Download - Maxwell Shoe Company, Inc
Maxwell Shoe Company, Inc.Maxwell Shoe Company, Inc.
John Spiteri & Raj JoshiJohn Spiteri & Raj Joshi
May 19, 2006May 19, 2006
THE ULTIMATE GOALTHE ULTIMATE GOAL
Our goal today…. Our goal today….
Present some of the underlying aspects of… Present some of the underlying aspects of…
Developing a… Developing a…
………….FORECAST MODEL…..FORECAST MODEL….
Maxwell Shoe Company, Inc.Maxwell Shoe Company, Inc.
Public CompanyPublic Company
Incorporated:1949Incorporated:1949
Employees: 149Employees: 149
Sales 1998: $165.92 Million US Sales 1998: $165.92 Million US
Stock Price 1998: $10.94Stock Price 1998: $10.94
Stock Exchange: NASDAQStock Exchange: NASDAQ
Ticker Symbol: MAXSTicker Symbol: MAXS
Company HistoryCompany History
The Maxwell Shoe Company designs and The Maxwell Shoe Company designs and makes women’s footwear.makes women’s footwear.
The company produces casual and dress The company produces casual and dress footwear for women under the following brand footwear for women under the following brand names: Mootises Tootsies, Sam & Libby, Jones names: Mootises Tootsies, Sam & Libby, Jones New YorkNew York
The company also designed and developed The company also designed and developed private label footwear for selected retailersprivate label footwear for selected retailers
All products are manufactured off-shoreAll products are manufactured off-shore
Product LinesProduct Lines
Mootsies&Tootsies: Mootsies&Tootsies: Moderate, priced in the Moderate, priced in the $25-$40 range$25-$40 range
Sam&Libby: Sam&Libby: Upper Moderate, priced in Upper Moderate, priced in the $35-$50 rangethe $35-$50 range
Jones New York: Jones New York: Upscale, priced in the Upscale, priced in the $65-$80 range$65-$80 range
Private Label:Private Label: Budget, priced in the $12-Budget, priced in the $12-$20 $20 rangerange
Sales ChannelsSales Channels
Department StoresDepartment Stores
Specialty StoresSpecialty Stores
Catalogue RetailersCatalogue Retailers
Cable television shopping channelsCable television shopping channels
1997 JV with GE Capital to operate 130 1997 JV with GE Capital to operate 130 retail Sam & Libby and Jones New York retail Sam & Libby and Jones New York stores through SLJ Retailstores through SLJ Retail
Factors for SuccessFactors for Success
Strong brand recognitionStrong brand recognition
Solid manufacturing relationshipsSolid manufacturing relationships
Low costs through high volumeLow costs through high volume
Good price points to customersGood price points to customers
Good relationships through EDIGood relationships through EDI
Salient DataSalient Data
Category 1995 1996 1997 1998
Revenues 101,870 104,300 134,200 165,900
Sales growth - 2.39% 28.67% 23.62%
Net Income 5,834 6,000 9,100 13,300
Gross Margin 23.5% 23.4% 26.8% 27.1%
Cash & Equiv 6,685 10,400 3,100 18,700
A/R 17,834 16,900 28,600 35,700
Inventory 12,394 12,200 20,100 22,900
CPTD 100 100 100 100
LTD 605 500 300 200
3 Steps to Forecasting3 Steps to Forecasting
1. Accounting Analysis1. Accounting Analysis
2. Strategy Analysis2. Strategy Analysis
3. Financial Analysis3. Financial Analysis
1. Accounting Analysis1. Accounting Analysis
Read financial notes in detail Read financial notes in detail
Ensure accounting policies correspond to Ensure accounting policies correspond to industry practices i.e. look at revenue industry practices i.e. look at revenue recognition policies across competitors to recognition policies across competitors to ensure consistencyensure consistency
Look for inconsistencies i.e. how do they Look for inconsistencies i.e. how do they treat JV revenuetreat JV revenue
Look for ‘noise’Look for ‘noise’
2. Strategy Analysis2. Strategy AnalysisPorter’s Five-Forces Model Porter’s Five-Forces Model
Competition Among Existing
Firms
Competition Among Existing
Firms
Threat of Potential Entrants
Threat of Potential Entrants
Bargaining Power of
