profit models presentation - apparel sector
TRANSCRIPT
SPECIAL TOPICS ON PROFIT MODELS
Alexandre DemtchenkovRoman FarcyEugénie Régnier
Giulia NicheleLucie SocrateAlberto Palao
Antonio BonifaccioGiorgia MainardiPrudence Wang
GLOBAL STRUCTURE
I. Overall Sector IntroductionIndustry overview: the apparel sectorMain Competitors
II. Companies' Financial Analysis
Abercrombie&FitchInditexGap
III. ConclusionComparison of the 3 companiesComparison with the stock markets
I. OVERALL SECTOR INTRODUCTION
INDUTRY OVERVIEW:THE APPAREL SECTOR
MAIN COMPETITORS
INTRODUCTIONTHE APPAREL RETAILING INDUSTRY SECTOR
Retailers in the apparel industry are primarily engaged in the distribution, merchandising, and sale of men's, women's, and/or children's clothing and accessories to consumers.
Apparel retailers include department stores, mass merchandisers, specialty stores, national chains, discount and off-price stores, outlets, and mail-order companies. A relatively new development is the rise of electronic forms of retailing such as interactive TV and on-line shopping services.
DE
FIN
ITIO
N
GLOBAL APPAREL &TEXTILE INDUSTRY VALUE.
2004 2005 2006 2007 20081,600.00
1,650.00
1,700.00
1,750.00
1,800.00
1,850.00
1,900.00
1,950.00
2,000.00
2,050.00
2,100.00
-0.04
-0.03
-0.02
-0.01
0
0.01
0.02
0.03
0.04
0.05
0.06$ billion % Growth
GLOBAL APPAREL & TEXTILES INDUSTRY SEGMENTATION
Europe 33%
Asia-Pacific 31,70%
Ameri-cas
25,40%
Rest of the World 10%
SUBSTITUTES
- Sport products- Business apparel- Cheap clothing
materials- Electronic retails,
wholesalers
SUPPLIERS- Low power
- Many suppliers
NEW ENTRANTS- Easy to enter- Low cost of
entry- No need of high
R&D costs- Difficult to
establish a dinstinc brand
name
BUYERS- High power
- Retailer industry dependent from consumers purchase
- Variety of choices
PORTER CHART
Highly competitive industry
COMPETITORS
CRITICAL SUCCESS FACTORSAnticipating the coming trends and deciding how they will or won't fit into the company's image.
Learn what customers want, and be able to give them what they want.
Managing inventory levels
International Expansion expand into countries where the greatest potential exists.
Increased Automation and Efficiency
Leveraging Apparel Brands license brands for accessories . This strategy increases exposure for a well- known brand and can build consumer confidence in a specific brand.
Internet can get updated and almost instantaneous information can guide retailers into the right international and domestic cities to build stores, allows a company to make its brand known international
II. COMPANIES’ FINANCIAL ANALYSIS: ABERCROMBIE & FITCH
INTRODUCTION
STRATEGY
COMPANY RISK
FINANCIAL ANALYSIS
1982 1988 1992Companies hire
less
Abercrombie and Fitch (ANF) is headquartered in New Albany, OH. The name Abercrombie and Fitch originated in 1892
but in 1988 it was sold by Oshman’s to the Limited
In 1992 Mike Jeffries and Seth Johnson joined the company and transformed it from a sporting goods/outdoor-indoor apparel outlet to a lifestyle brand concept selling upscale men’s, women’s, and kids casual clothing and accessories
Abercrombie and Fitch began trading on the NYSE in 1996, but remained a division of The Limited until it was spun-off in 1998
At the time of the initial public offering, ANF had 196 stores and $800M in revenue; as of November 2003, ANF operated 651 stores with $1.682B in revenue
1996 2003 2006
In 2006 A&F opened its first store in Canada, In 2007 first store in UK
TIMELINE
Key critical success factors for the retail specialty shop are:
EXPERTISE IN REAL ESTATE
ABILITY TO MAINTAIN INVENTORY FLOW
AT NUMEROUS STORES
IN-STORE PRESENTATIONS
SUCCESSFUL NEW STORES ADDITIONS
ABILITY TO QUICKLY IDENTIFY KEY
TRENDS AND TURN THE TRENDS INTO
SALEABLE MERCHANDISE
Brand Positioning Source: Goldman Sachs
Abercrombie & Fitch American Eagle The Gap
Established 1892 1904 1969
Revenue (billion USD) 6.91 2.8 16
Number of stores 1039 697 3139
Employees 80,100 20,600 150,000
Scope of operation US, Canada, UK US More than 19 countries
THE INDUSTRY STRUCTURE
o ANF’s brand strategy is: - high-quality apparel,
- loud music,
- exposed midriffs
o The company creates a fraternity environment with carefully selected college-age sales staff and photos of college models.
