Retail Financial Model October 19th, 2001 Prepared for K
Sep 08, 2015
Retail Financial Model
October 19th, 2001
Prepared for
K
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Why Create a Financial Model
Helps to determine if a new business can create positive value. Positive value
means that the cash inflows from a new business venture exceed the costs of
creating and growing it.
Allows the user to look at various situations or scenarios to see which strategy will
create the most value.
Reveals the minimum financial performance targets (e.g. sales growth, gross
margins) that the new business must achieve in order to create positive value.
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How the retail financial model works
This particular model is based on a soft goods retailer, however it can be
customized to fit the financial analysis of almost any retailer. It is structured to
provide a strong framework as a platform for further customization.
The model provides for two channels of distribution: stores and catalog.
We have found that these channels have significantly different drivers of sales and
expenses.
The only common elements between the two channels are merchandise mix, product pricing
and product costs.
There are two areas in which the user will need to input information:
Merchandise Mix
Various category worksheets
Merchandise & GM* for Store (number of styles and colors)
Merchandise & GM* for Catalog (number of styles and colors)
Input page
From these two areas, several worksheets are generated:
Financial Highlights
NPV* Analysis -
Entire Business
NPV* Analysis -
Stores Business
Total Stores Rollout
Store Format P&L
Format Occupancy
Expenses
Catalog Revenue
Model
Catalog Production
Costs
Catalog Income
Contribution
*GM stands for
Gross Margin;
NPV stands for
Net Present
Value
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A map of how the model flows
NPV - Entire Business
NPV - Stores
Business
Occup. Exp.
Format 1, 2, 3
Total Stores
Rollout
Single Store P&L - Format 1, 2,
3
Total Merchandise
Revenues & Gross Profit for
a Single Store
Catalog
Production Costs
Catalog Revenue
Model
Total Merchandise
Revenues & Gross Profit for
Catalog
Merchandise Categories -
Assortment, Price, Costs &
Promotion
Catalog Income
Contribution
Created by
figures
entered into
the input page
and the
merchandise
worksheets
below.
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Input Area One:
Merchandise Mix
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Merchandise Categories - Assortment, Price, Cost & Promotion
Revenues and gross margins are derived from detailed analysis of each product
category. This analysis is broken down for the two channels, stores and catalog.
Within each category, an average item of a certain style and color is represented
and the following details are determined based on client feedback and market
research:
Price
Cost
Size assortment
Promotional markdowns and sell through percentages
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M erch an d is in g , P r ic in g an d P ro m o tio n b y C a teg o ry - Wo ven C asu a l S h o rts
F o r S to re O p era tio n s :
S iz e s U n i ts
3 0 1
3 2 2
3 4 3
3 6 4
3 8 2
4 0 1
4 2 1
S iz e 0
S iz e
1 4
F A L L S P R IN G
T o ta l A v e ra g e S K U s P e r A v e ra g e S ty le /C o lo r: 0 1 4
A v e ra g e P r ic e : 4 9 .5 0$ 4 9 .5 0$
C o st: 1 7 .0 0$ 1 7 .0 0$
In i tia l G M %: 6 5 .7 % 6 5 .7 %
F A L L :
S e a so n a l S e l l T h ro u g h :
S e ll in g S ta g e s % O F F P ric e % S e l l T h ru U n i ts R e v e n u e G ro ss P ro fi t G M %
In it ia l 0 % 4 9 .5 0$ 4 0 % 0 -$ -$ # D IV /0 !
F irs t M D 3 0 % 3 4 .6 5$ 2 0 % 0 -$ -$ # D IV /0 !
S e c o n d M D 5 0 % 2 4 .7 5$ 1 5 % 0 -$ -$ # D IV /0 !
Th ird M D 6 5 % 1 7 .3 3$ 1 5 % 0 -$ -$ # D IV /0 !
O u t le t S a le 7 5 % 1 2 .3 8$ 1 0 % 0 -$ -$ # D IV /0 !
0 -$ -$ # D IV /0 !
M a in ta in e d
G M %
S P R IN G :
S e a so n a l S e l l T h ro u g h :
S e ll in g S ta g e s % O F F P ric e % S e l l T h ru U n i ts R e v e n u e G ro ss P ro fi t G M %
In it ia l 0 % 4 9 .5 0$ 4 0 % 5 .6 2 7 7 .2 0$ 1 8 2 .0 0$ 6 5 .7 %
F irs t M D 3 0 % 3 4 .6 5$ 2 0 % 2 .8 9 7 .0 2$ 4 9 .4 2$ 5 0 .9 %
S e c o n d M D 5 0 % 2 4 .7 5$ 1 5 % 2 .1 5 1 .9 8$ 1 6 .2 8$ 3 1 .3 %
Th ird M D 6 5 % 1 7 .3 3$ 1 5 % 2 .1 3 6 .3 8$ 0 .6 8$ 1 .9 %
O u t le t S a le 7 5 % 1 2 .3 8$ 1 0 % 1 .4 1 7 .3 3$ (6 .4 8 )$ -3 7 .4 %
1 4 4 7 9 .9 0$ 2 4 1 .9 0$ 5 0 .4 %
M a in ta in e d
G M %
Merchandise Mix by Category
Example
Category:
Woven Casual
Shorts
1. The total of the
units is pulled into
these two boxes.
2. (Average Price-
Cost)/Average Price
= Initial Gross
Margin (%)
3. The
following sell
through charts
by season
determine
how many
units will be
sold at full
price or at
marked down
prices.
Yellow
represents
cells where
the user
inputs
numbers.
4. A maintained
margin is
determined after
calculating total
gross profit/total
revenues for this
category.
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Total merchandise revenues and gross margins for store and catalog
Each category is then multiplied by a number of styles and colors to determine total
revenues and gross profit for a single store and catalog operation.
