Whole Foods Market: The Deutsche Bank Report Suggested questions Students are expected to scrutinize an analysts financial forecasting and valuation of Whole Food Market. The suggested questions fall into two categories. Suggested questions on financial forecasting (Focusing on accessing the given financial forecasting) 1. What is going on at Whole Foods Market, and how does that affect Shorts forecasting? 2. Does Whole Foods have a track record of success? What is the evidence? 3. What are the assumptions underlying the ROC forecast? 4. Who is skeptical of the ROC forecast? 5. What are some best-practice principles for financial forecasting? Suggested questions on firm valuation based on financial forecasting (Using the given Supplement exhibit on assumptions to do your own financial forecasting and to conduct DCF valuation. No need to forecast all line items in financial statements. Just need to forecast key items to calculate future FCF similar to Case 2: American Greetings from Spring 2018)1. What is going on at Whole Foods and how does that affect Shorts recommendation? 2. What is the case for buy? What assumptions are required to justify a higher valuation? 3. What is the case for a sell recommendation? What is the narrative that results in a lower valuation? 4. How did things turn out? What are some best-practice principles for valuation?

Exhibit Supplement. a Rio Precast for Whole Foot Market At l'iscal Year Lind Score Growth Sales Growth 15.7% 14 10 CUTII Asset Tube Current abilities Turn Score 9 Det & more EBIT Tases FCF 1.226 1,348 7997.75 Valux of tittat end of 2133 FC9 co 36.73 Entom Value @2129 Saare tee 123 in Dollars Disc Rate Market Cap (in Milli Deocube 14.45 State Pres December in Dollar Current Assets Nepper Exhibit 1 WHOLE FOODS MARKET Share Price Performance of Whole Foods Market indexed to S&P 500 Index (January 2005 to April 2014) $70 $60 S -- $50 $40 $30 $20 $10 $0 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Whole Foods Market S&P500 Index matched to WFM Source: Yahoo! Finance, Case writer analysis Exhibit 2 WHOLE FOODS MARKET Select Market Share Data Grocery Sales by Channel Traditional Supermarkets Supercenters Convenience Stores Wholesale Clubs Drug Stores Mass Merchandisers Limited Assortment Grocery Stores Dollar Stores Other Actual 2011 40.1% 17.2% 15.1% 8.5% 5.5% 4.4% 2.7% 2.2% 4.3% 2016 37.4% 18.5% 15.6% 9.0% 5.9% 2.8% 3.7% 2.3% 4.9% Top Grocery Retailers in North America 2012 Revenue ($ billions) Wal-Mart 145.0 Kroger 96.3 Costco 87.3 Target 73.1 Safeway 44.5 Loblaw Cos. 31.8 Publix 27.5 Ahold USA Retail 27.3 7-Eleven 22.0 C&S Wholesale Grocers 21.4 Delhaize America 19.5 H-E-B Grocery Co. 19.4 Sobeys 17.7 Dollar General Corp. 16.1 Meijer, Inc. 14.6 Wakefern Food Corp. 13.6 Metro Inc. 12.0 Whole Foods Market 11.7 Source: Market Share Reporter, Case Writer Estimates Exhibit 3 WHOLE FOODS MARKET U.S. Store Count Forecast--Natural and Organic Share vs. Total Industry 2013 2014 2015 2016 2017 2018 Conventional Supermarket 36,092 36,092 36,092 36,092 36,092 36,092 1,367 Natural and Organic Subto Assumed Growth Rate N&O Share of Industry 