o ANF charges a 20 to 30% premium over comparable merchandise at Gap (GPS) and American Eagle (AEOS); as a result the company has industry-leading operating margins and sales productivity.
o ANF also sells its clothing through an on-line website.
“A lot of people don't belong [in our clothes], and they can't belong. Are we exclusionary? Absolutely. Those companies that are in trouble are trying to
target everybody: young, old, fat, skinny. But then you become totally vanilla. You don't alienate anybody, but you don't excite anybody, either."
STRATEGY & TARGET MARKET No. of Stores :1,125
Employees:99,000 (in 2008) Store Locations: USA, Canada, United Kingdom, Italy Top Competitors: American Eagle ,Outfitters, The Gap & J Crew Group, Inditex, H&M.
Hollist
er C
o.
Ruehl No.925
Gilly Hicks
Abercrombie
& Fitch Abercrombie Kids
• Established July 1998• 7-14-year-old age group • 170 stores in US• “Classic cool” theme• Logo Moose
•Established June 1892•Targets 18-22 year-old age group•357 stores•Theme “Casual Luxury”•Logo Moose
•Established September 2004•Targets 22-35 year adults•Operates 22 stores•Logo French Bulldog
•Established January 2008•Operates 5 stores•Targets 18 and up•Logo Koala•Theme Australia
•Established July 2000•14-18-year-old schoolers •455 stores in US and Canada•Theme “SoCal”•Logo Seagull
BRANDS
SWOTFrom a financial point of view:
S W
O T
Strong brandportfolio
Strong financialperformance
Robust balance sheet
Low inventoryturnover ratio
Limited geographicreach
Expansion in newmarkets
Investment ininfrastructure
Development of newconcepts
Increasing online sales
Counterfeit goods
Increasing rentalrates in US
Slowdown in the USeconomy
Strengths Weaknesses
Opportunities Threats
STRATEGIC TRIANGULATION
Retail stores &
Flagship
stores
Know-how
Financial resources
Retail clothes and
accessorizes and
cosmetics
Multidivisional corporate organization divided by brands with some centralized
organizational functions
Highest quality, trend right merchandise
Emotional Store Experience that stimulates the senses
FINANCIAL KEYFACTS
BALANCE SHEET (million USD)
2006 2007 2008Cash 82 118 522
WC (Working Capital) 370 279 333
PPE 1,092 1,318 1,399
Others -139 -97 -308
Debt 0 0 100
Equity 1,405 1,618 1,846
BALANCE SHEET (million USD)
WC (Working Capital)
0
50
100
150
200
250
300
350
400
2006 2007 2008
BALANCE SHEET (million USD)
PPE
0200400600800
1.0001.2001.4001.600
2006 2007 2008
BALANCE SHEET(million USD)
Others
-350
-300
-250
-200
-150
-100
-50
02006 2007 2008
-500
0
500
1.000
1.500
2.000
2006 2007 2008
USD
milli
on
Cash
WC (Working Capital)
PPE
Others
Debt
Equity
BALANCE SHEET SUMMARY (million USD)
INCOME STATEMENT (million USD)
2006 2007 2008
Revenues 3,318 3,750 3,540
Gross Profit 2,209 2,511 2,362
SGA 1,561 1,783 1,931
Others exp -24 -31 -20
EBIT 672 759 451
Interest Payment 0 0 0
Tax 250 284 179
Net Profit 422 476 272
2006 2007 2008
WC/Revenues 11.14% 7.43% 9.40%
-500
0
500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
2006 2007 20080,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
Revenue Gross Profit SGA Others exp EBIT