Sample of a
season for a
single store or
catalog
The average number of styles and
colors are inputted for each
category for fall and spring and for
a store and for catalog operations,
F AL L :
M e rch a n d ise C a te g o rie s # o f sty le s
A ve . # o f
co lo rs p e r
sty le
A v e ra g e # o f
sty le /co lo r
i te m s
T o ta l # o f
S K U 's
A ve ra g e
S e a so n a l
R e ve n u e p e r
sty le /co lo r
A ve ra g e
S e a so n a l
G ro ss P ro fi t
p e r sty le /co lo r
A ve ra g e
S e a so n a l
M a in ta in e d
G M % p e r
sty le /co lo r
T o ta l R e ve n u e
fo r C a te g o ry
T o ta l G ro ss
P ro fi t fo r
C a te g o ry
T o ta l G M %
fo r C a te g o ry
W oven C as ua l B o t tom s 2 1 4 8 4 1 5 1 2 990 .97$ 486 .97$ 49 .1% 83 ,241 .27$ 40 ,905 .27$ 49 .1%
S w ea te rs 3 0 4 1 2 0 9 6 0 747 .90$ 363 .90$ 48 .7% 89 ,748 .00$ 43 ,668 .00$ 48 .7%
K n it C as ua l Tops 3 6 6 2 1 6 2 5 9 2 660 .65$ 372 .65$ 56 .4% 142 ,699 .32$ 80 ,491 .32$ 56 .4%
W oven C as ua l Tops 1 2 4 4 8 2 8 8 394 .73$ 202 .73$ 51 .4% 18 ,946 .80$ 9 ,730 .80$ 51 .4%
S po rt S h irts 1 5 4 6 0 1 1 4 0 782 .87$ 383 .87$ 49 .0% 46 ,972 .28$ 23 ,032 .28$ 49 .0%
D res s S h irts 1 6 4 6 4 1 6 0 0 1 ,203 .22$ 628 .22$ 52 .2% 77 ,006 .00$ 40 ,206 .00$ 52 .2%
D res s S lac k s 2 4 4 9 6 1 3 4 4 1 ,308 .83$ 636 .83$ 48 .7% 125 ,647 .20$ 61 ,135 .20$ 48 .7%
S po rtc oa ts 1 8 2 3 6 8 6 4 5 ,817 .00$ 2 ,937 .00$ 50 .5% 209 ,412 .00$ 105 ,732 .00$ 50 .5%
S u its 0 0 0 0 8 ,361 .94$ (1 ,298 .06 )$ -15 .5% -$ -$ -15 .5%
C as ua l O u te rw ea r 6 2 1 2 7 2 1 ,142 .63$ 602 .63$ 52 .7% 13 ,711 .50$ 7 ,231 .50$ 52 .7%
Topc oa ts 0 0 0 0 1 ,385 .00$ 689 .00$ 49 .7% -$ -$ 49 .7%
N ec k w ea r 7 0 4 2 8 0 1 1 2 0 188 .36$ 108 .36$ 57 .5% 52 ,740 .80$ 30 ,340 .80$ 57 .5%
U nde rw ea r 0 0 0 0 68 .56$ 38 .56$ 56 .2% -$ -$ 56 .2%
T-s h irts 0 0 0 0 83 .10$ 57 .60$ 69 .3% -$ -$ 69 .3%
S oc k s 2 5 1 0 6 0 39 .47$ 22 .97$ 58 .2% 394 .73$ 229 .73$ 58 .2%
F oo tw ea r 0 0 0 0 2 ,354 .50$ 1 ,249 .50$ 53 .1% -$ -$ 53 .1%
B e lts 6 3 1 8 2 5 2 605 .94$ 381 .94$ 63 .0% 10 ,906 .88$ 6 ,874 .88$ 63 .0%
O the r2 0 0 0 0 38 .09$ 18 .09$ 47 .5% -$ -$ 47 .5%
TO TA L 2 5 6 4 6 1 0 4 4 1 1 8 0 4 871 ,426 .77$ 449 ,577 .77$ 51 .6%
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Input Area Two:
Input Page
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Input Page - Stores
The first section of the input page allows you to enter sales growth, gross
margin, expenses and their percentage of sales as well as working capital turns
for a single store.
Checks and balances: The gross margin entered is matched by the gross
margin in blue which is derived from the merchandise mix.
INPUT VARIABLES
Only enter inform ation in the blue text cells!!!
P e rio d 0 1 2 3
Ye a r 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5
S T O RE S :S a le s G ro w th 9 .0 % 6 .0 %
S to re R e tu rn s (% o f G ro s s S a le s ) 1 8 .0 % 1 7 .5 % 1 7 .0 %
G ro s s M a rg in (% ) - Y e a r 1 O n ly 5 1 .6 %
C h e c k a g a in s t M e rc h a n d is e M ix G M % 5 1 .6 %
O p e ra t in g E x p e n s e s a s a % o f S a le s 3 .0 % 3 .0 % 2 .9 %
O th e r S u p p o rt in g E x p e n s e s (% o f s a le s ):
F ie ld S u p e rvis io n 2 .0 % 2 .0 % 2 .0 %
M a rk e t in g 4 .0 % 4 .0 % 3 .0 %
P la n n in g /D is t rib u t io n /D e live ry 1 .0 % 1 .0 % 1 .0 %
O th e r 1 1 .0 % 1 .0 % 1 .0 %
O th e r 2 0 .5 % 0 .5 % 0 .5 %
O th e r 3 0 .0 % 0 .0 % 0 .0 %
Ta x R a te 3 8 .5 % 3 8 .5 % 3 8 .5 % 3 8 .5 %
W o rk in g C a p ita l:
A n n u a l In ve n to ry Tu rn s
S to re 2 .0 0 2 .0 0 2 .1 0
C a ta lo g 2 .0 0 2 .0 0 2 .1 0
A n n u a l R e c e iva b le s Tu rn s 7 .0 0 7 .0 0 7 .0 0
A n n u a l P a y a b le s Tu rn s 1 0 .0 0 1 0 .0 0 1 0 .0 0
D e p re c ia t io n S t ra ig h t L in e S c h e d u le - Y e a rs 8
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Input Page - Store Formats
The model allows the user to create different P&L statements from three separate
store types or locations (e.g. Mall, Strip center or A location, B location, etc.)
S to re F o rm a t O n e :S trip C en te r
Y ea r 1 N e t S a les /S e lling S F 5 0 0$
C u rren t p roduc t m ix s u ppo rts : 4 3 3$
F ou r W a ll E x pens e s (ex c l. ope ra t ing ex pens es ):
P ay ro ll 1 2 .0% 1 1 .8% 1 1 .7 % 1 1 .6 % 11 .6%
O c c upanc y E x pe ns es (bas ed on G ros s S F )
R en t 6 0 .00$ 60 .00$ 60 .0 0$ 6 5 .0 0$ 65 .00$
C A M 1 6 .00$
% A nnua l G row th in C A M 4 .0%
R ea l E s ta te Tax 1 0 .00$
% A nnua l G row th in R ea l E s ta te Tax 4 .0%
P rom o /M erc h 2 .5 0$
% A nnua l G row th in P rom o /M erc h 4 .0%
O the r O c c upanc y E x p ens es (Inc l. U t ilit ie s ) - To ta l $ 5 ,0 00$
% A nnua l G row th in O the r O c c upanc y E x p . 4 .0%
% R en t 5 % 5 % 5 % 5 % 5 %
B u ildou t /G ros s S F 1 5 5$
G ros s S F 3 ,8 00
% S e lling S F o f G ros s S F 8 2 %
Land lo rd A llow anc e 7 5 ,00 0$
P re -O pen ing /C ons t ruc t io n E x pens es 10 0 ,00 0$
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Input Page - Store Rollout
The last step in creating financial projections for this bricks and mortar channel is to
determine the appropriate rollout schedule of the 1 to 3 different store types. As you
enter the number of each type of store in each year, the model will automatically
calculate what percentage of the mix.