1,572 15% 4.2% 1,808 15% 4.8% 2,079 15% 5.4% 2,391 15% 6.2% 2,750 15% 7.1% 3.6% Source: Deutsche Bank Research; Food Marketing Institute Exhibit 4 WHOLE FOODS MARKET Selected Operating Data for Comparable Companies Average EBITDA Margins 10% 8% 6% Average Sales Growth 50% 40% 30% 20% 10% 0% -10% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -20% 4% 2% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Whole Foods Market - Other natural & organic - Conventional grocer Superc enters and wholesalers Whole Foods Market - - 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 whole 2009 1% 8% -5% 0% 2010 12% 13% 0% 5% 2011 12% 14% 4% 8% 2012 16% 41% -15% 7% 2013 10% 25% -5% 3% 6% 8% 1% 7% 5% 11% 34% 12% 10% 7% 5% 7% EBITDA Margins 2003 9% 2004 9% 2005 8% 2006 8% 2007 7% 2010 8% 2008 6% 8% 3% 7% Whole Foods Market Other natural & organic Conventional grocer Supercenters and whole 2009 7% 9% 3% 7% 8% 2011 8% 7% 3% 7% 2012 9% 9% 4% 7% 2013 9% 8% 4% 7% 4% 7% 5% 7% 5% 7% 6% 7% 6% 7% 3% 8% Source: Company SEC Filings. Exhibit 5 WHOLE FOODS MARKET Selected Financial Data for Comparable Companies (in millions of USD, except beta; financial statement data as of fiscal year 2013) Company Sales EBITDA Market Debt Beta Bond 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 0.70 304 0.75 25 0.80 N.A. BB- N.A. 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 B- AA Supercenters and Wholesalers Wal-Mart 476,294 Target 72,596 Costco 105,156 35,742 6,452 3,999 251,747 55,245 0.60 36,806 14,089 0.75 49,257 4,985 0.75 A A+ Sources: Value Line, Mergent Online, YCharts, Yahoo! Finance, Standard and Poor's, SEC company filings, and casewriter estimates. Exhibit 6 WHOLE FOODS MARKET Store Growth Statistics for Whole Foods and Other Industry Comparables 2008 2009 2010 2011 2012 2013 400 284 299 311 335 362 275 36 40 43 103 148 167 86 92 100 113 129 151 Total Stores Trader Joe's Whole Foods Market Sprouts Fresh Market Natural Grocers Fairway Other Natural and Organic Retailers Kroger Safeway SuperValu Wal-Mart (including Sam's Club, U.S. only) Costco (U.S., Canada, & Mexico) 72 14 200 2,640 1,335 2,481 1,739 2,474 4,258 512 2,469 1,725 2,421 4,360 2,460 1,694 2,349 4,413 540 2,435 1,678 2,394 4,479 592 2,424 1,641 2,434 4,625 606 2,396 4,835 634 527 2008 2009 2010 2011 2012 2013 4.0% 8.0% 5.1% 5.4% Same-Store Sales Growth Whole Foods Market Sprouts Fresh Market Kroger (excluding fuel) Safeway (excluding fuel) SuperValu (including fuel) Wal-Mart (U.S. only) Costco (including fuel) 9.0% -1.5% 5.3% 1.5% 0.5% 3.5% 8.0% -4.0% 2.6% -1.1% 3.1% -4.9% -1.2% -0.8% -4.0% 7.0% 2.3% 5.0% 2.5% -0.5% -5.1% 4.9% 4.9% -6.0% 1.6% 10.0% 8.0% 9.7% 5.7% 3.5% 1.6% -2.8% 2.4% 7.0% 7.0% 10.7% 3.2% 3.6% 0.2% -2.4% -0.5% 6.0% -0.6% 7.0% Source: Company SEC filings, Deutsche Bank Research; Food Marketing Institute Exhibit 7 WHOLE FOODS MARKET Deutsche Bank Model (millions of USD, except per share figures) Actual 2011 Actual Actual 2012 2013 Forecast Forecast 2014 2015 4.0% 7.7% 8.1% 10.5% 12.6% At Fiscal Year End Store Growth 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% Current Asset Turnover Current