt Cost of Equity E/V Company Sales EBITDA Equity Beta D/V WACC Natural & Organic Whole Foods Market Sprouts Farmers Market The Fresh Market 12,917 2,438 1,512 1,222 187 138 14,481 4,102 1,554 0 304 25 0.70 0.75 0.80 N.A. BB- N.A. 4.29% 6.83% 4.29% 6.90% 7.13% 7.40% 100% 93% 98% 0% 7% 2% 6.90% 6.92% 7.32% 7.12% 32% Conventional Grocers Kroger Safeway Supervalu 98,375 36,139 17,155 4,428 1,579 720 23,679 11,311 7,899 4,451 1,876 2,531 0.70 0.75 1.00 BBB BBB 4.80% 4.80% 7.83% 6.90% 7.15% 8.40% 68% 64% 43% 36% 57% 5.62% 5.63% 6.32% 5.85% B- AA Supercenters and Wholesalers Wal-Mart Target Costco 476,294 72,596 105,156 35,742 6,452 3,999 251,747 55,245 36,806 14,089 49,257 4,985 0.60 0.75 0.75 A 4.29% 4.39% 4.39% 6.40% 7.15% 7.15% 82% 72% 91% 18% 28% 9% 5.72% 5.91% 6.74% 6.12% A+ Sources: Value Line, Mergent Online, YCharts, Yahoo! Finance, Standard and Poor's, SEC company filings, and casewriter estimates
