Maxwell Shoe Company, Inc'

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Maxwell Shoe Company, Inc.

• John Spiteri Raj Joshi
• May 19, 2006

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THE ULTIMATE GOAL

• Our goal today.
• Present some of the underlying aspects of
• Developing a
• .FORECAST MODEL.

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Maxwell Shoe Company, Inc.

• Public Company
• Incorporated1949
• Employees 149
• Sales 1998 165.92 Million US
• Stock Price 1998 10.94
• Stock Exchange NASDAQ
• Ticker Symbol MAXS

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Company History

• The Maxwell Shoe Company designs and makes
  womens footwear.
• The company produces casual and dress footwear
  for women under the following brand names
  Mootises Tootsies, Sam Libby, Jones New York
• The company also designed and developed private
  label footwear for selected retailers
• All products are manufactured off-shore

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Product Lines

• MootsiesTootsies Moderate, priced in the
  25-40 range
• SamLibby Upper Moderate, priced in the
  35-50 range
• Jones New York Upscale, priced in the
  65-80 range
• Private Label Budget, priced in the 12-20
  range

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Sales Channels

• 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

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Factors for Success

• Strong brand recognition
• Solid manufacturing relationships
• Low costs through high volume
• Good price points to customers
• Good relationships through EDI

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Salient Data
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3 Steps to Forecasting

• 1. Accounting Analysis
• 2. Strategy Analysis
• 3. Financial Analysis

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1. Accounting Analysis

• Read financial notes in detail
• Ensure accounting policies correspond to industry
  practices i.e. look at revenue recognition
  policies across competitors to ensure consistency
• Look for inconsistencies i.e. how do they treat
  JV revenue
• Look for noise

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2. Strategy AnalysisPorters Five-Forces Model
Threat of Potential Entrants
Bargaining Power of Suppliers
Bargaining Power of Customers
Competition Among Existing Firms
Threat of Substitute Products
Figure 5.3
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Class Exercise

• 5 minute class exercise
• Each group will be assigned one of the five
  forces and asked to determine the elements that
  need to taken into account when developing
  Maxwell Shoes forecast model

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Competitive Rivalry

• Fairly high competitive rivalry in this industry
• Large number of firms
• High fixed storage costs
• Low levels of product differentiation
• No real sustainable competitive advantage

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Threat of New Entrants

• Ease of entry into the industry
• Common technology
• Access to many distribution channels
• Low exit costs
• No real asset specificity

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Supplier Power

• Moderate to Low
• Many suppliers in the industry
• Less concentration of power
• Purchasing commodity products
• Low switching costs however quality may suffer
• Long standing relationships may have significant
  impact on pricing concessions

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Buyer Power

• Low
• Manufacturers sell directly to wholesale/retail
  markets which threatens forward integration
• No concentrated power by any one buyer
• Many suppliers
• Low switching costs

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Substitutes Products

• High level of substitute products
• Similar in nature
• 50 of sales come from the 18-34 age group which
  has low loyalty, move with trends could be
  influenced by a substitute product quite easily
• Difficult to raise prices

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3. Financial Analysis

• US in the year 1999
• DOT COMS are still very hot
• Estimated GDP Growth rate of 5
• Inflation rate of 4
• Unemployment rate of 4
• General economic attitude Still positive
• Industry is growing at an average rate of 17
  over last 5 years

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Maxwells Key Ratios
 
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Maxwell Growth Plan

• Build on competitive advantage by
• Enhance current brands
• Increase Private Label brands
• Acquire New Brands
• Diversification of brands is designed to appeal
  to a different market segment of the footwear
  industry.

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Revenue Breakdown

• Mootsies Tootsies Line 50 of sales appeal to
  women aged 18-34
• Sam Libby Line 10 of sales, appeal to women
  aged 21-35
• Jones New York 25 of sales, appeal to women gt
  30
• Private Label account for 15 of sales

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FORECASTS

• INCOME STATEMENT
• What are key drivers of each of these items
• Revenue
• Cost of Sales
• Selling Expenses
• These items all have a direct impact to EARNINGS

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FORECASTS

• BALANCE SHEET
• What are the key drivers
• Levels of Inventory
• Collection period
• Payables
• Debt servicing

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FORECASTS

• CASH FLOW
• Income statement assumptions drive revenue
  however historical balance sheet performance will
  drive the cash flow

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Sensitivity Analysis3 typical scenarios

• Optimistic grow at historical approx.26
• Probable grow at Industry approx. 17
• Pessimistic grow at GDP or Inflation approx.
  4-5

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Financial Modelling

• 10 minute class exercise
• Please open up Maxwell Shoe Company
  spreadsheet that was sent by Bill
• Assignment look at the 3 scenarios Optimistic,
  Probable and Pessimistic
• Try to determine the growth for each scenarios
  and view the effects on the financial statements

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What actually happened

• Reported 48 cents per share for the first six
  months of fiscal 1999, below analysts
  expectations of 61 cents per share.
• 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.

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Financial Results post 1999
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Maxwell Shoe Company

• In 2004, Jones Apparel Group acquired all the
  outstanding stock of Maxwell Shoe Company for
  23.25 per share in cash for a total value of
  369 million.