Professional Documents
Culture Documents
By, Pratik Kamdar Rajani Meka Raj Dhawle Patil Shih-Wei Huang
Presented April 5, 2011
RCMP Portfolio
Currently, Portfolio holds 2000 shares
1500 shares are held, remaining from three different purchases beginning in December 1999, at the split adjusted price of $5.23 per share. Currently, the position has an unrealized gain of 203% as on 3rd April, 2011 Multiple sales of these three original purchases have been made since then, each producing sizable capital gains 500 shares were bought at the price of $9.07 per share on 3rd Dec. 2008. Currently, the position has an unrealized gain of 75% as on 3rd April 2011 At present, AEO represents 28% of our portfolio holdings by Market Value
The Company
An American clothing and accessories retailer based in Pittsburg, PA Sells its merchandise through stand-alone stores in malls and online through www.ae.com
Key Facts:
Founded in 1977 Headquarters: Pittsburg, PA Currently operates 1086 stores in US & Canada; Avg. store size-4700 selling sq.ft. CEO: James V. O'Donnell Employs around 39,900 people Stock trades on NYSE under symbol AEO
Recent News:
On 9th March 2011, Company CEO James V. ODonnell expressed his intention to retire. Search for New CEO is on Recent Speculation regarding Company being an attractive LBO target; Reason: Company posted negative comparable sales growth during quarter fiscal 2010 but still cash rich On 31st July 2010, Completed Closure of its brand M+0; Reason: brand was not achieving performance levels commensurate with investments.
History
1977-Funded by Mark & Jerry Silverman as a subsidiary of Retail Ventures, Inc., which operated Silvermans Menswear 1989- Bothers sold other businesses & decided to focus only on AEO 1991-Schottensteins, 50% owner in AEO bought out remaining 50% interest from Silverman family 2001-Opened AEOs 1st Canadian Store 1994- Company went Public 2006-Company launched new brand M+O for Adults and Aerie for Women 2008-Launched new brand 77Kids for children 2010-Closed M+O; Opened first International Store in Dubai, UAE
AEO Stores
AEO Designers
Business Segments
AE
Apparels & Accessories for Men & Women aged 15-25; Total 929 stores across US & Canada
aerie AE Direct
Sells All Merchandise Online; Ships to 76 Countries worldwide
AEO, Inc.
77Kids
Apparel & Intimates Collection for college going Girls; 148 Stores across US & Canada
Clothing & Accessories for Babies & Kids aged 0-10 years ; 9 Stores across US & Canada
Management Outlook
Company expects an improvement in sales on the basis of solid product line up, continued cost cuts & better managed Inventory Company Expects to Mitigate Rising Product Costs with Targeted Reduction in Mark-downs, Selective Price Increases & On-going Cost Savings Internal Development of New Brands
Expansions Overseas though Franchise route while keeping an eye on Acquisition Opportunities
Growth Strategy:
International Expansion: The company is entering into Multiple Franchise Agreements to open Series of AE Stores at International Locations: Year 2009 2010 2011 Party Alshaya Trading Co. Dickson Concepts Ltd. Sumikin Bussan Co. & Fox Wizel Ltd. Region Middle East, North Africa, Eastern Europe China, Macau (commences 2011) Japan, Israel (commences 2012)
* No Capital/ Operational Involvement Opening New Stores: Depending on Geography and Demographics Remodel Old Stores to Current Store Format to Offer Unique Shopping Experience Strengthen e-commerce Operation Cut Costs & Manage Inventory
Annual Comparable Store Sales were down 1% over comparable figure in 2009
Net Income (from Cont. Operations) was 6% against 7% of Sales in 2009owed to loss from selling Inv. Securities
Source: finance.yahoo.com
SWOT Analysis
Strengths: Weaknesses: Affordability Fickle Customer Base/Low Solid Geographical Presence Pricing Power No Financial Leverage, High Excessive Dependence on Operating Cash Flow One Supplier Good Product Assortment Seasonality Slow Moving Inventory Opportunities: International Expansion Internal Development of New Brands Economic Recovery Risks: Cotton Prices Inventory Risk due to Misidentification of Trends Economic Condition and Growth Discretionary Spending Failure of New Brand Offerings
MARKET OVERVIEW
MARKET VALUE: The global apparel retail industry grew by 2.1% in 2009 to reach a value of $1,078.2 billion. MARKET VALUE FORECAST: In 2014, the global apparel retail industry is forecast to have a value of $1,222.7 billion, an increase of 13.4% since 2009. MARKET SEGMENTATION: Women's wear is the largest segment of the global apparel retail industry, accounting for 51.3% of the Industrys total value. GEOGRAPHIC SEGMENTATION: The Americas account for 35.7% of the global apparel retail industry value.