Liabilities Turnover Net PP&E / Store Annual Dep. & Amort / Store 7.0 10.5 6.4 1.00 5.6 10.9 6.5 0.93 6.5 10.7 6.7 0.94 7.0 10.5 6.7 0.94 7.1 10.5 6.7 0.94 Stores 311 335 362 450 Sales EBITDA Dep. & Amort. EBIT Taxes Net Income Shares Outstanding Earnings per Share 10,108 859 311 548 209 339 350 0.97 11,699 1,055 311 744 286 458 364 1.26 12,917 1,222 339 883 343 540 372 1.45 400 14,351 1,352 376 976 381 596 372 1.60 16,360 1,600 423 1,176 459 717 372 1.93 1,980 Current Assets Current Liabilities Net Working Capital Net PP&E 1,453 880 573 2,103 977 1,126 2,193 1,088 892 2,050 1,238 812 2,304 1,406 898 3,018 1,997 2,428 2,680 Return on Capital 13.2% 13.8% 16.3% 17.1% 18.3% Source: Company Financial Reports, Deutsche Bank Analyst report and casewriter estimates Exhibit 7 WHOLE FOODS MARKET Deutsche Bank Model (millions of USD, except per share figures) Actual 2011 Actual Actual 2012 2013 Forecast Forecast 2014 2015 4.0% 7.7% 8.1% 10.5% 12.6% At Fiscal Year End Store Growth 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% Current Asset Turnover Current Liabilities Turnover Net PP&E / Store Annual Dep. & Amort / Store 7.0 10.5 6.4 1.00 5.6 10.9 6.5 0.93 6.5 10.7 6.7 0.94 7.0 10.5 6.7 0.94 7.1 10.5 6.7 0.94 Stores 311 335 362 450 Sales EBITDA Dep. & Amort. EBIT Taxes Net Income Shares Outstanding Earnings per Share 10,108 859 311 548 209 339 350 0.97 11,699 1,055 311 744 286 458 364 1.26 12,917 1,222 339 883 343 540 372 1.45 400 14,351 1,352 376 976 381 596 372 1.60 16,360 1,600 423 1,176 459 717 372 1.93 1,980 Current Assets Current Liabilities Net Working Capital Net PP&E 1,453 880 573 2,103 977 1,126 2,193 1,088 892 2,050 1,238 812 2,304 1,406 898 3,018 1,997 2,428 2,680 Return on Capital 13.2% 13.8% 16.3% 17.1% 18.3% Source: Company Financial Reports, Deutsche Bank Analyst report and casewriter estimates Exhibit 8 WHOLE FOODS MARKET Demographic and Capital Markets Data U.S. Population Growth Rates 2014-2015 20152060 (Compound Annual Growth Ra 0.82% 0.70% Yield on U.S. Treasuries 6 Months 1 Year 3 Years 5 Years 0.05% 0.10% 0.90% 1.65% 3.40% 30 Years Average Yields on U.S. Corporate Bonds 5-Year 30-Year AA A BBB BB 1.90% 2.09% 2.49% 4.00% 4.90% 4.29% 4.39% 4.80% 6.83% n/a B Source: Bloomberg and US Census Bureau Exhibit Supplement. a Rio Precast for Whole Foot Market At l'iscal Year Lind Score Growth Sales Growth 15.7% 14 10 CUTII Asset Tube Current abilities Turn Score 9 Det & more EBIT Tases FCF 1.226 1,348 7997.75 Valux of tittat end of 2133 FC9 co 36.73 Entom Value @2129 Saare tee 123 in Dollars Disc Rate Market Cap (in Milli Deocube 14.45 State Pres December in Dollar Current Assets Nepper Exhibit 1 WHOLE FOODS MARKET Share Price Performance of Whole Foods Market indexed to S&P 500 Index (January 2005 to April 2014) $70 $60 S -- $50 $40 $30 $20 $10 $0 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Whole Foods Market S&P500 Index matched to WFM Source: Yahoo! Finance, Case writer analysis Exhibit 2 WHOLE FOODS MARKET Select Market Share Data Grocery Sales by Channel Traditional Supermarkets Supercenters Convenience Stores Wholesale Clubs Drug Stores Mass Merchandisers