Whole Foods Market: The Deutsche Bank Report

Abstract

This case follows the financial-statement forecasting decisions of a Deutsche Bank research analyst for the natural and organic retailer Whole Foods Market in May 2014. Students evaluate the associated financial ratios with the forecast to ascertain whether the industry dynamics and company strategy are consistent with the forecast. The case expressly focuses on the asset side of the balance sheet as a preview for other cases using free cash flow forecasting. The forecast exercise exposes students to the mechanics of financial statement modeling and sensitivity analysis. Using a supplementary exhibit, the case can also be used to explore techniques in firm valuation with students debating whether the analyst should recommend a “buy” or a “sell. Excerpt UVA-F-1776 Rev. Sept. 24, 2018 Whole Foods Market: The Deutsche Bank Report The latest numbers coming out of Whole Foods Market, Inc. (Whole Foods), in May 2014 took Deutsche Bank research analyst Karen Short and her team by surprise. On May 6, Whole Foods reported just $ 0.38 per share in its quarterly earnings report, missing Wall Street's consensus of $ 0.41 and cutting earnings guidance for the remainder of the year. The company's share price fell 19% to $ 38.93 the next day as Whole Foods' management acknowledged that it faced an increasingly competitive environment that could compress margins and slow expansion. The only upbeat news was the 20% increase in the company's quarterly dividend, up from $ 0.10 to $ 0.12 per share. Short and her team knew this was not the first time the market believed Whole Foods had gone stale. In 2006, Whole Foods' stock had also declined 20% over fears of slowing growth and increasing competition, but had since bounced back and outperformed both its competition and the broader market (see Exhibit1 for stock price performance). Nevertheless, it was time for Short and her team to discuss how the news altered their outlook for the company in a revised analyst report. The main point of discussion would certainly be whether Whole Foods still had a recipe for success. . . .