Issues in Accounting: Whole Foods Market Inc. Analysis & Commentary
Issues in Accounting: Whole Foods Market Inc. Analysis & Commentary
Introduction
The economy, and even politics, affects the administration of a company’s business needs and level of financial resources in terms of meeting demands. Whole Foods Market, Inc. is no exception and ideally seeks to take advantage to expand its services and operations. Credit, debit, and liabilities paint much of the picture, as Whole Foods Market stresses in its letter to stakeholders that the bottom line of fiscal year 2010 sales increased by 12% to $9.0 billion (“2010 Annual Report”). Stock prices also rose, which is always good news to investors, yet the glowing report did mention the importance of value image and raising the confidence level of its consumers. Nevertheless, this review of the company’s 2010 Annual Report will hopefully reflect a cogent analysis and presentation overview of the corporation’s data in terms of investing information. Thus, four basic areas shall be addressed including the following: (a) financial performance summary, (b) three risks or threats which may impede company forward financial goals, (c) three ‘control activities’ examples Whole Foods Market Inc. could use to mitigate risks, and (d) overall impression of the Whole Foods Market Annual Report.
Driven by consumer demand and awareness of the heightened role of nutrition, Whole Foods Market is recognized as the nation’s – and the world’s – leader in organic supermarket goods. Ranking 284th, the company held its position on the Fortune 500 list with 299 stores as of September 2010. Financial success was portrayed in terms of growth since the company went public, and a pie-chart assessment of where money was allocated. Sales, as aforementioned hit the $9.0 billion-dollar mark, with earnings per share of $1.43. Operating cash flow stood at $585.3 million, stock price held at $37.07, with 58,300 employees (“2010 Annual Report”). Goods sold and occupancy costs covered approximately 64 percent of where moneys were spent, with salaries/benefits running about 25 percent, net income and tax trailing behind.
The general ledger for that particular year seems to have satisfied stockholder expectations despite the factor of direct-store expenses, occupancy costs, and general administration costs rising over the previous three years since 2007. Of a nearly $700 million term-loan, Whole Foods Market paid $210 million of its debt in 2010, leaving a credit line available of approximately $340 million which should make shareholders happy. Giving back to the global community to assist in the wake of the Haiti earthquake, the company Team Members (employees) donated $96,000 while Whole Food Market customers donated over a million dollars to aid in the creation of a microcredit organization to get banking services going again.
Three Business Risks or Threats
One business threat is the general reality of genetically-modified organisms (GMO) of modern food agricultural practices by huge economic interests. Since Whole Food Market bases its vision statement on maintenance of its leadership in selling natural, and organic, food wares the proliferation of GMO-grown agro-goods could impede sustenance of its core values. According to data findings at the Institute for Responsible Technology (IRT) (2011) GMOs have been linked with toxins, allergens, as well as “infant mortality, immune dysfunction,” and a plethora of other insalubrious outcomes (“Everything You Have to Know”). Obviously, this scenario represents a threat to the organization’s financial well-being. This may represent one threat.
The second risk to accomplishing Whole Food Market Inc.’s forthcoming financial goals is the sheer inflation of goods, services, gas, and oil prices. No matter how excellent an organization’s profit-and-loss statement looks, net income is only relative to all ratios factored in. In other words, the rising costs of transportation, and inflating expenses of natural and organic/specialty foods could pose a risk in the firm accomplishing the financial gains it hopes for over the next three years. As evidence of the possibility, Whole Foods Market’s annual percentage sales gains “by product category” in Grocery, for example, only rose from 33.2%, to 33.8%, and down to 33.5% respectively from 2008, 2009, and 2010 (“2010 Annual Report,” 2010, p. 4). Further evidence, from the fourth-quarter report reflect a 14.7% sales growth increase, as compared to third-quarter sales-growth increase of 15.2% (“Whole Foods Market Reports Fourth Quarter Results”). Also, as the cost of foods rises, and people’s incomes do not retain values, the stores will be forced to raise prices. Figuring in depreciation of shelf-life of fresh produce makes it all the more easily comprehended.
The third risk may be the most important of all. Nowadays, social media and public opinion can affect any company’s financial performance. The image of Whole Foods Markets had been tainted by emerging accusations, wielding its business practices were less than honest in terms of transparency about carrying GMO foodstuffs. In fact, a news report in 2009 by Brinkerhoff and Wallechinsky (2009) stated that the grocer giant had virtually conspired with GMO growers and manufacturers, to try and make these unnatural food products more acceptable and palatable to the public – essentially “helping them legitimize their products with consumers” (“Whole Foods accused”). Certain member firms pointed out by the Organic Consumers Association, according to the same article source, had surrendered to Monsanto wherein Whole Foods had agreed to cease lobbying for deregulation of GMO alfalfa cultivation. Its unrestricted unnatural alfalfa agricultural activities had been rubber stamp approved by the U.S. Department of Agriculture (USDA). This is a serious accusation. The potential for weakening financial performance is real, although Whole Foods Markets has a strong presence in the economy. Additionally, it is no secret that over half of the European Union refuses to have anything to do with GMOs.
Three Examples of Control Activities Designed to Minimize Risks
The third example is by proactively supporting the smaller organic industry, with subsidies to help them financially. As part of the proactive campaign, Whole Foods Market could commit to the process with a coop-advertising effort and lobby Washington DC for the abolishment of GMOs proliferation in the agro-economy. Food labeling of contents is critical. The company must come clean if it was guilty of putting roadblocks in this effort. People want to know what is in their food, as much as possible.
Overall Impression of Whole Foods Market, Inc.’s Annual Report
Overall, the report was thorough. Both CEOs demonstrated an attitude of caring in the beginning section. It appears to be a financial accounting document, rather than a management or managerial accounting document-statement. The target audience definitely is the body of shareholders, and/or other stakeholders. The report presented a positive outlook of the company, especially when the philosophy, core values, and personalized-sounding letter to investors is at the start of the document. They provided positive transparency by mentioning their battle with the FTC (Federal Trade Commission) over the Wild Oats merger, was complete. Showing the photos of the two CEOs was a friendly, nice touch too.
References
Brinkerhoff, N., & Wallechinsky, D. (2009, February 12). Whole Foods accused of accepting Genetically Modified Foods. Retrieved from http://readersupportednews.org/news-section2/312-16/9891-whole-foods-accused-of-accepting-genetically-modified-foods
The Cornucopia Institute. (2015). Specialty grocer meets growing blowback from organic farmer/consumers [Data file]. Retrieved from http://www.cornucopia.org/2015/06/whole-foods-faces-ftc-mislabeling-investigation/
Whole Foods Market. (2010). Whole Foods Market Reports Third Quarter Results [Data file]. Retrieved from http://assets.wholefoodsmarket.com/www/company-info/investor-relations/financial-press-releases/2010/Q310-Financial.pdf
Whole Foods Market. (2010). Whole Foods Market Reports Fourth Quarter Results [Data file]. Retrieved from http://assets.wholefoodsmarket.com/www/company-info/investor-relations/financial-press-releases/2010/Q410-Financial.pdf
Whole Foods Market. (2010). 2010 Annual Report [Data file]. Retrieved from https://www.wholefoodsmarket.com/sites/default/files/media/Global/Company%20Info/PDFs/ar10.pdf