Customers
Bargaining Power of
Customers
Threat of SubstituteProducts
Threat of SubstituteProducts
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Figure 5.3
Class ExerciseClass Exercise
5 minute class exercise5 minute class exercise
Each group will be assigned one of the Each group will be assigned one of the five forces and asked to determine the five forces and asked to determine the elements that need to taken into account elements that need to taken into account when developing Maxwell Shoe’s forecast when developing Maxwell Shoe’s forecast modelmodel
Competitive RivalryCompetitive Rivalry
Fairly high competitive rivalry in this Fairly high competitive rivalry in this industryindustry
Large number of firmsLarge number of firms
High fixed & storage costsHigh fixed & storage costs
Low levels of product differentiationLow levels of product differentiation
No real sustainable competitive advantage No real sustainable competitive advantage
Threat of New EntrantsThreat of New Entrants
Ease of entry into the industryEase of entry into the industry
Common technologyCommon technology
Access to many distribution channelsAccess to many distribution channels
Low exit costsLow exit costs
No real asset specificityNo real asset specificity
Supplier PowerSupplier Power
Moderate to LowModerate to Low
Many suppliers in the industry Many suppliers in the industry
Less concentration of powerLess concentration of power
Purchasing commodity productsPurchasing commodity products
Low switching costs however quality may Low switching costs however quality may suffersuffer
Long standing relationships may have Long standing relationships may have significant impact on pricing concessionssignificant impact on pricing concessions
Buyer PowerBuyer Power
LowLow
Manufacturers sell directly to Manufacturers sell directly to wholesale/retail markets which threatens wholesale/retail markets which threatens forward integrationforward integration
No concentrated power by any one buyerNo concentrated power by any one buyer
Many suppliersMany suppliers
Low switching costsLow switching costs
Substitutes ProductsSubstitutes Products
High level of substitute productsHigh level of substitute products
Similar in natureSimilar in nature
50% of sales come from the 18-34 age 50% of sales come from the 18-34 age group which has low loyalty, move with group which has low loyalty, move with trends – could be influenced by a trends – could be influenced by a substitute product quite easilysubstitute product quite easily
Difficult to raise pricesDifficult to raise prices
3. Financial Analysis3. Financial Analysis
US in the year 1999US in the year 1999
DOT COMS are still very ‘hot’DOT COMS are still very ‘hot’Estimated GDP Growth rate of 5%Estimated GDP Growth rate of 5%Inflation rate of 4%Inflation rate of 4%Unemployment rate of 4%Unemployment rate of 4%General economic attitude: Still positiveGeneral economic attitude: Still positiveIndustry is growing at an average rate of 17% Industry is growing at an average rate of 17% over last 5 yearsover last 5 years
Maxwell’s Key RatiosMaxwell’s Key Ratios
$000’s1995 1996 1997 1998
Revenues 101,870 104,300 134,200 165,900
Sales growth - 2.39% 28.67% 23.62%
Net Income 5,834 6,000 9,100 13,300
Gross Margin 23.5% 23.4% 26.8% 27.1%
EPS 0.76 0.72 1.06 1.44
Cash & Equiv 6,685 10,400 3,100 18,700
A/R 17,834 16,900 28,600 35,700
Inventory 12,394 12,200 20,100 22,900
CPTD 100 100 100 100
LTD 605 500 300 200
Maxwell Growth PlanMaxwell Growth Plan
Build on competitive advantage by:Build on competitive advantage by:
Enhance current brandsEnhance current brands
Increase Private Label brandsIncrease Private Label brands
Acquire New BrandsAcquire New Brands
Diversification of brands is designed to Diversification of brands is designed to appeal to a different market segment of appeal to a different market segment of the footwear industry.the footwear industry.
