YYYRRR

Decision entries yr 11 The Company C decisions are not overly aggressive but are a more balanced decision strategy

Our current projection is EPS $2.81, ROE 24.2%, A credit rating, and Image 70, compared with investor expectations of $2.50, 21%, B+, and 70. Revenue is projected at $466.299 million, profit at $55.577 million, and ending cash at $25.703 million.

 Yr 11 assessments

Area		My comment
EPS $2.81		$0.31 above expectation
ROE 24.2%		3.2 points above expectation
Credit A		Above B+ expectation
Image 70		Exactly at expectation
Revenue +7.8%		Healthy growth
Profit +38.9%		Profit growing much faster than revenue
Ending cash $25.7M		Strong liquidity
Production		Okay but need to  watch regional shortages
Marketing		Okay but need to watch for competitors
CSRC		Little on the expensive side relative to current image result
Debt/finance		Strong
Private label		Currently unused opportunity
Celebrity		$0 is reasonable for now

 

1. Profitability — strong

Revenue increases only 7.8%, but net profit increases 38.9%. That indicates substantially better profitability rather than simply chasing sales.

Our projected:

Revenue: $466.299M Net profit: $55.577M Net margin: approximately 11.9%

And EPS remains above investor expectations.

Being conservative not to spend because of having extra cash.

EPS:

$2.81 vs. $2.50 required only have a cushion of $0.31 per share

Spending may be suppressing earning, need to stay within  $2.80 EPS.

 

3. ROE — strong

ROE of 24.2% versus the required 21% gives provides a comfortable cushion.

The 200,000-share repurchase helps here because it reduces outstanding shares from 20 million to 19.8 million.

4. Credit rating — one of our strongest areas as the credit target is only a B+

Interest coverage: 6.62 to 10.23

Debt/assets: 0.39 to 0.32

Default risk: Medium to Low

Credit rating: A

Recommendation

 

5. Production — generally good

The production concentrated in:

North America Asia-Pacific

with no production facilities in Europe-Africa or Latin America.

Production capacity shows 4.0 million pairs in North America and 5.0 million in Asia-Pacific after the additional refurbished equipment in A-P.

That Asia-Pacific investment makes strategic sense because A-P can supply several regions.

 

6. Inventory/distribution — this is something that we could possibly improve but not necessary

Projected pairs available for sale are approximate from Warehouse projection:

Region	Available	Demand	Difference
N.A.	2,642K	2,612K	+30K
E-A	2,248K	2,212K	+36K
A-P	1,637K	1,620K	+17K
L.A.	1,590K	1,662K	-72K

Concern is L.A., projected to have fewer pairs available than demand there, and once required inventory for your three-week delivery promise is considered, all four regions show very lean inventories. May not have much protection against stronger-than-projected demand.

Maybe move roughly 50K–75K additional pairs toward Latin America without materially hurting another region.

Product/Quality:

Projected branded S/Q ratings are:

North America: 5.5★

Europe-Africa: 5.2★

Asia-Pacific: 4.6★

Latin America: 4.6★

offering about 249 models across the markets.

This means Company C isn't competing only on low price but giving customers reasonable variety and product quality.

Wholesale/marketing:

Strategy uses substantial brand advertising and regional pricing. Marketing structure is built around wholesale price, advertising, rebates, delivery time, retailer support and other competitive factors.

We have significant advertising expenditures. So, incrementally adjust while watching projected profit and demand from price to rebate to retailer support then advertising unless sales produce more profit.

 

 

 

 

 Internet marketing — need to closely monitor

The Internet price needs to remain sufficiently above the wholesale price so as not to undermine retailers.

 

Private label —

Currently:

Private-label production = 0, unless we calculate a clearly profitable bid of branded footwear. Concern is Latin America shortage.

11. Celebrity endorsements $0 for now

Don’t need to sign a celebrity simply because one is available.

A celebrity could increase regional appeal, but the contract has to generate enough additional sales/profit to justify its annual cost.

 

12. CSRC -biggest concern

This is the part of the plan I would investigate most carefully.

Total CSRC cash outlays = $10.5M, which is aggressive

Energy efficiency = $6.9M

Charitable contributions = $1M

plus other selected initiatives.

Projected Image Rating remains: 70, equal to investor expectations, not above it.

 

The  BSG screen says aggressive and astute CSRC pursued over five years can add 15–20 image points.

We could lower CSRC  and see whether Image stays at 70.

Maybe try $6.9M energy-efficiency expenditure

Charitable contribution — $1M is reasonable

It's enough to establish that Company C has begun a CSRC strategy without sacrificing a huge amount of profit.

Stock repurchase

repurchasing:

200,000 shares × $30.30 = $6.06M

That's the maximum allowed in Y11.

Company shares therefore decline:

20.0M → 19.8M

Still gives sufficient cash, and it supports EPS/ROE.

15. Dividend

 Cash outlay shows:

Dividend payments = $9.9M

With 19.8M shares, that's approximately:

$0.50 per share.

Year 10's dividend was $1.00.

So you appear to have cut the dividend in half.

We have enough projected cash that we could test using the following and compare the results

$0.75

and

$1.00

 

 

 

 

Ending cash — healthy

Beginning cash:

$6.074M

Ending cash:

$25.703M

Increase:

+$19.629M

The $25.7M gives Company C flexibility for Y12.

17. Equipment purchase

Spent $14.4M on refurbished equipment in Asia-Pacific versus building a new plant. Hold off on building Europe-Africa or Latin America capacity merely because those markets exist. Just need to determine whether existing N.A./A-P network can supply them profitably.

 

No expensive production upgrades yet

The optional production upgrades are substantial.

For example, your screen shows:

Option A — reduce rejects 50%: $10M N.A. / $12.5M A-P

Option B — reduce setup costs: $6.4M / $8M

Option C — +1 S/Q star: $19.2M / $24M

Option D — +50% worker productivity: $57.6M / $72M.

The projected performance doesn't yet justify such enormous capital spending.