Limited Assortment Grocery Stores Dollar Stores Other Actual 2011 40.1% 17.2% 15.1% 8.5% 5.5% 4.4% 2.7% 2.2% 4.3% 2016 37.4% 18.5% 15.6% 9.0% 5.9% 2.8% 3.7% 2.3% 4.9% Top Grocery Retailers in North America 2012 Revenue ($ billions) Wal-Mart 145.0 Kroger 96.3 Costco 87.3 Target 73.1 Safeway 44.5 Loblaw Cos. 31.8 Publix 27.5 Ahold USA Retail 27.3 7-Eleven 22.0 C&S Wholesale Grocers 21.4 Delhaize America 19.5 H-E-B Grocery Co. 19.4 Sobeys 17.7 Dollar General Corp. 16.1 Meijer, Inc. 14.6 Wakefern Food Corp. 13.6 Metro Inc. 12.0 Whole Foods Market 11.7 Source: Market Share Reporter, Case Writer Estimates Exhibit 3 WHOLE FOODS MARKET U.S. Store Count Forecast--Natural and Organic Share vs. Total Industry 2013 2014 2015 2016 2017 2018 Conventional Supermarket 36,092 36,092 36,092 36,092 36,092 36,092 1,367 Natural and Organic Subto Assumed Growth Rate N&O Share of Industry 1,572 15% 4.2% 1,808 15% 4.8% 2,079 15% 5.4% 2,391 15% 6.2% 2,750 15% 7.1% 3.6% Source: Deutsche Bank Research; Food Marketing Institute Exhibit 4 WHOLE FOODS MARKET Selected Operating Data for Comparable Companies Average EBITDA Margins 10% 8% 6% Average Sales Growth 50% 40% 30% 20% 10% 0% -10% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -20% 4% 2% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Whole Foods Market - Other natural & organic - Conventional grocer Superc enters and wholesalers Whole Foods Market - - 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 whole 2009 1% 8% -5% 0% 2010 12% 13% 0% 5% 2011 12% 14% 4% 8% 2012 16% 41% -15% 7% 2013 10% 25% -5% 3% 6% 8% 1% 7% 5% 11% 34% 12% 10% 7% 5% 7% EBITDA Margins 2003 9% 2004 9% 2005 8% 2006 8% 2007 7% 2010 8% 2008 6% 8% 3% 7% Whole Foods Market Other natural & organic Conventional grocer Supercenters and whole 2009 7% 9% 3% 7% 8% 2011 8% 7% 3% 7% 2012 9% 9% 4% 7% 2013 9% 8% 4% 7% 4% 7% 5% 7% 5% 7% 6% 7% 6% 7% 3% 8% Source: Company SEC Filings. Exhibit 5 WHOLE FOODS MARKET Selected Financial Data for Comparable Companies (in millions of USD, except beta; financial statement data as of fiscal year 2013) Company Sales EBITDA Market Debt Beta Bond 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 0.70 304 0.75 25 0.80 N.A. BB- N.A. 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 B- AA Supercenters and Wholesalers Wal-Mart 476,294 Target 72,596 Costco 105,156 35,742 6,452 3,999 251,747 55,245 0.60 36,806 14,089 0.75 49,257 4,985 0.75 A A+ Sources: Value Line, Mergent Online, YCharts, Yahoo! Finance, Standard and Poor's, SEC company filings, and casewriter estimates. Exhibit 6 WHOLE FOODS MARKET Store Growth Statistics for Whole Foods and Other Industry Comparables 2008 2009 2010 2011 2012 2013 400 284 299 311 335 362 275 36 40 43 103 148 167 86 92 100 113 129 151 Total Stores Trader Joe's Whole Foods Market Sprouts Fresh Market Natural Grocers Fairway Other Natural and Organic Retailers Kroger Safeway SuperValu Wal-Mart (including Sam's Club, U.S. only) Costco (U.S., Canada, & Mexico) 72 14 200 2,640 1,335 2,481 1,739 2,474 4,258 512 2,469 1,725 2,421 4,360 2,460 1,694 2,349 4,413 540 2,435 1,678 2,394 4,479 592 2,424 1,641 2,434 4,625 