Case study Whole Foods

To help you develop the analytical skills you’ll use throughout this course when working with case studies.

Using a fictional acquisition involving Pelican Manufacturing, I walk through a practical six-step framework:

Problem → Evidence → Analysis → Alternatives → Recommendation → Defense

We’ll look at how to identify the actual decision that needs to be made, separate facts from forecasts and assumptions, select the appropriate financial tools, test assumptions, consider reasonable alternatives, and ultimately develop a recommendation you can defend.

We also spend some time on outside research, which is an important part of your case work in this course. Your analyses must use credible outside sources and properly cite them in APA format. The purpose is not simply to satisfy a reference requirement. Good research provides evidence that can support, challenge, or refine the assumptions and conclusions in your analysis.

One idea from the video is worth keeping in mind:

A spreadsheet can produce a number. The analyst - YOU -  must produce the conclusion.

I encourage you to watch the tutorial before getting too far into your next case analysis. I’ve also provided the PowerPoint deck to use as a study guide and several research starting points, for you to keep as a reference throughout the course.

There may also be a little cinematic foolishness along the way. Consider it a modest attempt to make financial analysis slightly more entertaining than reviewing Excel formulas.  Or formulae. Whatever.

Case 7 - Whole Foods Market: The Deutsche Bank Report Pg 113

References

Bruner, R., Eades, K., and Schill, M. (2018). Case Studies in Finance: Managing for Corporate Value Creation. 8th ed. McGraw-Hill Education. ISBN 978-1-259-27719-1.

This case examines the decisions of Deutsche Bank research analyst Karen Short in May 2014 while covering the stock of Whole Foods Market, a leading natural and organic food retailer at the time. Having recently issued a “buy”  recommendation for the stock backed by a strong financial forecast, Short must reevaluate her decision in the face of a lower-than-expected earnings announcement by Whole Foods management and an associated market price decline. Scrutinize Karen Short's financial forecast and consider the developing industry dynamics and Whole Foods’ competitive position. Carefully evaluate the appropriateness of Short’s current financial forecast using financial statement modeling and sensitivity analysis.

Produce a substantial and detailed research report (essay) that addresses the following key questions:

1. How would you describe Whole Foods’ strategy?

2. Prepare a competitor analysis. How would you define Whole Foods’ industry? Who are Whole Foods’ competitors?

3. How attractive is Whole Foods’ current market position? Is it sustainable?

4. What do the financial ratios in Exhibit 4 tell you about the past operating performance of Whole Foods? How informative are the historical ratios for Whole Foods’ prospective performance?

5. Examine Exhibit 7 in detail. How important are each of the underlying financial assumptions in the ROA forecast? What assumptions (i.e., margins, asset turnover, growth) play the biggest role in driving the anticipated improvements in ROA?

6. Do you agree with the existing financial assumptions in the Deutsche Bank forecast? If so, why? If not, what adjustments would you make to the model? Be prepared to defend the basis of your forecast for Whole Foods’ performance.

You should use details from the case as presented in the textbook, and the attached spreadsheet will also be valuable for conducting your research and analysis: