Based on our projections for the years 2002-2004, the biggest driver that effects debt is the company’s operating expenses. Based on the history of the upward trend of operating expenses, our recommendation is that The Body Shop needs to concentrate on lowering the operating expenses, and keeping those expenses around 45% or lower in order to avoid borrowing money. Our 45% recommendation includes a safety net which will prevent having The Body Shop borrowing cash if sale do not continue to climb at a significant rate.
For sales from 2001 to 2002, we are projecting a 13% increase because we want to base the same revenue growth as the previous fiscal year. It will take some time for the company to do better like before in the earlier years in sales growth. This increase however, does show improvement for the company as revenue growth hit a downward turn to 8% in the late 1990’s.
For sales from 2002 to 2003, we are projecting another 13% increase because again we want to base the same revenue growth as the previous two fiscal years. Keeping the sales increase at a steady rate would still mean growth for the company at a consistent rate still showing improvements for the company.
For sales from 2003 to 2004, we are only projecting a 10% increase because of cutting down on operating expenses. For this year, we plan to close down some of the low revenue shops from the malls in America and from Britain’s shopping streets. Our idea for the future is to go back to our old brand image by not being in the mass-market line as much as in the previous years. We project that by closing some shops and cutting some of these operating expenses will also lower our sales growth by a small rate. We also project that more and more competition will be out there and selling the same kind of products at that time in the future.
Cost of Goods Sold
For cost of goods sold (COGS) for each of the following three years, we are projecting that COGS...