RETAIL - CLOTHING INDUSTRY

Group 2Stefanie MoegleDovile NarutaviciuteBasak CopurogluIngah KutesaCarolina Martin-Leyes

AGENDA

Presentation of the Retail - Clothing Industry Evaluated Companies Retail - Clothing Industry Matrix Chosen Companies A deeper look at the Companies chosen. Comparison of the Ratios Conclusion Questions

World Clothing Retail Industry

World Clothing Retail Industry

Clothing sales reached US$850 billion in 2006. Growth of 3% over 2005. Volume sales growth by 8%. no. of working women - key factor driving sales in

2006. Women’s outerwear - 60% of overall 2006 value sales. Gap Inc - leadership position in the clothing market. The single largest brand in the sector was H&M. $ sales expected by 2011 - US$ 968 billion. # sales will grow indicating vibrant midrange market.

WE LOOKED AT THE FOLLOWING…

SMILEY CHART

CorporationCorporate

Governance CSRRisk

Management

Up to date

timing

Shareholder Friendly Info + Key Ratio Analysis Clarity Transparency

Effectiveness of

Managment Auditor

Transparency

Calarity of Bussines Strategy

Inditex

Primark

GapHelly

Hansen

Hugo Boss

Apranga

H&M /Benetton

A&F

Oilily

 Very good

 

Could be better 

Not good or not all info is available

ELIMINATION OF COMPANIES…

Corporate governance

Code benefit of employees,shareholders,customers sustainably increasing enterprise value

CSR

ecological, socialy sustainable concepts Work-Life-Balance

Risk management

Risk Report Identify risks at an early stage and to respond quickly Audited at regular intervals

Timing

Without delay Managing Board reports regularly, promptly

Shareholder friendliness & key ratio analysis

Benefit of employees, shareholders, customers Sustainably increasing enterprise value

Clarity of business strategy

Strategic focus on growth opportunities

Audit transparency Strategic focus on growth opportunities Standards for the audit Plan and perform the audit

Clarity & Transparency

Same information Reports regularly, promptly, and comprehensively on All topics of relevance

Corporate governance

Corporate governance guidelineCode of ethics

• Election• Independence

Transparency

Its own website Yahoofinance

Income statementBalance sheetCahs flow10 year annual report5 years summary10 years summary

Up to date timing

Informs all capital market at the same time by the same information.

Updates its website information every week.

Adds financial reports every quarter.

CSR

Boycott australian wool Donating $10 million to the construction of

a trauma center at Nationwide Children’s Hospital in Columbus, Ohio

Adds

THE GAP INC.

Sells casual apparel, accessories, and personal care products for men, women and children under the Gap, Old Navy, Banana Republic, and Piperlime brands.

The Gap

History

Founder

Brands

Don Fisher, Gap Inc. Founder and Chairman Emeritus

LOCATIONS

United States Canada The United Kingdom France Ireland Japan

LOOKING AT THE COMPANY..

Listed on NYSE. ( GPS)

Clarity and Auditing

Social cooperate responsibility.The gap reportCode red.

Recognition..

100 Companies with Conscience Audit Integrity Top 100 Business Ethics Awards: Social Reporting

Award Ceres-ACCA Commendation for Social

Reporting Ethisphere Magazine’s 2007 World’s Most

Ethical Companies2008

Revenue division..

As per 2007 revenue : 15 billon dollars.Old navy- 6.2 billion Gap direct – 903 million Banana republic- 2.5 billion International – 1.6 billion.

INDITEX

FY 2007 4,258 stores in 72

countries Sales 9.4 Bn, 63% Int’l Cash flow 1.8 Bn Net Income 1.3 Bn

Inditex is one of the worlds largest fashion distributors, with eight independent sales formats:

Pull and Bear

Strategic Direction

Inditex has it’s unique management model based on:- innovation - flexibility- integrated business model

Fashion philosophy: - creativity - quality design

Rapid response to market demand

Strategic growth : Fast international expansion

Excellent response to sales concepts

Customer driven

Compelling mix of latest fashions and quality at affordable prices

• Unique product strategy

• Customer interaction

• Attractive stores in prime locations

Distribution and Logistics

•Central distribution

•Shipment to all stores twice a week

•Orders to stores in 24-48 hours

Economic Indicators - Ratios

Inditex financial years is from 1st February to 31st january of the following year (1) in millions of euros.

Economic indicators FY2007 FY2006 % 07/06

Net Sales  9,435 8,196 15%

International sales 62.5% 60.4%  

Gross Profit 5,349 4,607 16%

Gross margin 56.7% 56.2%  

EBIT 1,652 1,356 22%

EBIT margin 17.5% 16.5%  

Net Income 1,250 1,002 25%

margin 13.3% 12.2%  

Key Ratios 2007 2006   31 Jan 08   31 Jan 07 

Operating Margin 17.51 %  16.51 % Return on Equity 32.72 %  31.55 % Pretax Income to Sales 17.44 %  16.34 % Current Ratio 121.29 %  113.98 % 

Corporate Governance

Is part of three international stock exchange indexes that recognize Good Governance:

- Dow Jones - Sustainability FTSE4 Good and - FTSE ISS Corporate Governance

Save the same voting and financial rights

No legal restrictions on the acquisition or transfer of shares.