S T O R E R O L L O U T
C u m u la tive n u m b e r o f sto re s 1 6 1 1 2 1 3 6
S t rip C en te r 0 0 1 3 6
L ifes ty le C en te r 1 3 5 1 1 1 7
M a ll 0 2 4 6 1 2
N u m b e r o f n e w sto re s o p e n e d d u rin g th e ye a r:
S trip C en te r 0 0 1 2 3
L ifes ty le C en te r 1 3 2 6 6
M a ll 0 2 2 2 6
% o f S to re M ix :
S trip C en te r 0 .0% 0 .0% 9 .1% 14 .3% 16 .7%
L ifes ty le C en te r 100 .0% 50 .0% 45 .5% 52 .4% 47 .2%
M a ll 0 .0% 33 .3% 36 .4% 28 .6% 33 .3%
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Input Page - Catalog
The first step is to determine total customer demand, which is the total amount of orders
from catalogs on a dollar basis in that year. The factors that go into this figure include:
Response Rate X Circulation = Number of Orders
Units per Order X Average Retail Sold = Average Order Value
Number of Orders X Average Order Value = Total Customer Demand
C ata lo g
N u m b e r o f B o o k s P e r Y e a r 1 2 3
C irc u la t io n S iz e /B o o k 1 ,0 0 0 ,0 0 0 1 ,0 0 0 ,0 0 0 1 ,0 0 0 ,0 0 0
A ve ra g e n u m b e r o f p a g e s /b o o k 1 6 .0 0 3 6 .0 0 4 3 .0 0
C irc u la tio n B re a k d o w n : (B e g . O f Ye a r)
P ro s p e c t 0 .0 % 1 2 .5 % 1 6 .7 %
C u rre n t M is s y C u s to m e r/S p o u s e 1 0 0 .0 %
R e p e a t C u s to m e r* 0 .0 %
R e s p o n s e R a te s :
P ro s p e c t 0 .0 0 % 0 .6 0 % 0 .7 0 %
C u rre n t M is s y C u s to m e r/S p o u s e 0 .3 0 % 0 .7 5 % 0 .9 0 %
M e n s C u s to m e r* 0 .0 0 % 2 .6 0 % 2 .6 0 %
A ve ra g e U n its /O rd e r:
P ro s p e c t 1 .2 0 1 .3 0 1 .3 0
C u rre n t M is s y C u s to m e r/S p o u s e 1 .8 0 1 .8 5 1 .9 0
R e p e a t C u s to m e r* - 2 .0 0 2 .3 0
A ve ra g e R e ta il S o ld :
P ro s p e c t -$ 8 5 .0 0$ 8 5 .0 0$
C u rre n t M is s y C u s to m e r/S p o u s e 9 0 .0 0$ 9 0 .0 0$ 9 0 .0 0$
R e p e a t C u s to m e r* -$ 9 5 .0 0$ 9 5 .0 0$
*R e p e a t c u s to m e r is a n y c u s to m e r th a t h a s p u rc h a s e d f ro m th e c a ta lo g b e fo re .
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Input Page - Catalog
The model does allow for the user to split the circulation into three separate profiles of
mailing targets. For example, one group may be customers of the clients other existing businesses. Another group may be totally new targets of prospects. Inevitably after the first year of a new catalog and new business, there will be a group labeled repeat customers
who have purchased from the catalog before. In this example, all three of these groups may
be assigned different metrics for the factors of the above equation.
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Input Page - Catalog
Catalog production costs consist of postage, paper and printing, which are usually calculated
on a per page circulated basis. For example, with a 50 page catalog that is circulated to a million people, the total pages circulated is 50 million. Paper, printing and postage would be
a certain figure per page circulated, say $.000889, times the 50 million circulated pages.
Also included in production costs are creative costs, which are the marketing expenses to
design and create each page, and these are calculated on a per page basis.
P o s ta g e C o s ts /C irc u la te d P a g e 0 .0 0 4 0 0 0$ 0 .0 0 4 0 0 0$ 0 .0 0 4 0 0 0$ 0 .0 0 4 0 0 0$ 0 .0 0 4 0 0 0$ 0 .0 0 4 0 0 0$ P rin t in g C o s ts /C irc u la te d P a g e 0 .0 0 2 0 0 0$ 0 .0 0 2 0 0 0$ 0 .0 0 2 0 0 0$ 0 .0 0 2 0 0 0$ 0 .0 0 2 0 0 0$ 0 .0 0 2 0 0 0$
P a p e r C o s ts /C irc u la te d P a g e 0 .0 0 2 9 0 3$ 0 .0 0 2 9 0 3$ 0 .0 0 2 9 0 3$ 0 .0 0 2 9 0 3$ 0 .0 0 2 9 0 3$ 0 .0 0 2 9 0 3$
O th e r C o s ts /C irc u la te d P a g e -$ -$ -$ -$ -$ -$
To ta l V a ria b le C o s ts /C irc u la te d P a g e 0 .0 0 8 9 0 3$ 0 .0 0 8 9 0 3$ 0 .0 0 8 9 0 3$ 0 .0 0 8 9 0 3$ 0 .0 0 8 9 0 3$ 0 .0 0 8 9 0 3$
C re a t ive C o s ts /C a ta lo g P a g e (n o t p e r c irc u la te d p a g e ) 4 ,7 5 0$ 4 ,7 5 0$ 4 ,7 5 0$ 4 ,7 5 0$ 4 ,7 5 0$ 4 ,7 5 0$
L is t R e n ta l E x p e n s e / 1 0 0 0 n e w n a m e s 5 0$ 5 0$ 5 0$ 5 0$ 5 0$ 5 0$
O th e r C a ta lo g O p e ra t in g E x p e n s e s (% o f s a le s ):
Te le m a rk e t in g 5 .0 % 5 .0 % 5 .0 % 5 .0 % 5 .0 % 5 .0 %
C a ta lo g O p e ra t io n s /F u lfi l lm e n t 3 .0 % 3 .0 % 3 .0 % 3 .0 % 3 .0 % 3 .0 %
N e t S h ip p in g /H a n d lin g In c o m e -3 .0 % -3 .0 % -3 .0 % -3 .0 % -3 .0 % -3 .0 %
O th e r E x p e n s e s 1 .5 % 1 .5 % 1 .5 % 1 .5 % 1 .5 % 1 .5 %
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Discount Rate
Lastly, a rate must be entered to allow the model to discount future cash flows back to
the present year.
This percentage is a strong driver of increases or decreases in the models estimated value of the new business.
Discount Rate for NPV Analysis: 12.5%
Example Scenarios: Discount Rate Store Rollout Schedule Merchandise Mix/ Gross Margin
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Changing the discount rate
This is one of the most significant determinants of the value of the projected
business.
Decreasing the discount rate means lowering the rate at which the future net cash
flows of the business are calculated back to the present year, year zero. This would
result in a higher NPV (net present value).
Increasing the discount rate means increasing the rate at which future cash flows
are calculated back to the present year. This leads to a lower NPV.
Example:
Record the NPV for the entire business in the financial highlights worksheet - cell B33
Change the rate on the input worksheet (cell B256) to 11.0% from 10.0%
Look back at the NPV in the financial highlights worksheet
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Accelerating the store rollout schedule
Increasing the number of stores opened each year increases the capital investment
required to support the business.
