North Face
Sally Chin Monique Harper Marmeline Petion Eric Yaker
Advanced Financial Analysis Final Group Project The North Face, Inc. December 5, 1999
Table of Content
SECTION I
Industry Analysis
Overview Industry Trends Competitive Landscape
3
3 4 5
SECTION II
Company Analysis
Background Strategy-SWOT Analysis Strategy-Porter’s Five Forces 6 6 7 9
SECTION III
Accounting Analysis
Cash Flow Analysis Quality of Earnings Earnings Manipulation 10 10 10 11
SECTION IV
Financial Analysis
Dupont Decomposition DCF Assumptions WACC Calculation DCF Results Multiples EBO Valuation Dupont Decomposition 12 12 12 13 13 13 14 14
SECTION V
Conclusion
14
Appendix A Appendix B Appendix C Appendix D Appendix E Appendix F Appendix G
Accounting Analysis Beneish Model DCF Model DCF Sensitivity Multiple Valuation EBO Valuation EBO Sensitivity
2
Industry Analysis
Overview The US apparel industry is large, mature, and highly fragmented and its sales are driven by economic conditions, demographic trends, and pricing. The average American spends about $800 a year on apparel. This translates into a market of about $215 billion for a population of close to 270 million. The market is divided into two tiers: national brands and other apparel. National brands are produced by about 20 sizable companies and currently account for some 30% of all US wholesale apparel sales. The second tier accounts for 70% of apparel and is comprised of small brand and private label products. As can be expected for a mature industry, growth for the sector is relatively small and companies within the industry have to constantly find ways to reduce costs, which explains the outsourcing of manufacturing to Asia and the Caribbean. As a result the industry has benefited from an increase in offshore manufacturing and favorable prices for raw materials, thereby reducing overall operating costs. The technical outdoor apparel segment is one segment of the highly fragmented apparel industry,
Advanced Financial Analysis Final Group Project The North Face, Inc. December 5, 1999
Table of Content
SECTION I
Industry Analysis
Overview Industry Trends Competitive Landscape
3
3 4 5
SECTION II
Company Analysis
Background Strategy-SWOT Analysis Strategy-Porter’s Five Forces 6 6 7 9
SECTION III
Accounting Analysis
Cash Flow Analysis Quality of Earnings Earnings Manipulation 10 10 10 11
SECTION IV
Financial Analysis
Dupont Decomposition DCF Assumptions WACC Calculation DCF Results Multiples EBO Valuation Dupont Decomposition 12 12 12 13 13 13 14 14
SECTION V
Conclusion
14
Appendix A Appendix B Appendix C Appendix D Appendix E Appendix F Appendix G
Accounting Analysis Beneish Model DCF Model DCF Sensitivity Multiple Valuation EBO Valuation EBO Sensitivity
2
Industry Analysis
Overview The US apparel industry is large, mature, and highly fragmented and its sales are driven by economic conditions, demographic trends, and pricing. The average American spends about $800 a year on apparel. This translates into a market of about $215 billion for a population of close to 270 million. The market is divided into two tiers: national brands and other apparel. National brands are produced by about 20 sizable companies and currently account for some 30% of all US wholesale apparel sales. The second tier accounts for 70% of apparel and is comprised of small brand and private label products. As can be expected for a mature industry, growth for the sector is relatively small and companies within the industry have to constantly find ways to reduce costs, which explains the outsourcing of manufacturing to Asia and the Caribbean. As a result the industry has benefited from an increase in offshore manufacturing and favorable prices for raw materials, thereby reducing overall operating costs. The technical outdoor apparel segment is one segment of the highly fragmented apparel industry,