Interest Payment Tax Net Profit WC/Revenues
INCOME STATEMENT (million USD)
VALUE ANALYSIS (million USD)
2006 2007 2008
Gross Profit 2,209 2,511 2,362
2006 2007 2008
DV (Dynamic Value) 6,720 7,593 4,508
SV (Static Value) 1,263 1,457 1,694
Total EV 7,983 9,051 6,202
VALUE ANALYSIS (million USD)
Gross Profit
2.0502.1002.1502.2002.2502.3002.3502.4002.4502.5002.550
2006 2007 2008
VALUE ANALYSIS (million USD)
Enterprise Value: Dinamic-Static-Total
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
9.000
10.000
2006 2007 2008
DV (Dinamic Value) SV (Static Value) Total EV
3 FORMULAS (million USD)
2006 2007 2008FCF 43 299 349FinAct -12 -263 55CF 31 36 404
3 Formulas
-300
-200
-100
0
100
200
300
400
500
2006 2007 2008
FCF
FinACt
CF
QUALITY LEVEL 2006 2007 2008g(EBIT) 22.31% 13.00% -40.64%WC/Revenues 11.14% 7.43% 9.40%RoRes 8.88% 8.80% 4.93%EBIT/GP 30.42% 30.24% 19.09%
-50,00%
-40,00%
-30,00%
-20,00%
-10,00%
0,00%
10,00%
20,00%
30,00%
40,00%
2006 2007 2008
g(Ebit) WC/Revenues RoRes Ebit/GP
RISK ANALYSIS (million USD)
2006 2007 2008(AR+Inv)/GP 0.21 0.15 0.18Risk_Inv 0.09 0.08 -0.60Risk_Fin - - 4.51Cash/SGA 0.052 0.066 0.27EV/Equity 5.68 5.59 3.36
-1,00
0,00
1,00
2,00
3,00
4,00
5,00
6,00
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
Risk_Inv Risk_Fin EV/Equity
Cash/SGA (AR+Inv)/GP
COMPANY GRADE 2006 2007 2008
RoRes 8,88% 8,80% 4,93%Rq (ΔQ/Res) 5,01% 2,05% -0,84%Grade B B B
8,88%; 5,01%
8,80%; 2,05%
4,93%; -0,84%-2,00%
0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
0,00% 2,00% 4,00% 6,00% 8,00% 10,00% 12,00% 14,00% 16,00% 18,00% 20,00%
2006
2007
2008
STOCK EVALUATION
ANF 2006 2007 2008
EV/Shares 86.76 98.89 70.59
Price (12/31/xx) 69.63 79.97 23.07
ANF 2006 2007 2008
EPS 4.58 5.19 3.09
Current price 34.73
First resistance 36.36
First support 29.33
How has the stock performed? ANF
Industry
3 Months 14.9% 36.00%
6 Months 24.4% 125.20%
12 Months 69.7% 460.40%
STOCK CHART
II. COMPANIES’ FINANCIAL ANALYSIS : INDITEX
INDITEX
INTRODUCTION
STRATEGY
COMPANY RISK
FINANCIAL ANALYSIS
INTRODUCTION OF THE COMPANY
Brief company’s overview:
Inditex is a multinational clothing retailer with “eight brands” to serve multiple customer segments.
The company has outperformed its peers by having a continuous cycle of textile design and marketing, as well as efficient distribution of new clothing lines via a tightly integrated supply chain.
The Spanish retailer has 4,430 stores across a variety of outlets, the biggest of which is Zara.
It continues to expand, most recently in Asia, while other retailers retrench.
BRAND SEGMENTATION
TIMELINE
BEGINNING
1963-74: Amancio Ortega begins his business in the textile manufacturing sector. The business grows steadily throughout the decade.1975: The first Zara store is opened in Coruña (Spain). 1976: Creation of Inditex as the head of the corporate group.
’70 ’80 ’90 TODAY
1998: Bershka chain, targeting the younger female market. 1999: Inditex adquires Stradivarius. 2001: Launch of Oysho Lingerie chain.
2003: Opening of the 1st Zara Home store.2008: Launching of Uterque, concept specialized fashion accessories. Inditex reaches presence in 73 countries.