Accelerating the store rollout also increases the size of cash flows in future years as
higher sales from a larger footprint support fixed operating expenses.
Example:
Record the NPV (net present value) for the entire business in the financial highlights worksheet - cell B33
Increase the number of stores (as shown in red) in the rollout schedule in the input page (row 113) as follows:
Look back at the NPV in the financial highlights worksheet and notice the improvement in NPV
The cash flows generated by higher sales offset the increased investment to build
out the extra stores.
S T O R E R O L L O U T
C u m u la tive n u m b e r o f sto re s 1 13 26 40 59 79 99 126 154 182
S t rip C en te r 0 0 1 3 6 8 12 15 19 23
L ifes ty le C en te r 1 10 20 30 40 50 60 75 90 105
M a ll 0 2 4 6 12 20 26 35 44 53
N u m b e r o f n e w sto re s o p e n e d d u rin g th e ye a r:
S trip C en te r 0 0 1 2 3 2 4 3 4 4
L ifes ty le C en te r 1 10 10 10 10 10 10 15 15 15
M all 0 2 2 2 6 8 6 9 9 9
% o f S to re M ix :
S trip C en te r 0 .0% 0 .0% 3 .8% 7 .5% 10 .2% 10 .1% 12 .1% 11 .9% 12 .3% 12 .6%
L ifes ty le C en te r 100 .0% 76 .9% 76 .9% 75 .0% 67 .8% 63 .3% 60 .6% 59 .5% 58 .4% 57 .7%
M a ll 0 .0% 15 .4% 15 .4% 15 .0% 20 .3% 25 .3% 26 .3% 27 .8% 28 .6% 29 .1%
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Changing gross margin in year 1
Gross margin (sales less cost of goods sold) is a significant driver of value in any
business and even slight changes will have a strong impact on NPV.
Within the input page, cells c12 and c13, there are two figures for gross margin.
The first cell allows the user to enter a maintained year 1 gross margin.
The second cell shows the gross margin generated by the merchandise mix section of the
model.
Example:
Observe the NPV in the financial highlights page - cell B33.
Suppose the merchandise mix was changed slightly and generated a lower gross margin. The input page may look like this:
The next step would be to manually change the gross margin in the first cell to match the
gross margin that your merchandise mix supports:
Once again, check the NPV in the financial highlights page and you can see that it becomes
dramatically lower.
G ros s M arg in (% ) - Y ear 1 O n ly 51 .6%
C hec k aga ins t M erc hand is e M ix G M % 51.6%
G ros s M arg in (% ) - Y ear 1 O n ly 51 .6%
C hec k aga ins t M erc hand is e M ix G M % 48.0%
G ros s M arg in (% ) - Y ear 1 O n ly 48 .0%
C hec k aga ins t M erc hand is e M ix G M % 48.0%
How do I use this model after
today?
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Applying the model to your clients needs
While this model is a strong base for creating financial projections for a new
business, there are still important questions to ask that will help refine the model to
better match the particular type of client and business endeavor.
The following pages list several of the questions we asked to create this retail
financial model that can also be a guide to revising and customizing this model.
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Structure
What timeframe should our projections cover? (5 years, 10 years?). There may be a
standard timeframe that the client uses when examining all new businesses or it may
depend on the type of business.
What format does the client currently use for an internal profit and loss statement?
How are expenses organized and what levels of profitability are broken out between
expense lines? Should this new business expenses be organized any differently?
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Channels
What channels will be used to sell the product? (bricks and mortar, catalog, etc.)
What expenses are specifically allocated to a certain channel, a single store or a
single catalog and vice versa, what expenses are indirect and are only included in a
roll-up P&L of all or some of the above?
Within the bricks and mortar channel:
Will there be different types of store formats or location types? If yes, what financial metrics
will be different between each format/location type? (e.g. payroll, rent, etc.)
How much will sales grow each year? (The answer to this is derived from market research
and competitive analysis as well as client feedback.)
What are the four wall expense categories for a single store?
What other operating expenses will exist for a single store?
What are the up-front investment requirements to start a new store? (e.g. build-out,
inventory purchase, pre-opening costs, etc.)
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Catalog
Within catalog:
What are the financial inputs for determining catalog revenues? Examples include:
What will the circulation mix look like? What percent of the circulation will be prospects (names that are purchased from an outside source?) versus customers of certain
existing businesses?
The following metrics below may or may not be different depending on which type of circulation group (e.g. prospect, existing customer of another business, repeat
customer of this particular business)
Response rates (percent of the circulation that actually places an order)
Average number of orders
Average retail sold (average dollar value of a single unit purchased)
What percentage of gross demand/customer demand will be items that are no longer
available (NLA)?
What percentage of reported demand (customer demand less NLA) will be cancelled
backorder shipments?
What percentage of gross shipments (reported demand less cancelled backorder shipments)
will be returned?
What costs are calculated on a per page circulated basis? What costs are calculated on a per page basis? What costs are calculated as a percent of revenues?
What other operating expenses will exist for catalog operations?
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Merchandise Mix
What will the merchandise mix look like?
This area of planning and questions may require close examination of the offerings of
various competitors within the particular industry.
What are the categories that will make up each SKU? For example, an apparel
merchandise mix might consist of styles, colors and sizes but a music store mix may include
type of music, artist and form of media (CD, cassette, etc.)
How will these SKUs be assorted within these categories? (e.g. 70% tops/30% bottoms or 60% Classical/40% Jazz)
What will be the pricing structure within each category?
What will be the costs to make or source product within each category?
What do the promotional markdown schedules and sell through rates look like for each
category?
KSA: Share
the Wealth 26
Working capital
What are expected turns for inventory, accounts receivable and accounts payable
each year? (The answer to this may require analysis of industry competitors in
addition to client feedback).
KSA: Share
the Wealth 27
Populating the Expenses
Before the expense categories are populated with numbers, the information learned
from asking structural questions should be used to get all of the line items set up in
the model.
Once the model is set up, the expense items and other variables must be populated.
This is usually an iterative process between KSA and the client. For example, what
percentage of net sales do marketing expenses make up? Does this percentage
increase or decrease over time? Additional conversations with the client should
help fill in the blanks.
Note: if the model is used for an existing business that is looking to enter into a new
venture, then it is important to determine which resources can be leveraged from the
existing business. Only costs that are incremental to those of the existing business
should be included included in the models calculations. It is important to determine this early in the process. For example, there may be certain individuals in marketing
who will continue in their current role and support this new business as well. Their
salaries would NOT be an expense for the new business.
