Wednesday, April 22, 2009

Winner!

Sorry for the long break in posting. It's been a busy semester, but lots of good stuff has been going on. A team of my friends and I won the school's Private Equity Case Competition. Teams had to pick a company, propose an LBO of the company, then create a presentation and present to judges about the deal.

Of course there might be mistakes and errors - feel free to point them out if/when you find any. It's the first time any of us had built a three-statement LBO model, as well as a dividend recap, so it was a great learning experience. Check out our presentation and model below!


Coach Final Coach Final The Analyst

COH_Model_v.7 COH_Model_v.7 The Analyst

8 comments:

Anonymous said...

"Luxury" retail that has flooded the market, diluted its brand and has declining growth rates. Really the company you chose to buy?

I can't believe you won. You want to license your name to hotels and furniture? You actually think that is viable Talk about a stretch.

You didn't even consider the macro factors that led to one of the greatest spending booms in history (people using the equity in their homes to fuel luxury purchases.

THE ANALYST said...

@anon - some interesting points. Here's my response:

Coach actually hasn't diluted it's brand because they have kept prices high and are able to clear inventory through their warehousing distribution model.

Also, we modeled in declining growth rates in our base case, with negative growth rates for two years before an increase.

Licensing fees are currently a tiny part of revenue, so even adding in new licensing is such a small part that it doesn't make a material difference - we only put it into the upside case and even if it is a "stretch" it's being done by other firms and doesn't seem like an unreasonable option for Coach to take in order to diversify their revenues.

We did consider the fact that some consumers who purchased Coach products did so using equity pulled from their homes, but we also realize that this wasn't the only source of financing for purchases of Coach goods, and Coach continues to sell. It's not just the middle class that's stretching to "buy up" that purchases Coach, it's also the wealthy who still have money even in this down economy.

COH just released earnings and beat analyst estimates by quite a lot - they are up 25% since the day we presented. Not that it reflects how they'll do over the next five years, but this is a contrarian play and I think we've made a case for how and why it could work.

Anonymous said...

After look at that, there is no doubt in my mind why you guys won the case. They look great!
Could you give me some advices on where to start to study for building a model (DCF, LBO, etc), perhaps books, websites, courses? Your model and your pitch book look really professional, I just curious where I could start to learn some more about that also?
Thanks so much in advance.

Anonymous said...

Analyst:

Warehouse distribution model as rationale for NOT diluting their brand? You're talking about their outlet stores, which almost everyone knows about. This CLEARLY dilutes their brand.

And secondly, if you did enough research, you'd recognize that coach has cut its prices in store as well. Another great sign for a company that has declining growth rates trying to maintain a luxury image.

The stock is up short term (I "hate" that pop for companies that beat lower estimates when they themselves influence such estimates. It's UPOD in full effect.)

You're actually telling me that the "wealthy" are buying coach. Either you have no idea what the wealthy buy, no idea what constitutes wealthy, or both. The wealthy aren't buying coach. They are buying brands with cache: Prada, Gucci, LV, ESL, D&G, Channel, Fendi, and other high end Italian/European brands you probably have never heard of.



Coach may do well over the next 5+ years, it just certainly won't be the way you laid out. The case you made was poor at best.

THE ANALYST said...

Anon - no need to take personal shots just because you don't agree.

You say COH "may do well over the next 5+ years, it just certainly won't be the way you laid out. The case you made was poor at best."

Mind sharing how you think COH will do well over the next 5+ years, but with the "real" case, or in other words the case you think will actually happen?

Anonymous said...

@ analyst: Don't want to interrupt the discussion but I am not sure why you just ignored my questions. It may sound stupid but I was really need your advice.

It's your blog, so I guess you have any right to do whatever you want with this and it's not right for me to ask you anything.

However, thanks for sharing your story and give some really good tips and advice for free. Good luck with everything.

ph said...

Everyone needs to tone it down a notch.

Congratulations, your presentation looks professional, is clearly laid out, and makes okay assumptions!

Nobody really knows what will happen to Coach as a brand nor its future earnings power. However, I think this model does a good job at working with the information we do have.

Good job!

maxnz said...

Hi,
I'm starting a similar project at school next week. Would you mind providing the slides for me to download? my scribd username is mprisk.

thanks in advance