1989-90: Opening of outlets in New York and Paris. Inditex continues to open to international.1991: Birth of Pull and Bear and the purchase of 65% of Massimo Dutti (entire share in 1996).
Source: Inditex annual report 2008 – Sales per Brand
BRAND CONTRIBUTION TO REVENUE
ZARA66%
Massimo Dutti7%
Stradivarius6%
Pull and Bear7%
Bershka10%
Oysho2%
ZARA Home2%
INDITEX GLOBAL PRESENCE IN 2008
Europe3,556 stores
37 countries
Asia-Pacific region
118 stores8
countries
Middle East & Africa
12 countries
America338 stores
16 countries
INDITEX STRATEGY
Production & Distribution
•Maintain quality•Cost leardership•High bargaining power to supplier•Distribution system Fast distribution
Marketing
•Market penetration•R&D•Market, location of stores, •Consumers behavior analysis
MIS (Management Information System)
•Order information flow stores’ ordering system•Improving inventory system•Product distribution system
Design
•Coordinate with R&D and also with stores itself to get the new trends
•Ability to produce new design and trends
INDITEX MAIN SUCCESS FACTOR
• Inditex, with its main cheap-chic clothing chain “Zara”, pioneered the concept of “fast fashion”.
• Inditex is able to move from designer’s drawing board to shop floor in as little as two weeks!
• Instead of setting the trends, Inditex follows them. • In the street • From the movies• Couture fashion shows • Information from its customers
CASE: ZARA’S DISTRIBUTION PROCESS
Zara transports its merchandise to the U.S. and Asia by plane, enabling it to arrive in 48 hours. Delivery time in Europe is even faster. Garments are trucked from the distribution
center to stores within a day.
More than 2.6 million items move through the distribution center each week. Using electronic bar codes, each shop’s orders are carefully placed onto the appropriate moving rail.
Once tagged, the garments are sent to the nearby distribution center via tunnel. All merchandise is allocated first by country, then by individual store using a moving carousel of
hanging rails.
Attached labels for each country. When finished clothing is back at the factory, workers handle finishing touches, such as adding buttons and detailing. Each garment is checked for quality.
Once there cast aside. Once the checks are complete, the garments are individually pressed.
The fabric is then bagged and distributed to local sewing cooperatives, which return the finished garments to the factory within a week
Massive rolls of fabric are moved in the factory by lifting equipment. The fabric is rolled out on a large table and covered tightly in plastic before a laser-guided machine cuts it
Design team electronically sends the patterns to the factory across the street, where a prototype is made
Designer sketch out new styles and determine which fabrics offer the best combination of fashion & price
BALANCE SHEET ANALYSIS
ANF (million EUR) 2006 2007 2008
Cash 906 1 466 1 466
A/R+Inv 977 1 208 1 640
A/P 1 280 1 578 0
Others 249 329 -1 580
PPE 2 789 3 182 3 442
Debt 192 414 247
Equity 3 448 4 193 4 722
Shares 621 621 623
WC (Working Capital) -303 -370 1 640Q (Required Operating Asset) 2 735 3 141 3 503
FCF -780 851 900
FinACt 1 636 -292 -899
CF 855 560 1
BALANCE STATEMENT SIX MAIN NUMBERS 2006 2007 2008
Resources used to make money
Cash 906 1 466 1 466
WC (Working Capital) -303 -370 1 640
PPE 2 789 3 182 3 442
Others 249 329 -1 580