Examples of Output
KSA: Share
the Wealth 29
Financial Highlights
F IN A N C IA L H IG H L IG H T S - EN T IR E B U S IN ES S :
(D o lla rs in th o u s a n d s ) 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9
R o llo u t :
S to re s 1 6 1 1 2 1 3 6 5 6 7 6
C a ta lo g 1 2 3 3 3 3 3
S a le s
S to re 1 ,0 9 0 ,6 0 0$ 6 ,9 6 0 ,6 0 3$ 1 3 ,8 2 9 ,1 7 4$ 2 7 ,0 7 5 ,6 2 9$ 4 7 ,8 3 5 ,3 0 8$ 7 5 ,2 8 2 ,2 7 3$ 1 0 5 ,0 6 2 ,3 5 0$
C a ta lo g 3 5 8 ,2 7 9$ 1 ,7 4 9 ,5 3 0$ 3 ,2 8 2 ,5 3 0$ 3 ,4 9 2 ,1 3 7$ 3 ,8 7 1 ,5 7 1$ 4 ,1 3 2 ,0 2 9$ 4 ,1 2 2 ,5 3 3$
To ta l 1 ,4 4 8 ,8 7 9$ 8 ,7 1 0 ,1 3 3$ 1 7 ,1 1 1 ,7 0 3$ 3 0 ,5 6 7 ,7 6 6$ 5 1 ,7 0 6 ,8 7 9$ 7 9 ,4 1 4 ,3 0 1$ 1 0 9 ,1 8 4 ,8 8 3$
G ro s s P ro fit 7 1 8 ,6 4 4$ 4 ,3 3 4 ,3 1 3$ 8 ,5 5 7 ,9 7 4$ 1 5 ,3 0 8 ,2 9 2$ 2 5 ,9 2 5 ,5 4 5$ 3 9 ,8 5 3 ,5 6 8$ 5 4 ,8 9 0 ,7 4 2$
G ro s s M a rg in 4 9 .6 % 4 9 .8 % 5 0 .0 % 5 0 .1 % 5 0 .1 % 5 0 .2 % 5 0 .3 %
D ire c t E x p e n s e s
S to re 4 6 8 ,2 5 0$ 2 ,9 6 6 ,0 9 0$ 5 ,7 5 6 ,4 9 7$ 1 1 ,3 1 4 ,6 1 1$ 1 9 ,4 9 8 ,0 4 2$ 3 0 ,3 5 3 ,1 1 0$ 4 2 ,1 3 3 ,1 2 7$
C a ta lo g 2 4 1 ,7 3 6$ 1 ,1 0 9 ,2 3 5$ 1 ,9 9 9 ,6 0 1$ 2 ,0 1 3 ,2 2 6$ 2 ,0 3 7 ,8 8 9$ 2 ,0 5 4 ,8 1 9$ 2 ,0 5 4 ,2 0 2$
D ire c t P ro fit 8 ,6 5 8$ 2 5 8 ,9 8 7$ 8 0 1 ,8 7 6$ 1 ,9 8 0 ,4 5 5$ 4 ,3 8 9 ,6 1 3$ 7 ,4 4 5 ,6 3 9$ 1 0 ,7 0 3 ,4 1 3$
In d ire c t E x p e n s e s 1 ,4 4 4 ,8 7 3$ 1 ,6 4 7 ,6 2 5$ 1 ,7 3 1 ,6 4 1$ 1 ,8 6 6 ,2 0 2$ 2 ,4 2 1 ,1 3 3$ 2 ,9 9 5 ,2 8 2$ 3 ,5 5 8 ,7 8 8$
O p e ra t in g In c o m e (1 ,4 3 6 ,2 1 5 )$ (1 ,3 8 8 ,6 3 8 )$ (9 2 9 ,7 6 5 )$ 1 1 4 ,2 5 3$ 1 ,9 6 8 ,4 8 1$ 4 ,4 5 0 ,3 5 7$ 7 ,1 4 4 ,6 2 5$
T o ta l A n n u a l In i tia l In v e stm e n t 4 ,1 6 1 ,0 3 3$ 4 ,3 5 0 ,1 4 4$ 8 ,5 4 8 ,8 8 1$ 1 3 ,0 5 0 ,4 3 2$ 1 7 ,0 2 2 ,3 5 4$ 1 7 ,2 4 9 ,1 6 9$ 2 1 ,2 9 6 ,7 9 5$
C a sh F lo w (9 7 3 ,3 8 7 )$ (1 ,2 7 0 ,3 1 4 )$ (7 6 4 ,9 7 1 )$ 1 2 1 ,2 5 5$ 1 ,6 9 5 ,5 7 6$ 4 ,0 8 3 ,7 3 4$ 6 ,8 0 4 ,7 9 0$
N e t C a sh F lo w (5 ,1 3 4 ,4 2 1 )$ (5 ,6 2 0 ,4 5 8 )$ (9 ,3 1 3 ,8 5 2 )$ (1 2 ,9 2 9 ,1 7 7 )$ (1 5 ,3 2 6 ,7 7 8 )$ (1 3 ,1 6 5 ,4 3 5 )$ (1 4 ,4 9 2 ,0 0 5 )$
KSA: Share
the Wealth 30
DCF Analysis
D C F A N A L YS IS :
To ta l A n n u a l S to re N e t B u ild o u t 4 3 8 ,0 0 0$ 2 ,2 6 6 ,0 0 0$ 2 ,3 4 2 ,0 0 0$ 4 ,6 0 8 ,0 0 0$
To ta l A n n u a l In it . In ve n to ry P u rc h . - S to re 2 6 3 ,9 2 5$ 1 ,3 9 5 ,0 3 3$ 1 ,5 0 8 ,1 4 4$ 2 ,9 4 0 ,8 8 1$
To ta l A n n u a l P re -o p e n in g E x p e n s e s & C o n s t r. 1 0 0 ,0 0 0$ 5 0 0 ,0 0 0$ 5 0 0 ,0 0 0$ 1 ,0 0 0 ,0 0 0$
T o ta l A n n u a l In i tia l In v e stm e n t 8 0 1 ,9 2 5$ 4 ,1 6 1 ,0 3 3$ 4 ,3 5 0 ,1 4 4$ 8 ,5 4 8 ,8 8 1$
A fte r-ta x D ire c t P ro fit -$ 4 4 ,7 0 3$ 3 0 2 ,4 0 1$ 7 0 1 ,4 1 8$
A d d : D e p re c ia t io n -$ 5 4 ,7 5 0$ 3 3 8 ,0 0 0$ 6 3 0 ,7 5 0$
S u b t ra c t : R e n o va t io n -$ -$ -$ -$
C h a n g e in In ve n to ry -$ 1 0 ,9 0 6$ 8 1 ,5 3 8$ 4 1 ,4 8 2$
C h a n g e in R e c e iva b le s -$ 1 5 5 ,8 0 0$ 5 4 0 ,2 6 0$ 1 ,2 7 9 ,5 3 6$
C h a n g e s in P a y a b le s -$ 5 4 ,9 6 6$ 2 9 5 ,3 1 4$ 3 4 2 ,9 3 6$
P e rp e tu ity o f C F 's b e y o n d y e a r 1 0 -$ -$ -$ -$
N e t C a sh F lo w (8 0 1 ,9 2 5 )$ (4 ,1 7 3 ,3 2 0 )$ (4 ,0 3 6 ,2 2 7 )$ (8 ,1 9 4 ,7 9 5 )$
P re se n t V a lu e F a c to r: 1 0 0 .0 0 % 8 8 .8 9 % 7 9 .0 1 % 7 0 .2 3 %
M o d e l Ye a r 0 1 2 3
12.5%
D isc o u n te d N e t C a sh F lo w s (8 0 1 ,9 2 5 )$ (3 ,7 0 9 ,6 1 8 )$ (3 ,1 8 9 ,1 1 8 )$ (5 ,7 5 5 ,4 6 7 )$
NPV 11 ,567 ,389$
KSA: Share
the Wealth 31
Single Store P&L
S in g le S to re P ro fit an d L o ss /D C F P ro fo rm a
Strip Center
C a le n d a r Ye a r 2 0 0 2
% o f
sa le s 2 0 0 3
% o f
sa le s 2 0 0 4
% o f
sa le s 2 0 0 5