606 2,396 4,835 634 527 2008 2009 2010 2011 2012 2013 4.0% 8.0% 5.1% 5.4% Same-Store Sales Growth Whole Foods Market Sprouts Fresh Market Kroger (excluding fuel) Safeway (excluding fuel) SuperValu (including fuel) Wal-Mart (U.S. only) Costco (including fuel) 9.0% -1.5% 5.3% 1.5% 0.5% 3.5% 8.0% -4.0% 2.6% -1.1% 3.1% -4.9% -1.2% -0.8% -4.0% 7.0% 2.3% 5.0% 2.5% -0.5% -5.1% 4.9% 4.9% -6.0% 1.6% 10.0% 8.0% 9.7% 5.7% 3.5% 1.6% -2.8% 2.4% 7.0% 7.0% 10.7% 3.2% 3.6% 0.2% -2.4% -0.5% 6.0% -0.6% 7.0% Source: Company SEC filings, Deutsche Bank Research; Food Marketing Institute Exhibit 7 WHOLE FOODS MARKET Deutsche Bank Model (millions of USD, except per share figures) Actual 2011 Actual Actual 2012 2013 Forecast Forecast 2014 2015 4.0% 7.7% 8.1% 10.5% 12.6% At Fiscal Year End Store Growth 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% Current Asset Turnover Current Liabilities Turnover Net PP&E / Store Annual Dep. & Amort / Store 7.0 10.5 6.4 1.00 5.6 10.9 6.5 0.93 6.5 10.7 6.7 0.94 7.0 10.5 6.7 0.94 7.1 10.5 6.7 0.94 Stores 311 335 362 450 Sales EBITDA Dep. & Amort. EBIT Taxes Net Income Shares Outstanding Earnings per Share 10,108 859 311 548 209 339 350 0.97 11,699 1,055 311 744 286 458 364 1.26 12,917 1,222 339 883 343 540 372 1.45 400 14,351 1,352 376 976 381 596 372 1.60 16,360 1,600 423 1,176 459 717 372 1.93 1,980 Current Assets Current Liabilities Net Working Capital Net PP&E 1,453 880 573 2,103 977 1,126 2,193 1,088 892 2,050 1,238 812 2,304 1,406 898 3,018 1,997 2,428 2,680 Return on Capital 13.2% 13.8% 16.3% 17.1% 18.3% Source: Company Financial Reports, Deutsche Bank Analyst report and casewriter estimates Exhibit 7 WHOLE FOODS MARKET Deutsche Bank Model (millions of USD, except per share figures) Actual 2011 Actual Actual 2012 2013 Forecast Forecast 2014 2015 4.0% 7.7% 8.1% 10.5% 12.6% At Fiscal Year End Store Growth 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% Current Asset Turnover Current Liabilities Turnover Net PP&E / Store Annual Dep. & Amort / Store 7.0 10.5 6.4 1.00 5.6 10.9 6.5 0.93 6.5 10.7 6.7 0.94 7.0 10.5 6.7 0.94 7.1 10.5 6.7 0.94 Stores 311 335 362 450 Sales EBITDA Dep. & Amort. EBIT Taxes Net Income Shares Outstanding Earnings per Share 10,108 859 311 548 209 339 350 0.97 11,699 1,055 311 744 286 458 364 1.26 12,917 1,222 339 883 343 540 372 1.45 400 14,351 1,352 376 976 381 596 372 1.60 16,360 1,600 423 1,176 459 717 372 1.93 1,980 Current Assets Current Liabilities Net Working Capital Net PP&E 1,453 880 573 2,103 977 1,126 2,193 1,088 892 2,050 1,238 812 2,304 1,406 898 3,018 1,997 2,428 2,680 Return on Capital 13.2% 13.8% 16.3% 17.1% 18.3% Source: Company Financial Reports, Deutsche Bank Analyst report and casewriter estimates Exhibit 8 WHOLE FOODS MARKET Demographic and Capital Markets Data U.S. Population Growth Rates 2014-2015 20152060 (Compound Annual Growth Ra 0.82% 0.70% Yield on U.S. Treasuries 6 Months 1 Year 3 Years 5 Years 0.05% 0.10% 0.90% 1.65% 3.40% 30 Years Average Yields on U.S. Corporate Bonds 5-Year 30-Year AA A BBB BB 1.90% 2.09% 2.49% 4.00% 4.90% 4.29% 4.39% 4.80% 6.83% n/a B Source: Bloomberg and US Census Bureau