MARKET RIVALRY: Despite the current global economic downturn, the apparel retail industry continues to grow at a healthy rate and this, coupled with the absence of switching costs for consumers and great product differentiation, means that rivalry within the industry is no more than moderate.
http://www.ibisworld.com/search/default.aspx?st=american+eagle+outfitters&srtid=0
Historic Growth
TABLE 1: Global Apparel Industry Value :$ billion Year $billion % Growth
2005
2006 2007 2008 2009 CAGR 2005-09
954.1
1003.4 1040.8 1056.0 1078.2 5.2 3.7 1.5 2.1 3.1
http://www.ibisworld.com/search/default.aspx?st=american+eagle+outfitters&srtid=0
Historic Growth
http://www.ibisworld.com/search/default.aspx?st=american+eagle+outfitters&srtid=0
Segmentation by Age
http://www.ibisworld.com/search/default.aspx?st=american+eagle+outfitters&srtid=0
Forecasted Growth
http://www.ibisworld.com/search/default.aspx?st=american+eagle+outfitters&srtid=0
Forecasted Growth
http://www.ibisworld.com/search/default.aspx?st=american+eagle+outfitters&srtid=0
MARKET SEGMENTATION
http://www.ibisworld.com/search/default.aspx?st=american+eagle+outfitters&srtid=0
Bargaining power of Suppliers(low) Liberization of trade. Industry is mostly labor intensive Low switching cost for retailers
$422
$420
$339
$390
$365
$383
572
624
GAP (%)
2009 2010
Aeropostale (%)
2009 2010
-4
-1
-23
-3
10
Competitors
Abercrombie and Fitch, Inc (Ticker: ANF) Presence in North America, Europe and Asia
FY 2010 Revenue : 3.47B
Presence in United States, Canada, the United Kingdom, France, Ireland, and Japan. FY 2010 Revenue: $14.66B
Source: http://www.google.com/finance
Source: http://globalbb.onesource.com/homepage.aspx
Ratio Comparisons
ANF Receivables Turnover Receivables Days Sales Inventories Turnover Inventories Days Sales 40.29 9.06 3.61 101.16
with
Competitors
URBN 62.48 5.84 6.43 56.72 GPS 5.67 64.41 AEO 83.13 4.39 5.72 63.76
Source: http://globalbb.onesource.com/homepage.aspx
Operating Margin
Net Margin ROA
8.15%
4.33% 6.12%
16.11%
9.64% 30.64%
18.21%
12.00% 15.11%
13.42%
8.21% 16.35%
ROE 8.08% 53.36% Payout Ratio 42.00% N/A PEG Ratio(5 yr expected) 1.08 0.84
Source: http://globalbb.onesource.com/homepage.aspx
Float Number
ANF Shares Outstanding Float 87.25 86.1 ARO 87.46 86.6 URBN 164.41 127.7 GPS 606 526.73 AEO 194.69 172.02
Source: http://finance.yahoo.com
70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2008 2009 2010 2011
Source: http://globalbb.onesource.com/homepage.aspx
Comparable Approach
Market Cap ($mm) Diluted Book Value EPS Per Share ($/Share) Revenue Per Share EV ($mm) EBITDA ($mm)
Company Name
Ticker
Price
American Eagles Outfitters, Inc Abercrombie and Fitch Aeropostale, Inc Gap, Inc
AEO
3,080
15.84
0.7
6.95
14.8
2410
462.81
5,220 2,120
59.7 24.31
1.67 2.49
21.67 4.95
39.39 26.18
2310 1,900
506.21 442.67
4,970
13,650
30.24
22.71
1.6
1.88
8.58
6.73
13.63
23.06
4820
1,168
514.01
253
Source: http://globalbb.onesource.com/homepage.aspx
Aeropostale, Inc
Urban Outfitters, Inc Gap, Inc Average Multiple Triangulation P/E P/B P/S DCF Value Price 13.4 25.31 20.95 15.49
ARO
URBN GPS
9.76
18.90 12.08 19.12
4.91
3.52 3.37 3.64
0.93
2.22 0.98 1.41
4.29
9.38 4.62 5.71
Triangulated Value
Source: http://globalbb.onesource.com/homepage.aspx
12.39% 3.00%
Share Price
$15.49
Sensitivity Analysis
Terminal Growth Rate
Discount Factor
15.49 2% 2.5% 3% 3.5% 4% 4.5% 11% 11.50% 16.7 17.4 18.2 19.1 20.2 21.4 15.8 16.4 17.1 17.9 18.8 19.8 12% 12.39% 15.0 15.6 16.2 16.9 17.6 18.5 14.4 14.9 15.5 16.1 16.8 17.6 12.5% 13.00% 14.3 14.8 15.3 15.9 16.6 17.4 13.6 14.0 14.5 15.1 15.7 16.3 13.5% 13.0 13.4 13.8 14.3 14.8 15.4 14.0% 12.4 12.8 13.2 13.6 14.1 14.6
DuPont Analysis
2009 2010 2011 2012 2013 2014
200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% 2009 2010 2011
Tax Interest Burdan Burden 0.61 0.93 0.7 0.98 0.62 0.93 0.62 1.00 0.62 1.00 0.62 1.00
DuPont Analysis
Operating Asset Levera Profit Margin Turnover ge ROE 0.11 1.58 1.28 16.70% 0.11 1.38 1.43 14.26% 0.11 1.58 1.28 12.42% 0.11 1.55 1.43 14.88% 0.11 1.55 1.42 14.80% 0.11 1.53 1.41 14.41%
Tax Burdan Interest Burden Operating Profit Margin Asset Turnover Leverage 2012 2013 2014
Source: http://globalbb.onesource.com/homepage.aspx
Recommendation
DCF Valuation Range: $13.08- $19.45 with Base case share price at $15.49 Triangulated Value at : $15.83 Current Market Price: $16.22 Sell 500 shares @ current market price
MCD
14.08%
MOS
10.03% 11.37%
WAG WFR
12.98%
Unrealized Gains
210.42% 78.83%
Recommendation
Sell 500 shares