% o f
sa le s 2 0 0 6
% o f
sa le s 2 0 0 7
% o f
sa le s
M o d e l Ye a r 0 1 2 3 4 5
G ro ss S a le s 1 ,9 0 0 ,0 0 0 .0 0$ 1 2 2 .0 % 2 ,0 7 1 ,0 0 0 .0 0$ 1 2 1 .2 % 2 ,1 9 5 ,2 6 0 .0 0$ 1 2 0 .5 % 2 ,3 0 5 ,0 2 3 .0 0$ 1 1 9 .8 % 2 ,3 8 5 ,6 9 8 .8 1$ 1 1 9 .0 %
S to re R e tu rn s (1 8 % to 1 5 % o f G ro ss) 3 4 2 ,0 0 0 .0 0$ 2 2 .0 % 3 6 2 ,4 2 5 .0 0$ 2 1 .2 % 3 7 3 ,1 9 4 .2 0$ 2 0 .5 % 3 8 0 ,3 2 8 .8 0$ 1 9 .8 % 3 8 1 ,7 1 1 .8 1$ 1 9 .0 %
N e t S a le s 1 ,5 5 8 ,0 0 0 .0 0$ 1 0 0 .0 % 1 ,7 0 8 ,5 7 5 .0 0$ 1 0 0 .0 % 1 ,8 2 2 ,0 6 5 .8 0$ 1 0 0 .0 % 1 ,9 2 4 ,6 9 4 .2 1$ 1 0 0 .0 % 2 ,0 0 3 ,9 8 7 .0 0$ 1 0 0 .0 %
R e v e n u e G ro w th R a te 9 .0 % 6 .0 % 5 .0 % 3 .5 %
A v e ra g e S to re S e l l in g S F (8 2 % o f G ro ss) 3 ,1 1 6
N e t S a le s/ S e l l in g S F 5 0 0 .0 0$ 5 4 8 .3 2$ 5 8 4 .7 5$ 6 1 7 .6 8$ 6 4 3 .1 3$
G ro ss P ro fi t 7 7 2 ,7 6 8 .0 0$ 4 9 .6 % 8 4 6 ,7 4 8 .0 3$ 4 9 .6 % 9 0 2 ,9 9 2 .6 3$ 4 9 .6 % 9 5 3 ,8 5 3 .9 6$ 4 9 .6 % 9 9 3 ,1 5 0 .4 6$ 4 9 .6 %
A d ju ste d G P /V o lu m e B e n e fi ts 7 7 2 ,7 6 8 .0 0$ 4 9 .6 % 8 5 5 ,0 8 0 .2 8$ 5 0 .0 % 9 1 7 ,3 4 9 .6 1$ 5 0 .3 % 9 7 3 ,8 6 4 .7 0$ 5 0 .6 % 1 ,0 1 7 ,5 3 4 .5 4$ 5 0 .8 %
P a y ro ll 1 8 6 ,9 6 0 .0 0$ 1 2 .0 % 2 0 1 ,6 1 1 .8 5$ 1 1 .8 % 2 1 3 ,1 8 1 .7 0$ 1 1 .7 % 2 2 3 ,2 6 4 .5 3$ 1 1 .6 % 2 3 2 ,4 6 2 .4 9$ 1 1 .6 %
O c c u p a n c y 4 0 5 ,5 5 0 .0 0$ 2 6 .0 % 4 1 0 ,0 8 2 .0 0$ 2 4 .0 % 4 1 4 ,7 9 5 .2 8$ 2 2 .8 % 4 3 8 ,6 9 7 .0 9$ 2 2 .8 % 4 4 3 ,7 9 4 .9 7$ 2 2 .1 %
O p e ra t io n s 4 6 ,7 4 0 .0 0$ 3 .0 % 4 8 ,6 0 9 .6 0$ 3 .0 % 5 0 ,5 5 3 .9 8$ 2 .9 % 5 2 ,5 7 6 .1 4$ 2 .9 % 5 4 ,6 7 9 .1 9$ 2 .8 %
4 -W a ll E x p e n s e s 6 3 9 ,2 5 0 .0 0$ 4 1 .0 % 6 6 0 ,3 0 3 .4 5$ 3 8 .6 % 6 7 8 ,5 3 0 .9 6$ 3 7 .2 % 7 1 4 ,5 3 7 .7 6$ 3 7 .1 % 7 3 0 ,9 3 6 .6 6$ 3 6 .5 %
4 -W a l l C o n tr ib u tio n 1 3 3 ,5 1 8 .0 0$ 8 .6 % 1 9 4 ,7 7 6 .8 3$ 1 1 .4 % 2 3 8 ,8 1 8 .6 5$ 1 3 .1 % 2 5 9 ,3 2 6 .9 4$ 1 3 .5 % 2 8 6 ,5 9 7 .8 9$ 1 4 .3 %
S u p p o rtin g Ex p e n se s:
F ie ld S u p e rvis io n 3 1 ,1 6 0$ 2 .0 % 3 4 ,1 7 2$ 2 .0 % 3 6 ,4 4 1$ 2 .0 % 3 8 ,4 9 4$ 2 .0 % 4 0 ,0 8 0$ 2 .0 %
M a rk e t in g 6 2 ,3 2 0$ 4 .0 % 6 8 ,3 4 3$ 4 .0 % 5 4 ,6 6 2$ 3 .0 % 5 7 ,7 4 1$ 3 .0 % 4 0 ,0 8 0$ 2 .0 %
P la n n in g /D is t rib u t io n /D e live ry 1 5 ,5 8 0$ 1 .0 % 1 7 ,0 8 6$ 1 .0 % 1 8 ,2 2 1$ 1 .0 % 1 9 ,2 4 7$ 1 .0 % 2 0 ,0 4 0$ 1 .0 %
O th e r 1 1 5 ,5 8 0$ 1 .0 % 1 7 ,0 8 6$ 1 .0 % 1 8 ,2 2 1$ 1 .0 % 1 9 ,2 4 7$ 1 .0 % 2 0 ,0 4 0$ 1 .0 %
O th e r 2 7 ,7 9 0$ 0 .5 % 8 ,5 4 3$ 0 .5 % 9 ,1 1 0$ 0 .5 % 9 ,6 2 3$ 0 .5 % 1 0 ,0 2 0$ 0 .5 %
O th e r 3 -$ 0 .0 % -$ 0 .0 % -$ 0 .0 % -$ 0 .0 % -$ 0 .0 %
T o ta l S to re S u p p o rtin g Ex p e n se s 1 3 2 ,4 3 0 .0 0$ 8 .5 % 1 4 5 ,2 2 8 .8 8$ 8 .5 % 1 3 6 ,6 5 4 .9 4$ 7 .5 % 1 4 4 ,3 5 2 .0 7$ 7 .5 % 1 3 0 ,2 5 9 .1 5$ 6 .5 %
S to re D ire c t P ro fi t (C a sh F lo w ) 1 ,0 8 8 .0 0$ 0 .1 % 4 9 ,5 4 7 .9 5$ 2 .9 % 1 0 2 ,1 6 3 .7 1$ 5 .6 % 1 1 4 ,9 7 4 .8 7$ 6 .0 % 1 5 6 ,3 3 8 .7 3$ 7 .8 %
Sample of a
P&L for a strip
center
KSA: Share
the Wealth 32
Catalog Revenue Model
C ata log Revenue M odel - Annual
M o d e l Ye a r 1 2 3 4 5
C a le n d a r Ye a r 2003 2004 2005 2006 2007
N um ber o f B ook s P e r Y ea r 1 2 3 3 3
C irc u la t ion S iz e /B ook 1 ,000 ,000 1 ,000 ,000 1 ,000 ,000 1 ,000 ,000 1 ,000 ,000
To ta l C irc u la t ion S iz e 1 ,000 ,000 2 ,000 ,000 3 ,000 ,000 3 ,000 ,000 3 ,000 ,000
A V G P ages /B ook 16 36 43 43 43
To ta l P ages 16 72 129 129 129
A ve rage O rde r V a lue 162 .00$ 161 .05$ 165 .55$ 168 .73$ 171 .47$
R es pons e R a te 0 .30% 0 .74% 0 .90% 0 .99% 1 .08%
N um ber o f O rde rs 3 ,000 14 ,736 26 ,897 29 ,634 32 ,330
