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Maxwell Shoe Company

Maxwell Shoe Company. Done By:. Ben Bittrolff Mark Mitchell Andrea Ranalli Ryan Ricci Sonia Varkey. Maxwell Shoe Company. Founded in 1949, Incorporated in 1976 Public in 1994 The company produces casual and dress footwear for women.

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Maxwell Shoe Company

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  1. Maxwell Shoe Company Done By: Ben Bittrolff Mark Mitchell Andrea Ranalli Ryan Ricci Sonia Varkey

  2. Maxwell Shoe Company • Founded in 1949, Incorporated in 1976 • Public in 1994 • The company produces casual and dress footwear for women. • The company also designed and developed private label footwear for selected retailers • All products are manufactured off-shore by independent factories at low cost.

  3. Product Lines

  4. Department Stores Specialty Stores Catalogue Retailers Cable television shopping channels 1997 JV with GE Capital to operate 130 retail Sam & Libby and Jones New York stores through SLJ Retail. Owned 49% Channels

  5. Company Strengths • Established brand recognition • Strong manufacturing relationships • Low costs through high volume • Good price points to customers • Good relationships through EDI

  6. Strategy for Growth • Since 1987 focused on its branded footwear • Expect to enhance current brands, increase private label and acquire new brands

  7. Analysis • Threat of New Entrants (MODERATE): • Scale economies • Access to distribution channels • Common technology • Bargaining Power of Suppliers (HIGH): • Lots of alternative products • Low switching costs, may compromise quality • Many suppliers • Large volumes • Established relationships with suppliers • Bargaining Power of Buyers (LOW): • Low switching costs • Many alternative products • Cost and quality important • Rivalry Among Existing Firms • (HIGH) • Large number of firms • Slow growth • Productive capability • High fixed costs • Threat of Substitutes (HIGH): • Similar price and performance • Willingness & ease to switch

  8. Monthly Stock Price History

  9. Revenue Breakdown Appeal Revenues

  10. Class Participation Discuss Maxwell Shoe’s competitive advantage and whether it is sustainable in the retail industry

  11. Competitive Advantage Cost Leadership • Efficient production techniques • Competitive product design • Low cost

  12. Accounting Analysis Do the financial statements accurately measure the economic activity of Maxwell Shoe? Answer: Yes

  13. Accounting Analysis CASH: Decreased in 1997 in order to fund rapid growth (inventory went from 12.2 MM in 1996 to 20.1 MM in 1997 with sales growing 28% in 1997) SALES: Growth over past 3 years performed as well as sector (~16%) NET INCOME: Growth outperformed sector (24% compared to 9%) due to Maxwell’s low-cost sourcing capabilities Gross Margin was 23.4% (1996), 26.8% (1997) and 27.1% (1998)

  14. Accounting Analysis Company is debt-free Financials in-line relative with retail industry and Maxwell’s strategy No accounting disclosures reported in financial statements No apparent “Noise”

  15. Ratio Analysis

  16. Forecasting Focus  Valuation of Maxwell Shoe Determine Key Drivers Strategy Analysis  Type and Nature of Drivers Accounting Analysis  Can Financial Statement Items be used Reliably Financial Analysis  Economic Behaviour of Drivers

  17. Forecasting Key Drivers for Maxwell Shoe: • Sales Growth  Commonly used, major expenses and Cap. Exp. Track sales well • Profit Margin (NOPAT margin)  Track shifts in operational efficiency and competition

  18. Forecasting • Sales Growth Driven By: • Demand of Shoes/Industry Growth • Competitiveness of Industry • NOPAT Margin Driven By: • Cost Structure (COGS) / Pricing Strategy • Competitiveness of Industry

  19. Forecasting Assumptions • Sales growth based on Strategy, Accounting and Financial Analyses and recent performance (previous year) • Maxwell’s Sales growth well above industry so should only forecast for 2-3 years (will eventually revert to industry mean) • Similar for NOPAT margin growth

  20. Forecasting – Sensitivity Analysis • Pessimistic – Grow at GDP/Inflation levels (4%) • Most Likely – Grow at Industry Growth Level (17%) • Optimistic – Grow at Recent Pace (24%)

  21. Sensitivity Analysis with the Class

  22. Ratio Analysis of Forecasts

  23. Subsequent Events • 1999 (1st 6 months): Analyst Expectations: 61 cents Actual: 48 cents • Disappointing performance was due to lower than expected sales, attributed to the ‘softness in the footwear market’. • In July 1999, Maxwell sold the license for $25 million to the Jones Apparel Group. • Maxwell was bought by Jones New York in 2004.

  24. The Perils of Forecasting

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