Body Shop International case study作業

美體小鋪國際案例總結
 

美體小鋪國際案例是一個有趣的案例，主要研究業主和股東利益就財務方面的誤解。阿妮塔羅迪克，沒有財務方面經驗的美體小鋪的創立者，認為她所需要做的全部就是擴大生意以及融資發展她的業務。盡管阿妮塔自然護膚系列的產品理念很棒，但她在財務方面缺乏經驗，這也使得她在生意上付出了代價。
 

企業發展成長的太快，作為結果，就會導致銷售，利潤和股票的價格開始下降，增長率迅速下降，競爭對手如沐浴產品充斥著市場。這減少了市場份額，使得由業主決定。美體小鋪很快融入市場，開始淡化了自己的品牌名稱。它迅速走上大眾化市場路線并在了每個街頭和郊區特許購物中心進行專營。
 

在1998年，阿妮塔羅迪爾和帕特里克多長嘗試制定公司戰略，但沒辦法，損失已經造成。雖然收入在持續增長，然而，稅前利潤在接下來幾年不斷下降。
 

Body Shop International Case Summary 

 

The Body Shop International case is an interesting case study into the miscommunication of owners and stockholder interests with regard to financial conditions. Anita Roddick, the founder of The Body Shop had no financial experience and thought that all she needed to do was expand her business and the financing would take shape as she developed her business. While Anita’s product concept of a natural skin-care line was good; her lack of experience in financial matters took its toll on her business. 

 

The growth expansion of the firm was too rapid and sales, margin and stock prices began to decline as a result. The growth rate quickly declined as competitors such as Bath & Body Works flooded the market. This decrease in market share led to poor decision making by the owner. The Body Shop quickly saturated the market and began to dilute their brand name. It quickly became a mass-market line franchised to every suburban shopping mall and street corner. 

 

In 1998, many attempts to strategize the company were employed by both Anita Roddick and Patrick Gourney. Unfortunately, the damage had already been done. Revenues continued to growth; however, pre-tax profits still declined in the years that followed. In 2001, Gourney attempted to reinvent the company and employed several strategies that continued to fail by suggesting increased investment is stores, and attempted to achieve operation efficiencies by reducing product and inventory costs. 

 

Case Analysis 

 

While analyzing the data for The Body Shop International case, I noticed some trends and have compiled my assumptions for the next three years. I have compiled pro-forma statements for the fiscal years 2002, 2003 & 2004. These figures are based on the percentage of sales method for pro-forma financial modeling. Simply put, I used the sales figures from the past three years 1999, 2000 & 2001 and applied a growth rate of 13% increase to sales. Below are some additional assumptions that I have created to illustrate how the firm can become profitable while increasing market share and maintaining stockholder interest within the firm over the next three years. #p#分頁標題#e#

 

ASSUMPTIONS 2002 2003 2004 

 

SALES 422,733 477,688 539,788 

COGS/SALES 0.38 0.38 0.38 

OPERATING EXPENSES/SALES 0.50 0.49 0.48 

INTEREST RATE 0.06 0.06 0.06 

TAX RATE 0.30 0.30 0.30 

DIVIDENDS 10,900 10,900 10,900 

CURRENT ASSETS/SALES 0.32 0.34 0.34 

CURRENT LIAB/SALES 0.28 0.27 0.27 

FIXED ASSETS 110,600 110,600 110,600 

STARTING EQUITY 121,600 147,029 181,368 

 

The benefits of these assumptions are that while maintaining the current growth rate of 13%; we can maintain our COGS. One of the major factors contributing to the firm’s poor profit margin is operating expenses. By closing non-profitable stores, we can reduce operating expenses such as additional salaries; rent, electricity; etc. By cutting overhead, profits both before and after interest and taxes will increase. 

 

Using the percentage of sales method, I created a common-size pro-forma income statement and balance sheet for the next three years as shown below. By eliminating overhead expenses by closing down non-profitable stores, the profit margin shows an increase over the next three years. Maintaining these controllable expenses can greatly increase the value of retained earnings back into the company and possibly increase the dividends to shareholders. 