T o ta l C u sto m e r D e m a n d 486 ,000$ 2 ,373 ,210$ 4 ,452 ,699$ 5 ,000 ,196$ 5 ,543 ,486$
T o ta l C u sto m e r D e m a n d P e r B o o k 486 ,000$ 1 ,186 ,605$ 1 ,484 ,233$ 1 ,666 ,732$ 1 ,847 ,829$
T o ta l C u sto m e r D e m a n d P e r P a g e 30 ,375$ 32 ,961$ 34 ,517$ 38 ,761$ 42 ,973$
KSA: Share
the Wealth 33
Catalog P&L
C ata lo g In co m e C o n tr ib u tio n
M o d e l Ye a r 0 1 2 3 4
C a le n d a r Ye a r 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6
T o ta l C u sto m e r D e m a n d 4 8 6 ,0 0 0$ 1 3 5 .6 % 2 ,3 7 3 ,2 1 0$ 1 3 5 .6 % 4 ,4 5 2 ,6 9 9$ 1 3 5 .6 % 5 ,0 0 0 ,1 9 6$
N L A 2 4 ,3 0 0$ 6 .8 % 1 1 8 ,6 6 1 6 .8 % 2 2 2 ,6 3 5 6 .8 % 5 0 0 ,0 2 0
T o ta l R e p o rte d D e m a n d 4 6 1 ,7 0 0$ 1 2 8 .9 % 2 ,2 5 4 ,5 5 0$ 1 2 8 .9 % 4 ,2 3 0 ,0 6 4$ 1 2 8 .9 % 4 ,5 0 0 ,1 7 6$
C a n c e lle d B a c k o rd e r S h ip m e n ts 1 3 ,8 5 1$ 3 .9 % 6 7 ,6 3 6$ 3 .9 % 1 2 6 ,9 0 2$ 3 .9 % 1 3 5 ,0 0 5$
G ro ss S h ip m e n ts 4 4 7 ,8 4 9$ 1 2 5 .0 % 2 ,1 8 6 ,9 1 3$ 1 2 5 .0 % 4 ,1 0 3 ,1 6 2$ 1 2 5 .0 % 4 ,3 6 5 ,1 7 1$
To ta l C a ta lo g R e tu rn s 8 9 ,5 7 0$ 2 5 .0 % 4 3 7 ,3 8 3$ 2 5 .0 % 8 2 0 ,6 3 2$ 2 5 .0 % 8 7 3 ,0 3 4$
N e t C a ta lo g S a le s 3 5 8 ,2 7 9$ 1 0 0 .0 % 1 ,7 4 9 ,5 3 0$ 1 0 0 .0 % 3 ,2 8 2 ,5 3 0$ 1 0 0 .0 % 3 ,4 9 2 ,1 3 7$
G ro w th in T o ta l C u sto m e r D e m a n d 3 8 8 .3 1 % 8 7 .6 2 % 1 2 .3 0 %
G ro ss P ro fi t 1 7 7 ,7 0 6$ 4 9 .6 % 8 7 6 ,5 1 5$ 5 0 .1 % 1 ,6 6 0 ,9 6 0$ 5 0 .6 % 1 ,7 8 4 ,4 8 2$
C a ta lo g P ro d u c t io n 2 1 8 ,4 4 8$ 6 1 .0 % 9 8 3 ,0 1 6$ 5 6 .2 % 1 ,7 6 1 ,2 3 7$ 5 3 .7 % 1 ,7 6 1 ,2 3 7$
L is t R e n ta l E x p e n s e -$ 0 .0 % 1 2 ,5 0 0$ 0 .7 % 2 5 ,0 0 0$ 0 .8 % 2 5 ,0 0 0$
M a rk e tin g Ex p e n se s 2 1 8 ,4 4 8$ 6 1 .0 % 9 9 5 ,5 1 6$ 5 6 .9 % 1 ,7 8 6 ,2 3 7$ 5 4 .4 % 1 ,7 8 6 ,2 3 7$
Te le m a rk e t in g 1 7 ,9 1 4$ 5 .0 % 8 7 ,4 7 7$ 5 .0 % 1 6 4 ,1 2 6$ 5 .0 % 1 7 4 ,6 0 7$
C a ta lo g O p e ra t io n s /F u lfi l lm e n t 1 0 ,7 4 8$ 3 .0 % 5 2 ,4 8 6$ 3 .0 % 9 8 ,4 7 6$ 3 .0 % 1 0 4 ,7 6 4$
N e t S h ip p in g /H a n d lin g In c o m e (1 0 ,7 4 8 )$ -3 .0 % (5 2 ,4 8 6 )$ -3 .0 % (9 8 ,4 7 6 )$ -3 .0 % (1 0 4 ,7 6 4 )$
O th e r E x p e n s e s 5 ,3 7 4$ 1 .5 % 2 6 ,2 4 3$ 1 .5 % 4 9 ,2 3 8$ 1 .5 % 5 2 ,3 8 2$
O p e ra tin g Ex p e n se s 2 3 ,2 8 8$ 6 .5 % 1 1 3 ,7 1 9$ 6 .5 % 2 1 3 ,3 6 4$ 6 .5 % 2 2 6 ,9 8 9$
D i re c t Ex p e n se s fo r C a ta lo g 2 4 1 ,7 3 6$ 6 7 .5 % 1 ,1 0 9 ,2 3 5$ 6 3 .4 % 1 ,9 9 9 ,6 0 1$ 6 0 .9 % 2 ,0 1 3 ,2 2 6$
D i re c t P ro fi t fo r C a ta lo g (6 4 ,0 3 0 )$ -1 7 .9 % (2 3 2 ,7 2 1 )$ -1 3 .3 % (3 3 8 ,6 4 1 )$ -1 0 .3 % (2 2 8 ,7 4 4 )$
KSA: Share
the Wealth 34
Catalog Cost Schedule
C a ta lo g P ro d u ctio n C o st S ch e d u le s:
M o d e l Ye a r 1 2 3 4 5 6 7
C a le n d a r Ye a r 2003 2004 2005 2006 2007 2008 2009
N um ber o f B ook s P e r Y ea r 1 2 3 3 3 3 3
C irc u la t ion S iz e /B ook 1 ,000 ,000 1 ,000 ,000 1 ,000 ,000 1 ,000 ,000 1 ,000 ,000 1 ,000 ,000 1 ,000 ,000
To ta l C irc u la t ion S iz e 1 ,000 ,000 2 ,000 ,000 3 ,000 ,000 3 ,000 ,000 3 ,000 ,000 3 ,000 ,000 3 ,000 ,000
P ages /B ook 16 .0 36 .0 43 .0 43 .0 43 .0 43 .0 43 .0
To ta l P ages 16 72 129 129 129 129 129
To ta l P ages C irc u la ted 16 ,000 ,000 72 ,000 ,000 129 ,000 ,000 129 ,000 ,000 129 ,000 ,000 129 ,000 ,000 129 ,000 ,000
To ta l C os t P e r P age C irc u la ted 0 .008903$ 0 .008903$ 0 .008903$ 0 .008903$ 0 .008903$ 0 .008903$ 0 .008903$
To ta l V a riab le P roduc t ion C os ts 142 ,448$ 641 ,016$ 1 ,148 ,487$ 1 ,148 ,487$ 1 ,148 ,487$ 1 ,148 ,487$ 1 ,148 ,487$
C rea t ive C os ts /P age 4 ,750$ 4 ,750$ 4 ,750$ 4 ,750$ 4 ,750$ 4 ,750$ 4 ,750$
To ta l C rea t ive C os ts 76 ,000$ 342 ,000$ 612 ,750$ 612 ,750$ 612 ,750$ 612 ,750$ 612 ,750$