Money going into the company
Debt 192 414 247
Equity 3 448 4 193 4 722
BALANCE SHEET ANALYSIS
2006 2007 2008
-2,000
-1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
Balance Statement - 6 Numbers
Cash
WC (Working Capital)
PPE
Others
Debt
Equity
BALANCE SHEET ANALYSIS (WC/OTHERS/PPE)
2006 2007 2008
-500
0
500
1,000
1,500
2,000
WC (Working Capital)
2006 2007 20080
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
PPE
2006 2007 2008
-2,000
-1,500
-1,000
-500
0
500
Others
INCOME STATEMENT ANALYSIS
ANF (million EUR) 2006 2007 2008 2006 2007 2008 2008-2007
Productive Activity
Revenue 8 196 9 435 10 407 Revenue 100% 100% 100% 10,31%
Gross Profit 4 607 5 349 5 914 Gross Profit 56,2% 56,7% 56,8% 10,57%
SGA 1 969 2 328 2 732 SGA 24,0% 24,7% 26,2% 0,00%
Others exp 1 282 1 368 1 574 Others exp 15,6% 14,5% 15,1% 15,04%
EBIT 1 356 1 652 1 609 EBIT 16,5% 17,5% 15,5% -2,64%
Distribution Activity
Interest Payment 17 7 22 Interest Payment 0,2% 0,1% 0,2% 227,27%
Tax 330 388 325 Tax 4,0% 4,1% 3,1% -16,14%
Net Profit 1 044 1 271 1 305 Net Profit 12,7% 13,5% 12,5% 2,68%
INCOME STATEMENT ANALYSIS
2006 2007 20080
2,000
4,000
6,000
8,000
10,000
12,000
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
Revenue
Gross Profit
SGA
Others exp
EBIT
Interest Payment
Tax
Net Profit
WC/Rev-enues
2006 2007 2008
WC/Revenues -3,70% -3,92% 15,76%
VALUE ANALYSIS
ANF (million €) 2006 2007 2008
Gross Profit 4 607 5 349 5 914
2006 2007 20080
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Gross Profit
VALUE ANALYSIS
ANF (million €) 2006 2007 2008
DV (Dynamic Value) 13 563 16 521 16 085
SV (Static Value) 3 047 3 721 4 371
Total EV 16 610 20 242 20 456
2006 2007 20080
5,000
10,000
15,000
20,000
25,000
Enterprise Value: Dinamic-Static-Total
DV (Dinamic Value)
SV (Static Value)
Total EV
3 FORMULASANF (million €) 2006 2007 2008 Variation
FCF -780 851 900 -215,32%
FinACt 1 636 -292 -899 -154,98%
CF 855 560 1 -99,94%
Δ Cash 855 560 1
2006 2007 2008
-1,500
-1,000
-500
0
500
1,000
1,500
2,0003 Formulas
FCF FinACt
CF
QUALITY LEVEL ANALYSISANF 2006 2007 2008
g(Ebit) 146,86% 21,81% -2,64%
WC/Revenues -3,70% -3,92% 15,76%
RoRes 12,78% 13,27% 11,15%
Ebit/GP 29,44% 30,89% 27,20%
2006 2007 2008-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
160.00%
g(Ebit)
WC/Revenues
RoRes
Ebit/GP
RISK ANALYSIS
ANF 2006 2007 2008
(AR+Inv)/GP 0.21 0.22 0.27
Risk_Inv 0.18 0.16 -0.02
Risk_Fin 7.04 3.99 6.50
Cash/SGA 0.46 0.62 0.53
EV/Equity 4.81 4.82 4.33-100.00%
0.00%
100.00%
200.00%
300.00%
400.00%
500.00%
600.00%
700.00%
800.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Risk_Inv Risk_Fin EV/Equity
(AR+Inv)/GP
GRADING THE COMPANY
ANF 2006 2007 2008
RoRes 12,78% 13,27% 11,15%
Rq (ΔQ/Res) 16,87% 3,26% 2,51%
Grade B B B
SPEED EBIT as high as possible
BREAKDOWN Critical Factors (Inventory)
COST OF MAINTENANCE ΔQ as low as possible
GRADING THE COMPANY
11.00% 11.50% 12.00% 12.50% 13.00% 13.50%0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%16.87%
3.26%2.51%
RoRes
2007
2006
2008
INDITEX Variation
Rq
(Δ
Q/R
es)
PERFORMANCE EVALUATION
Nov 24, 2008
Open €24.40High €26.39Low€24.12Close €26.06
Nov 8, 2007
Open €52.26High €53.90Low €52.05Close €52.45
ITX.MC on Madrid SE C.A.T.S.
Source: www.reuters.com
1 Year 3 Years 5 Years
Sales % 10.31 15.58 17.73
EPS % 0.13 15.94 22.99
Dividend % 0.00 24.89 48.56
Note: Units in Millions of US Dollars
Period%
Actual% vs.