 

COMMON SIZE PRO-FORMA INCOME STATEMENT (pounds in millions) 

2002 % of Sales 2003 % of Sales 2004 % of Sales 

 

Turnover (Sales) 422.7 100.0 477.7 100.0 539.8 100.0 

Cost of Sales 160.6 38.0 181.5 38.0 205.1 38.0 

Gross Profit 262.1 62.0 296.2 62.0 334.7 62.0 

 

Operating Expenses 211.4 50.0 234.1 49.0 259.1 48.0 

Interest Expense 1.2 0.3 2.5 0.5 5.0 0.9 

Profit before tax 51.9 12.3 64.6 13.5 80.6 14.9 

Tax Expense 15.6 3.7 19.4 4.1 24.2 4.5 

Profit/(Loss) After Tax 36.3 8.6 45.2 9.4 56.4 10.4 

 

Dividends 10.9 2.6 10.9 2.3 10.9 2.0 

Retained Earnings 25.4 6.0 34.3 7.1 45.5 8.4 

 

COMMON SIZE PRO-FORMA BALANCE SHEET (pounds in millions) 

2002 % of Sales 2003 % of Sales 2004 % of Sales 

 

Assets 

Current Assets 135.3 32.0 162.4 34.0 183.5 34.0 

Fixed Assets 110.6 26.2 110.6 23.2 110.6 20.5 

 

Total Assets 245.9 58.2 273.0 57.2 294.1 54.5 

 

Liabilities & Equity 
 

Current Liabilities 118.4 28.0 133.8 28.0 151.1 28.0 #p#分頁標題#e#

PLUG (overdrafts) (19.5) (4.6) (42.1) (8.8) (83.9) (15.5) 

Shareholder Equity 147.0 34.8 181.4 38.0 226.9 42.0 

 

Total Liabilities & Equity 245.9 58.2 273.0 57.2 294.1 54.5 

 

Alternatives 

 

As previously stated above, using my assumptions and deviating from the financial patterns of the company under prior ownership. I am suggesting that alternatives to increase investment in stores be changed to closing non-profitable stores to reduce overhead and operating expenses are forego and future plans of expansion. The focus needs to be two-fold; balanced between growth and profitability. While increasing market share and increase sales is smart, we should remain mindful and focus on operations and profitability by monitoring our profit margin and usefulness of our assets. The below chart will illustrate the measurements of the deliverables in terms of growth rates and ratios. These measurements should be utilized when examining the profitability of the company; outside the scope of market share and sales. 

 

RATIOS FOR IGR & SGR 

2002 2003 2004 

 

Gross Profit Margin 0.62 0.62 0.62 

Profit Margin 0.09 0.09 0.10 

Plowback Ratio 0.70 0.76 0.81 

 

Return on Assets 0.15 0.17 0.19 

Return on Equity 0.25 0.25 0.25 

 

Internal Growth Rate * 17.34% 19.86% 23.74% 

Sustainable Growth Rate ** 20.91% 23.35% 25.10% 

 

* Without external financing of any kind 

** Without external equity financing while maintaining constant debt-to-equity ratio. 

 

Recommendations 

 

My recommendations for the Body Shop International would be to maintain the firm’s health and maximize shareholder wealth. This can be accomplished by employing a smart strategy that combines both a focus on growth and profitability. If we reduce operating expenses, we will increase our profit margins as well as net income and increase the return on assets. This will also increase the internal growth rate and enable more earnings to be plowed back into the firm. Also, considerations should be made to the stockholders such as additional or increased dividends. We will remain profitable and maintain a retention ratio of 70%. 

 

With competition becoming more fierce with new entrants into the market, our market share and increase in sales will assist in maintaining profitability with smart planning and a focus strategy on maintaining costs and controllable overhead operating expenses; additional outside financing will help, but is not necessary in order to maintain our internal growth rate. With additional external financing our sustainable growth rate increases by 2%. I would forego the external financing for now and focus on the strategy prescribed above.#p#分頁標題#e#