To ta l C a ta log P roduc t ion C os ts 218 ,448$ 983 ,016$ 1 ,761 ,237$ 1 ,761 ,237$ 1 ,761 ,237$ 1 ,761 ,237$ 1 ,761 ,237$
V ariab le c os ts inc lude pape r, p rin t ing , and pos tage .
Appendix
KSA: Share
the Wealth 36
Glossary of definitions and ratios
DCF: Discounted cash flow - the sum of annual net cash flow which have been
discounted back to zero by a certain rate of return.
OCF: Operating cash flow
Rate of Return/Discount Rate/Hurdle Rate: Rate at which annual net cash flows are
discounted back to year zero.
CAM: Common area maintenance
Response Rate: Percentage of a catalog circulation which purchases from the catalog
Total Customer Demand: Total dollar value of annual orders from catalog(s)
List Rental Expense: Cost to rent names and addresses for a catalog mailing; usually
in the form of $/1,000 names.
KSA: Share
the Wealth 37
Financial Glossary
Sales Growth =
Gross Profit = Sales - COGs
(Salesn - Salesn-1)
Salesn-1
Gross Margin = Sales - COGs
or Sales
EBIT = Sales - COGs - SG&A = Operating Income
Sales - COGS = Gross Profit - SG&A (operating expenses) = Operating Income
EBITDA* = Sales - COGs - SG&A + Depreciation + Amortization
Gross Profit
Sales
Income
Statement
Total Customer Demand
NLA (No longer available)
Total Reported Demand
Cancelled Backordered Shipment
Gross Shipments
Total Catalog Returns
Net Catalog Sales
-
-
-
*Proxy for operating cash flow
For catalog operations:
KSA: Share
the Wealth 38
Financial Glossary
Inventory Day =
Accounts Payable Days
=
Average A/P (n, n-1)X 365
Avg. A/P (n, n-1)
Average A/R (n, n-1)
Avg. A/R (n, n-1)
Accounts Receivable
Turnover =
Accounts Receivable
Days =
Accounts Payable
Turnover =
Inventory Turnover = COGs n
Average Inv. (n, n-1)
Average Inv. (n, n-1)
COGsn
Avg. A/R (n, n-1)
Sales n
X 365
COGS
InventoryOR
OR
Property, Plant & Equipment - Depreciation = Net Property, Plant & Equipment
OR
Sales
A/R
COGS
A/P
COGs (n, n-1)
X 365
COGs n
Balance Sheet
KSA: Share
the Wealth 39
Financial Glossary
Annual Cash Flow:
Total Annual Initial Investment*
After-tax Operating Income**
Depreciation
Renovation
+/- Change in Inventory
+/- Change in Receivables
+/- Change in Payables
Net Operating Cash Flow
Note: Increase in inventory = cash flow (-)
Increase in receivables = cash outflow (-)
Decrease in payables = cash outflow (-)
* Definition on following page
** Operating Income * (1-tax rate)
Cash Flow
KSA: Share
the Wealth 40
Financial Glossary
+ Annual Store Net Buildout
+ Annual Initial Inventory Purchase - Store
+ Annual Initial Inventory Purchase - Catalog
+ Annual Pre-opening/Construction Expenses
+ Annual Catalog Initial Investment
Total Annual Initial Investment
Cash Flow
KSA: Share
the Wealth 41
Financial Glossary
DCF/NPV
Analysis Net OCF1
(1 + r)1
.Net OCFn + OCFn/r
(1 + r)n
NPV = Net OCF0
+(1 + r)
0
Where r = discount rate
KSA: Share
the Wealth 42
Disclaimer
This type of financial model assumes that a new business is created organically,
and not through a merger or acquisition. It cannot be used for evaluating M&A
opportunities.
All financial models require some level of customization. It is impossible for one
single model to be standardized across all industries and types of businesses.
This particular model in discussion is simplified to only create profit and loss (P&L)
statements and the required balance sheet items to determine accurate cash flows
over time. Long term assets and liabilities, debt and equity, and interest expense
are not taken into consideration.
Note: To assist you with understanding certain financial terms and calculations
referenced in this presentation, a glossary of ratios is listed in the appendix.