S&P 500Rank InIndustry
IndustryRank
4 Week -1.02 -2.63 64 2
13 Week 15.06 9.09 83 9
26 Week 32.65 3.76 79 21
52 Week 69.07 19.52 60 30
YTD 36.80 4.73 47 42
Note:: Rank is a percentile that ranges from 0 to 99, with 99 = best.
PERFORMANCE EVALUATION
Growth for INDITEX SA
Performance for INDITEX SA
Source: www.reuters.com
II. COMPANIES’ FINANCIAL ANALYSIS: GAP INC.
INTRODUCTION
STRATEGY
COMPANY RISK
FINANCIAL ANALYSIS
“I created Gap with a simple idea: to make it easier to find a pair of jeans. We remain
committed to that basic principle.”
Don Fisher
1969450,000 people witnessed the Woodstock concert. Man took his first walk on the moon.
1969: THE SHOCK
TIMELINE
BEGINNING
1969: Founders Doris and Don Fisher open the first Gap store in San Francisco, California.
’70 ’80 ’90 TODAY
1970: Sales reach $2 million. 1976: Gap goes public, offering 1.2 million shares of stock on the New York and Pacific Stock Exchanges.
1983: Gap Inc. acquires Banana Republic. 1987: The first Gap store outside the United States opens in London and the first Gap Kids store in California
1994: First Old Navy store in California. 1997: Old Navy reached $1 billion in annual sales in less than four years.
TODAYXXI CENTURY
2001: Old Navy makes its debut outside the United States, opening 12 stores in Canada2003: Gap Inc. Founder Don Fisher announces decision to step down as Chairman of the Board2005: Gap Inc. relaunches gap.com, BananaRepublic.com & oldnavy.com2006: Gap Inc. launches its first online-only brand, Piperlime2007: Gap franchise stores open in new countries: United Arab Emirates, Bahrain, Indonesia, Kuwait, Qatar, Korea, Oman, Turkey, Philippines, Riyadh and Saudi Arabia.2008: The first Banana Republic franchise store opens in Bahrain, followed by Indonesia, Kuwait, United Arab Emirates, Malaysia, Singapore, Korea and Oman.
WHO IS GAP Inc. TODAY ?Gap is a specialty retailer that sells casual apparel, accessories and personal careproducts for men, women and children.
BRAND PORTFOLIO
The company manages 3,167 stores in US, Canada, the UK, France, Ireland and Japan and also some unaffiliated franchisees to operate in Asia, Europe and Middle East throughout franchise agreements.
HOW CLOTHES ARE MADE
Design and Merchandising
Planning and Sourcing
Production and Marketing
Distribution
Sales & Analysis
OWNERSHIP
22%
59%
19%
Shareholders situation
Fisher Robert J.- John J. & William S.Istitutional InvestorsOthers
STRATEGIC TRIANGULATION
Retail stores
Worldwide plants
Know-how
Financial resources
Retail clothes and
accessorizes
Multidivisional corporate organization divided by brands with some centralized
organizational functions
Make it easy for customers to express their personal style throughout their
life
S
O
W
T
• Long history of 40 years• Established name• Global approach• High R&D investment• Internationalization in production• Low labor cost• Sustain such a large supply chain • Enough inventories in the stock
• Narrow niche • Limited sales growth High risk• No a distinct name in certain sectors • Not been able to maintain a fashion identity
• Increase its span of business in different sectors
• Daily appearance of many brands in retailing industry• Possible tariffs from government over the imported materials• Minor disturbance in the long supply chain of the company• Increasing cost of labor in other countries and decline in value of USD
41%
39%
18%2%
GapOld NavyBanana Repub-licOther
BRAND SEGMENTATION
FINANCIAL KEYFACTS
BALANCE SHEETGAP Inc (million USD) 2006 2007 2008
Cash 2,030 1,724 1,715
WC (Working Capital) 687 569 531
PPE 3,197 3,267 2,933
Others -227 -1,042 -690
Debt 513 244 102
Equity 5,174 4,274 4,3872006 2007 2008
