Consumers are becoming more and more socially conscious, and they want the goods and services they use to measure up. In truth, it doesn't take much. A simple action that costs a company very little or nothing at all can make a real difference in the mind of the consumer, and the company's bottom line.
But there are some companies that go far beyond the minimum required, putting corporate social responsibility at the very heart of their business model. Whole Foods (WFM +0.00%) is one of those companies. Without further ado, then, let's have a look at the organic-supermarket pioneer, and analyze the company in terms of its performance as a socially conscious enterprise, a business, and an investment.
A mission-driven company
When you visit the "Company Info" page of Whole Foods' website, one of the first self-descriptors you come across is that it's "a mission-driven company." What exactly is that mission?
- Seek out the finest natural and organic foods available.
- Maintain the strictest quality standards in the industry.
- Commit to sustainable agriculture.
Above and beyond that simple, straightforward corporate mission are three initiatives that amply demonstrate While Foods' commitment to social responsibility:
- Whole Planet Foundation tries to alleviate poverty in the developing-world economies where Whole Foods sources its products, primarily through the magic of microcredit. As of August 2012, the foundation had more than 225,000 clients with more than $432 million in funds committed.
- Whole Kids Foundation supports schools and inspires families to improve children's nutrition and wellness. Partnerships with innovative organizations and schools give children access to fresh, nutritious meals. The foundation's ultimate mission is to end the childhood obesity epidemic.
- Through Community Giving, Whole Foods reaches out to local communities through its store employees, who are naturally passionate about supporting the causes that are important to their own neighborhoods. Several times a year, Whole Foods stores hold community giving days, on which 5% of that day's net sales are donated to a local nonprofit or educational organization.
A great company at a fair price
Corporate social responsibility cred established, let's look now at a few basic metrics and see how Whole Foods measures up against its peers as a business and as an investment.
Revenue growth:
- In its most recent quarter, Whole Foods grew its revenue by a whopping 23.6% year over year.
- Safeway's (NYSE: SWY) revenue actually contracted, by 0.2% YOY.
- Kroger (KR 3.35%) had middling, but at least not contracting, revenue growth of 3.9% YOY.
Earnings growth:
- YOY earnings growth for Whole Foods was more than double its staggering revenue growth: 49.4%.
- In a startling turn, Safeway had phenomenal YOY earnings growth: 20.6%.
- Kroger? Not so much, with YOY earnings contraction of 0.7%.
Cash-to-debt ratio: It's always good to see more cash than debt on the balance sheet, ideally at least 1.5 times more.
- With $1.2 billion in cash and $24 million in debt, Whole Food's C/D is a brilliant 50.
- With $267 million in cash and $6.4 billion in debt, Safeway's C/D is a not-so-brilliant 0.04. Talk about a study in contrasts.
- Finally, $238 million in cash and $8.2 billion in debt gives Kroger the worst C/D of all, and one of the worst I've ever seen, period: 0.03.
With money as cheap as it is, too many companies are in debt up to their corner offices, and it's a dangerous position to be in. Because when things go wrong (and at some point they always do), the bigger the war chest a company has, the better chance it has of coming through the other side intact. Kudos to Whole Foods, then, on this important metric.
Making money while making a difference
Safeway's price-to-earnings ratio is 8, Kroger's is 23, and Whole Foods' is 37. That's definitely on the high side for an American company, but not stratospherically so. And did you know that Whole Foods has booked investors more than 30 times their initial investment since its IPO? Bearing that in mind, and based on the comparative performance of the three companies as outlined here, which company would you rather own?
Co-CEO and co-founder John Mackey started Whole Foods in 1978, with a single store in Austin, Texas. Since then, the company has grown to include more than 310 stores in North America and the U.K. As a business, and as a socially responsible investment, it just doesn't get any better than Whole Foods.
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