Showing posts with label WFM. Show all posts
Showing posts with label WFM. Show all posts
Wednesday, February 14, 2018
2017 Annual Letter to Investors
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The information set forth herein is being furnished on a confidential basis to the recipient and does not constitute an offer, solicitation or recommendation to sell or an offer to buy any securities, investment products or investment advisory services. Such an offer may only be made to eligible investors by means of delivery of a confidential private placement memorandum or other similar materials that contain a description of material terms relating to such investment. All performance figures and results are unaudited and taken from separately managed accounts (collectively, the “Fund”). The information and opinions expressed herein are provided for informational purposes only. An investment in the Fund is speculative due to a variety of risks and considerations as detailed in the confidential private placement memorandum of the particular fund and this summary is qualified in its entirety by the more complete information contained therein and in the related subscription materials. This may not be reproduced, distributed or used for any other purpose. Reproduction and distribution of this summary may constitute a violation of federal or state securities laws.
Wednesday, July 26, 2017
Case Study: Whole Foods Markets (WFM)
One material event to note this quarter is Amazon's pending acquisition of Whole Foods Market (WFM). Recall in my 2015 Annual Letter I mentioned purchasing WFM which, at that time, had declined from a high of over $65 per share in 2013 by more than half1. Our cost basis was ~$30, which at the time reflected a fair-ish 13x multiple on cash flows ex-store expansion costs.
Shares were relatively range-bound for over a year, but things started heating up in 2017 Q2 after Jana Partners, an activist hedge fund, took a big stake and pressed aggressively for changes. On June 16th, Amazon announced a $42 per share bid for WFM, netting us a 40% gain. Annualized return over our roughly 18 month holding period was a satisfactory 25%.
WFM chart for the duration of our holding period. Things heated up in Q2 after Jana took a big stake.
The only pimple here was that WFM was never larger than a 2-3% position across our accounts. However, I harbor no regrets in not making it larger. It is always with hindsight that one laments not betting everything on black after the roulette wheel deposits the pinball on black. My analysis of WFM was that it traded at a fair price at around $30/share but possessed a platinum brand that would eventually be unlocked, whether through organic growth or M&A. Had shares traded down to sub-$25, we likely would have owned more, but alas, we settled for making not-as-much money. First world problems.
What’s more interesting is that very few people anticipated a strategic merger between these dance partners. Most of the chatter surrounded the possibility of Krogers or Albertsons or even Wal-Mart being the eventual acquirers of Whole Foods. The fact that Amazon, the online behemoth, is paying $13.7 billion, over ten times more than their next largest acquisition2, for a footprint of brick & mortar stores across the nation is a hint that traditional retail is in fact not dead. Physical spaces that are well-designed and offer visceral pleasures are alive and well. It is the sloppier ones, the ones with poor product selections, with run-down facades, with demoralized underpaid staff that are doomed3. In the past, they were able to survive because despite being unpleasant to shop at, there were few other choices to buy what you wanted/needed without driving excessive distances. Now, there’s Amazon, and they’re taking their promise of customer delights to a physical store near you.
And so what’s going on is beyond the blasé “online shopping is killing retail” narrative. It is the very idea of capitalism encapsulated in a nutshell: increase productivity or make way for those who can, the ultimate winner being the consumer, who no longer have to suffer the indignities of poor parking layouts or sour-faced customer service reps or waste time driving between stores just to find a particular size in stock and can instead get it all with just 1-Click and then spend all that newfound free time going to places that are pleasant and stimulating and offer experiences that enrich the mind and soul. It’s not about online vs. offline. It’s about better vs. worse. It’s about progress.
Shares were relatively range-bound for over a year, but things started heating up in 2017 Q2 after Jana Partners, an activist hedge fund, took a big stake and pressed aggressively for changes. On June 16th, Amazon announced a $42 per share bid for WFM, netting us a 40% gain. Annualized return over our roughly 18 month holding period was a satisfactory 25%.
WFM chart for the duration of our holding period. Things heated up in Q2 after Jana took a big stake.
The only pimple here was that WFM was never larger than a 2-3% position across our accounts. However, I harbor no regrets in not making it larger. It is always with hindsight that one laments not betting everything on black after the roulette wheel deposits the pinball on black. My analysis of WFM was that it traded at a fair price at around $30/share but possessed a platinum brand that would eventually be unlocked, whether through organic growth or M&A. Had shares traded down to sub-$25, we likely would have owned more, but alas, we settled for making not-as-much money. First world problems.
What’s more interesting is that very few people anticipated a strategic merger between these dance partners. Most of the chatter surrounded the possibility of Krogers or Albertsons or even Wal-Mart being the eventual acquirers of Whole Foods. The fact that Amazon, the online behemoth, is paying $13.7 billion, over ten times more than their next largest acquisition2, for a footprint of brick & mortar stores across the nation is a hint that traditional retail is in fact not dead. Physical spaces that are well-designed and offer visceral pleasures are alive and well. It is the sloppier ones, the ones with poor product selections, with run-down facades, with demoralized underpaid staff that are doomed3. In the past, they were able to survive because despite being unpleasant to shop at, there were few other choices to buy what you wanted/needed without driving excessive distances. Now, there’s Amazon, and they’re taking their promise of customer delights to a physical store near you.
And so what’s going on is beyond the blasé “online shopping is killing retail” narrative. It is the very idea of capitalism encapsulated in a nutshell: increase productivity or make way for those who can, the ultimate winner being the consumer, who no longer have to suffer the indignities of poor parking layouts or sour-faced customer service reps or waste time driving between stores just to find a particular size in stock and can instead get it all with just 1-Click and then spend all that newfound free time going to places that are pleasant and stimulating and offer experiences that enrich the mind and soul. It’s not about online vs. offline. It’s about better vs. worse. It’s about progress.
“There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf.”
-Jeffrey P. Bezos, 2016 Letter to Amazon Shareholders
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1Yes, finally a case study in which we profited from!
2http://fortune.com/2017/06/16/amazon-buys-whole-foods-stock/
3I’m thinking of a chain that starts with an ‘S’ and ends with an ‘ears’
2http://fortune.com/2017/06/16/amazon-buys-whole-foods-stock/
3I’m thinking of a chain that starts with an ‘S’ and ends with an ‘ears’
Tuesday, February 9, 2016
2015 Annual Letter To Investors
_____________________________
The information set forth herein is being furnished on a confidential basis to the recipient and does not constitute an offer, solicitation or recommendation to sell or an offer to buy any securities, investment products or investment advisory services. Such an offer may only be made to eligible investors by means of delivery of a confidential private placement memorandum or other similar materials that contain a description of material terms relating to such investment. All performance figures and results are unaudited and taken from separately managed accounts (collectively, the “Fund”). The information and opinions expressed herein are provided for informational purposes only. An investment in the Fund is speculative due to a variety of risks and considerations as detailed in the confidential private placement memorandum of the particular fund and this summary is qualified in its entirety by the more complete information contained therein and in the related subscription materials. This may not be reproduced, distributed or used for any other purpose. Reproduction and distribution of this summary may constitute a violation of federal or state securities laws.
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