2,700
2,800
2,900
3,000
3,100
3,200
3,300
PPE
2006 2007 2008
-1,200
-1,000
-800
-600
-400
-200
0
Others
2006 2007 20080
100
200
300
400
500
600
700
800
WC (Working Capital)
BALANCE SHEET
2006 2007 2008
-2,000
-1,000
0
1,000
2,000
3,000
4,000
5,000
6,0006 Numbers
Cash WC (Working Capital) PPE Others Debt Equity
GAP Inc (%)2006 2007 2008
Revenue 100% 100% 100%
Gross Profit 35,4% 36,1% 37,5%
SGA 0,0% 0,0% 0,0%
Others exp 28,1% 27,8% 26,8%
EBIT 7,4% 8,3% 10,7%Interest Payment 0,6% 0,7% 0,2%
Tax 3,0% 3,4% 4,2%
Net Profit 4,9% 5,7% 6,7%
INCOME STATEMENTGAP Inc (million
USD) 2006 2007 2008
Revenue 15,94315,76314,526Gross Profit 5,649 5,692 5,447SGA 0 0 0Others exp 4,475 4,377 3,899EBIT 1,174 1,315 1,548Interest Payment 90 117 36Tax 486 539 617Net Profit 778 893 967
2006 2007 2008
WC/Revenues 4.31% 3.61% 3.66%
2006 2007 20080
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
Revenue Gross Profit SGA Others exp EBITInterest Payment Tax Net Profit WC/Revenues
VALUE ANALYSISGAP Inc (million USD) 2006 2007 2008
Gross Profit 5,649 5,692 5,447
GAP Inc (million USD) 2006 2007 2008
DV (Dinamic Value) 11740 13150 15480
SV (Static Value) 4697.4 3894 4012.1
Total Ev 16437.4 17044 19492.1
2006 2007 20085,300
5,350
5,400
5,450
5,500
5,550
5,600
5,650
5,700
5,750
Gross Profit
2006 2007 20080
5000
10000
15000
20000
25000
Enterprise Value: Dinamic-Static-Total
DV (Dinamic Value) SV (Static Value) Total Ev
3 FORMULAS
GAP Inc (million USD) 2006 2007 2008
Free Cash Flow 1024 1756 987
Financial Activities -1029 -2062 -996
Cash Flow -5 -306 -9
2006 2007 2008
-2500
-2000
-1500
-1000
-500
0
500
1000
1500
2000
FCF FinACt CF
QUALITY LEVEL
GAP Inc 2006 2007 2008
g(Ebit) -32.72% 12.01% 17.72%
WC/Revenues 4.31% 3.61% 3.66%
RoRes 32.10% 47.07% 55.80%
Ebit/GP 20.78% 23.10% 28.42%
2006 2007 2008
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
g(Ebit) WC/Revenues RoRes Ebit/GP
Gap Inc 2006 2007 2008
(AR+Inv)/GP o.36 0.30 0.31
Risk_Inv 2.32 -0.16 -11.65
Risk_Fin 2.29 5.39 15.18
EV/Equity 3.18 3.99 4.44
RISK ANALYSIS
2006 2007 2008
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
0%
5%
10%
15%
20%
25%
30%
35%
40%
Chart Title
Risk_Inv Risk_Fin EV/Equity (AR+Inv)/GP
GRADING THE COMPANY GAP Inc 2006 2007 2008
RoRes 32.10% 47.07% 55.80%
Rq (ΔQ/Res) -6.73% -30.89% -0.72%
Grade A A A
SPEED Ebit as high as possible
BREAKDOWN Critical Factors (Inventory)
COST OF MAINTENANCE ΔQ as low as possible
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%
-35.00%
-25.00%
-15.00%
-5.00%
5.00%
15.00%
25.00%
35.00%
2006
2007
2008
STOCK EVALUATION
GAP Inc 2006 2007 2008
EV/Shares 20.19 23.22 28.09
Price (12/31/xx) 19.50 21.36 13.39
GAP Inc 2006 2007 2008
EPS 0.96 1.22 1.39
Current price 21.77
First resistance 22.11
First support 17.62
How has the stock performed? Gap
Industry
3 Months 3.10% 36.00%
6 Months 30.90% 125.20%
12 Months 65.30% 460.40%
01/01/2006 01/01/2007 01/01/20080.00
5.00
10.00
15.00
20.00
25.00
GAP Inc
III. CONCLUSION
WORKING CAPITAL
Working Capital
-500,00
0,00
500,00
1.000,00
1.500,00
2.000,00
2006 2007 2008
Abercrombie & Fitch Zara Gap
Working Capital
-1.000,00
-500,00
0,00
500,00
1.000,00
1.500,00
2.000,00
2.500,00
2006 2007 2008 2009
Abercrombie & Fitch Zara
Gap Lineal (Abercrombie & Fitch)
Lineal (Zara) Lineal (Gap)
WC is one of the most critical factors in our industry. As shown
in the chart both ANF and GPS have manage to keep it quite
stable, even decrease it. INDITEX, although 2 great years with
negative figures boomed on 2008, where their B/S show almost
negligible A/P making the WC to rise, this can be due to a
reconfiguration of their balance sheet as the current liabilities
either boomed in the same way.
