The Body Shop

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Introduction

Case 8 The Body Shop International PLC reviews some of the company decisions and history leading up to 2001. In the 1990’s, The Body Shop was growing at 20% annually. Similar to any company experiencing rapid growth, The Body Shop’s growth numbers slowed down to 8%. The slowdown was primarily due to increased competition in the market. This increased competition lead to The Body Shop getting away from its roots failing to maintain its brand image. The company expanded into about every store available in America and Britain. The company then tried to reinvent itself, but was unable to do so. This led to Anita Roddick, founder of The Body Shop to step down from her position of Chief Executive Officer. The company would soon have a new leader.

Patrick Gournay was chosen as the new CEO. His background was in the food industry. He did not immediately provide the turn around the company needed. Problems still persisted and even though revenue grew in 2001, pretax profit declined by 21%. Despite these results the company was confident if they stuck to their new strategy they would be successful. In the spring of 2001, the new CEO came to me to looking for assistance in short and long-term planning. While creating the pro forma financial statements I should keep in mind the following questions that will be asked of me. How did you derive your forecast? How much additional financing will be needed? What are the four most important assumptions? What sensitivities are explored? What are my feelings?

How did you derive your forecast?

Income Statement

The first number to project for the income statement was sales. Growth was 8.7% and 13.3% for 2000 and 2001 respectively. In forecasting sales, it is best to use five years of sales data to create an estimate. In this case, we are only given the last two years. I used 11%, which was a...
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