The majority of the Board Members are External

The Audit and Control Committee presents its report independently

Delegation and autonomy of the executive committee

Corporate Social Responsibility - CSR

Inclusion of the guidelines into the internal corporate regulations, comprised by: - laws- rules and regulations- codes of conduct- other international initiatives & agreements

CSR• Global environmental system:

- Solid- Efficient- Adaptability- Control processes

• The general objectives of Strategic Environmental Plan 2007-2010 :

- reduce the emission of greenhouse gases

- increase the implantation of renewable energy sources

- maximize the efficient use of energy in manufacturing areas

- train the staff and raise their awareness

Risk Management

Shareholder Friendliness

Good faith in relations with stakeholders & with society as a whole

Continuous dialogue with stakeholders & social organizations

Ethical commitment & responsible perspective

Fair & honorable treatment

All the activities of the Inditex Group shall be carried out in manner that most respects the environment

“Fashion & Quality at the Best Price”

H&M - established in Västerås, Sweden in 1947 by Erling Persson

H&M: 33 countries, 1700 stores, 68,000 employees. Turnover in 2007 - SEK 92,123 million H&M’s growth target - increase no.of stores by 10–15 %/year

& increase sales at existing stores

Strategic Direction

H&M succeeded in strengthening its position in the market through: constant innovation renovation

Inviting top designers to create a product line for H&M, e.g. Karl Lagerfeld, Viktor and Rolf, Madonna.

Strategic growth – to international countries. H&M: Operational Indicators:

Corporate Governance (CG)

H&M applies with the Swedish Code of Corporate Governance which is described in the CG Report in the annual report.

CG is basically about how the company is to be run in order to safeguard the shareholders’ interests.

• The share is traded on the OMX Nordic Exchange Stockholm, Sweden. The symbol is H&M B

Corporate Social Responsibility

Code of Conduct & Sustainability Policy –the backbone of H&M’s work

It includes the following requirements:

compliance with local labor law statutory pay and working hours ban on child labor ban on discrimination ban on forced labor health & safety in the workplace right to organize & bargain collectively compliance with local environmental legislation.

Corporate Social Responsibility

Water samples from factories with water treatment Cooperating tightly with UNICEF Increased use of organic cotton Climate-smart transport solutions

Since 2005 H&M has been licensed to use the European Union’s official eco-label The Flower

Risk and Uncertainties

Most dealt with through internal routines Financial risks

Interest risk associated with liquid funds and short-term investments Currency risk associated with foreign currency flows Credit risk associated with financial assets and derivative positions

Others are affected more by external influences: fashions weather textile quotas exchange rates expansion into new markets launch of new concepts changes in consumer behaviour handling of the brand

Transparency in H&M

Auditing committee H&M’s Auditing Committee - appointed annually by the Board of

Directors. Auditors - elected at the Annual General Meeting every 4 years From 2005 - Ernst & Young AB H&M publishes interim reports & annual reports in Swedish and

English www.hm.com - a wealth of other information on H&M Investor Relations department H&M - participating company in the Fair Labor Association (FLA):

demonstrates stakeholders good work follow-up in factories; ensures quality of internal monitoring programme.

Ratio Comparison

  HUGO BOSS A&F GAP IDITEX H&M

  2006 2007 2008 2006 2007 2007 2008 2006 2007 2006 2007

PROFITABILITY RATIOS:                      

Gross Profit Margin 57.10% 57.90%   66.48 66.57 35.53 36.11 4607 5349 58.51 60.64

                       

Net working Capital: Current Assets- Current liabilities

299 397       2272 1653 263.6 523.5 SEK M 17504

SEK M 19359

INDEBTEDNESS RATIOS:                      

Interest Cover N/A 31,000 6,285     N/A N/A  N/A N/A 28.79 22

                       

Earnings per share 1.84 2.22           161.3 201.4 13.05 16.42

455.53 581.45

81.37 47.34

3.8 4.78

Conclusions from ratios

It is difficult to compare companies between each other, as the measures are different, so as the sizes of the companies are not the same.

The Gross Profit Margins are changing through out the year, as it is very common for clothing companies, whose pricing policy and discounting changes very often.

Key trends in during the recession

Pessimism inhibits shopping habits

Consumers fearful of the future seek budget over brand

Window shopping

Research before purchasing

The new natural look

Commercial opportunities during recession

Advertise value for money and opportunities for bargain-hunters

Create a feeling of togetherness in the downturn

Advertise products through indicating that there are certain things that everyone needs

Offer consumers: 'treating yourself' because 'you're worth it'

Create an imaginary better world through your products – a way to escape from everyday hardships

Show price comparisons of your products

Conclusions

Presentation of the Retail - Clothing Industry Evaluated Companies Retail - Clothing Industry Matrix Chosen Companies A deeper look at the Companies chosen Comparison of the Ratios

Questions

Thanks for your attention.