Revenue BreakdownRevenue Breakdown
Mootsies & Tootsies Line: 50% of sales Mootsies & Tootsies Line: 50% of sales appeal to women aged 18-34 appeal to women aged 18-34
Sam & Libby Line: 10% of sales, appeal to Sam & Libby Line: 10% of sales, appeal to women aged 21-35women aged 21-35
Jones New York: 25% of sales, appeal to Jones New York: 25% of sales, appeal to women > 30women > 30
Private Label: account for 15% of salesPrivate Label: account for 15% of sales
FORECASTSFORECASTS
INCOME STATEMENTINCOME STATEMENT
What are key drivers of each of these items:What are key drivers of each of these items:RevenueRevenueCost of SalesCost of SalesSelling ExpensesSelling ExpensesThese items all have a direct impact to These items all have a direct impact to EARNINGSEARNINGS
FORECASTSFORECASTS
BALANCE SHEETBALANCE SHEET
What are the key drivers:What are the key drivers:
Levels of InventoryLevels of Inventory
Collection periodCollection period
PayablesPayables
Debt servicingDebt servicing
FORECASTSFORECASTS
CASH FLOWCASH FLOW
Income statement assumptions drive Income statement assumptions drive revenue however historical balance sheet revenue however historical balance sheet performance will drive the cash flowperformance will drive the cash flow
Sensitivity AnalysisSensitivity Analysis
3 typical scenarios:3 typical scenarios:Optimistic – grow at historical approx.26%Optimistic – grow at historical approx.26%
Probable – grow at Industry approx. 17%Probable – grow at Industry approx. 17%
Pessimistic – grow at GDP or Inflation Pessimistic – grow at GDP or Inflation approx. 4-5%approx. 4-5%
Financial ModellingFinancial Modelling
10 minute class exercise10 minute class exercise
Please open up Maxwell Shoe Company Please open up Maxwell Shoe Company spreadsheet that was sent by Bill spreadsheet that was sent by Bill
Assignment – look at the 3 scenarios Optimistic, Assignment – look at the 3 scenarios Optimistic, Probable and PessimisticProbable and Pessimistic
Try to determine the growth for each scenarios Try to determine the growth for each scenarios and view the effects on the financial statementsand view the effects on the financial statements
What actually happenedWhat actually happened
Reported 48 cents per share for the first Reported 48 cents per share for the first six months of fiscal 1999, below analysts six months of fiscal 1999, below analysts expectations of 61 cents per share.expectations of 61 cents per share.
Disappointing performance was due to Disappointing performance was due to lower than expected sales, attributed to lower than expected sales, attributed to the ‘softness in the footwear market’.the ‘softness in the footwear market’.
In July 1999, Maxwell sold the license for In July 1999, Maxwell sold the license for $25 million to the Jones Apparel Group.$25 million to the Jones Apparel Group.
Financial Results post 1999Financial Results post 1999Category 1999 2000 2001 2002 2003
Revenues 150.3 158.2 182.2 204.4 225.0
Sales growth -9.4% 5.2% 15.2% 12.2% 10.1%
Net Income 18.9 9.9 12.1 13.2 14.9
Gross Margin 24.3% 26.0% 28.9% 27.4% 27.6%
EPS 1.99 1.04 .84 .89 .98
Cash & Equiv 28.9 48.1 58.3 70.5 97.1
A/R 29.8 34.2 37.4 40.7 42.4
Inventory 11.3 12 18.3 18.3 14.2
CPTD 100 0 0 0 0
LTD 0 0 0 0 0
Maxwell Shoe CompanyMaxwell Shoe Company
In 2004, Jones Apparel Group acquired all In 2004, Jones Apparel Group acquired all the outstanding stock of Maxwell Shoe the outstanding stock of Maxwell Shoe Company for $23.25 per share in cash for Company for $23.25 per share in cash for a total value of $369 million.a total value of $369 million.