After the review we believe GPS is making the best job lowering
their WC year by year and INDITEX should take action in order
to control this unbalance from one year to another.
FREE CASH FLOW
FCF
-1000
-500
0
500
1000
1500
2000
2006 2007 2008
Abercrombie & Fitch Zara Gap
FCF
-1000
-500
0
500
1000
1500
2000
2500
2006 2007 2008 2009
Abercrombie & Fitch Zara
Gap Lineal (Zara)
Lineal (Gap) Lineal (Abercrombie & Fitch)
We understand FCF as the measure for the cash a company is
able to generate while running their business. One
characteristic from the companies analyzed is that they try to
self-finance their growth. As a result they try to keep a lot of
cash to face new developments. As we can see in the chart
INDITEX has changed its trend from a negative to a positive
position. The other two companies have tried to maintain a
strong position during these years.
The trend shows how they are supposed to keep on growing
their FCF so they will be less dependant on obtaining new
credits or finance from the outside.
RETURN ON RESOURCES
RoRes
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
2006 2007 2008
Abercrombie & Fitch Zara Gap
RoRes gives us a good measure to evaluate the quality of management.
For GPS the situation, although it looks quite perfect, it is a bit
different, as they are allocating the SGA expenses into ‘other expenses’.
But their EBIT is increasing steadily due to a higher efficiency on
managing the operations of the company.
ANF has not changed their strategy (high/premium prices) to confront
the economic crisis and they kept on growing with new stores opening.
That combined with the change on consumer behavior to choose
cheaper clothes has affect negatively their business.
INDITEX as well has suffered because of the economic slowdown.
However it didn’t stop them on continue growing. So more stores, more
people, more investment and less revenues means less efficiency.
FINANCIAL RISK
Financial Risk
0,00
2,00
4,00
6,00
8,00
10,00
12,00
14,00
16,00
2006 2007 2008
Abercrombie & Fitch Zara Gap
The Financial Risk relates our earnings with our long term debt. So in a
way, our ability to repay the debt .
The case of ANF is a bit particular as they didn’t have any debt until
2008, when they borrowed $100M.
As we can see from the chart, those companies revenues are high
enough to face the repayments and none of them would have any trouble
at a first sight.
GPS has increased their earnings year to year, in the same way their
ability to repay increased too.
FINAL RANK
ANF 2006 2007 2008
RoRes 8,88% 8,80% 4,93%
Rq (ΔQ/Res)
5,01% 2,05% -0,84%
Grade B B B
GAP Inc 2006 2007 2008
RoRes 32.10% 47.07% 55.80%
Rq (ΔQ/Res)
-6.73% -30.89% -0.72%
Grade A A A
INDITEX 2006 2007 2008
RoRes 12,78% 13,27% 11,15%
Rq (ΔQ/Res)
16,87% 3,26% 2,51%
Grade B B B
Antonio Bonifacio 98300317
Giorgia Mainardi 98300316
Alexandre Demtchenkov 98300306
Roman Farcy 98300304
Guilia Nichele 98300318
Alberto Palao 98300327
Lucie Socrate 98300325
Eugénie Régnier 98300305
Prudence Wang 97933008
GROUP MEMBER
S