DSW, Inc. - University of Oregon Investment Group

Transcription

February 27, 2015
Consumer Goods
DSW, Inc.
Ticker: DSW
Recommendation: Hold
Current Price: $37.35
Price Target: $29.68
Investment Thesis
Key Statistics
52 Week Price Range

Being the only company in the industry that operates a designer shoe
warehouse store with their level of quality and variety, DSW is in a unique
position to capture and maintain market share in this industry.

DSW’s shortcomings in 2013 with regards to predicting women’s trends
and failed experiments may have weakened consumer confidence in their
products.

DSW Omni-channel strategies and recent changes made to accelerate
women’s footwear will help drive revenue going forward

DSW’s success is dependent on its ability to predict trends and its failure to
do so will deteriorate consumer confidence in their brand.
$23.45 - $41.11
50-Day M oving Average
$36.22
Estimated Beta
1.01
Dividend Yield
2.00%
M arket Capitalization
3.30B
3-Year Revenue CAGR
6.25%
Five-Year Stock Chart
Trading Statistics
$50.00
Diluted Shares Outstanding
94.59
Average Volume (3-M onth)
1.12mm
$40.00
Institutional Ownership
86.00%
$35.00
35,000,000
$45.00
30,000,000
25,000,000
$30.00
Insider Ownership
100.00%
EV/EBITDA (Forward Comps)
11.0x
20,000,000
$25.00
15,000,000
$20.00
$15.00
Margins and Ratios
10,000,000
$10.00
5,000,000
Gross M argin (Forward Comps)
32.99%
$5.00
EBITDA M argin (Forward Comps)
10.66%
$0.00
2/1/2010
Net M argin (Forward Comps)
Debt to Enterprise Value
5.27%
2/1/2011
Adjusted Close
2/1/2012
50-Day Avg
2/1/2013
2/1/2014
200-Day Avg
0
2/1/2015
Volume
0.00
Covering Analysts: Phoebe Hsieh
Phsieh@uoregon.edu
1
University of Oregon Investment Group
Business Overview
Figure 1: DSW Store
Jerome Schottenstein and the Nacht family founded the Schonac Corporation in
1969. Their original goal was to manage leased shoe departments in different
retail operations. From there, they opened the first DSW store in July of 1991 in
Dublin, Ohio. They wanted to create a place where brand name shoes could be
bought at an everyday value price, or in their words, “designer shoes at warehouse
prices.”
In 1998, Value City Department Stores, owned by the Schottenstein family,
purchased DSW. In December of 2004, Retail Ventures, Inc consolidated many
of Value City’s subsidiary brand and later, Retail Ventures retained 60% of
DSW’s outstanding shares. DSW went public in 2005, after changing their name
from Schonac Corporation to DSW, Inc. In 2011, RVI Merged with DSW and
they have been operating as DSW ever since. Today, they operate in 433 stores,
431 in the United States and 2 in Puerto Rico.
DSW
Source: Google Images
Figure 2: 2013 Revenue Breakdown by Segment
Women’s
DSW’s women’s shoe department is their largest portion of their revenue. In
2013, women’s shoes accounted for 65% of revenue. Recently, women’s retail
has declined slightly, but has been compensated by the increase in men’s shoe
sales. In the future, women’s sales will remain the main driver of revenue for
DSW but the men’s retail is expected to increase their contributions. After a
dismal year for DSW Women’s, its corporate governance decided to make some
pivotal changes in management structure and assortment in an effort to turn sales
around in this segment.
Men’s
DSW Men’s has historically made up about 15% of total revenue. Recently, men’s
shoes has had increasingly positive response in the industry, boosting that number
up to about 17%. As men increasingly view DSW as an optimal place to purchase
footwear, I predict that men’s shoes will be a growing revenue driver going
forward.
7%
12%
16%
Designer shoe warehouse is the primary operation that DSW conducts. This
segment provides designer shoes at great values in over 400 stores nationwide and
in Puerto Rico. Their goal is to provide a vast selection of shoes that cater to ever
consumer base at an everyday price. They also bring to the market a vast selection
of accessories and handbags for consumers to enjoy.
65%
Women’s
Athletic
Men’s
Accessories and Other
Source: DSW 10-K
Athletic Shoes
Athletic footwear typically makes up about 12% of DSW’s revenue. As DSW
focuses on becoming a more premier footwear brand for everyday wear shoes, I
predict this segment to decline slightly to accommodate higher end footwear.
Their strong competitors in the athletic footwear industry, such as Nike and Foot
Locker will also stand to draw customers from this segment.
Accessories and Handbags
Accessories and handbags are DSW’s clever footwear counterparts, making up
about 7% of revenue annually. After a failed luxury accessory test online in 2013,
DSW will be continuing their experiments in their other sub segments. Their
failed test is a strong indication that their accessories are not quite ready for
expansion and I have reflected this in my model by decreasing revenue
contribution from this segment slightly in the future.
UOIG 2
Figure 3: Shoe Retail Market Share
4.8%
4.8%
65% 7.1%
7.1%
6.1%6.1%
65%
11.6%11.6%
70.4%
Affiliated Business Group
A sub segment of DSW is the Affiliated Business Group (ABG). Their directive
is to enhance shoppers’ experiences by partnering with other retailers to help build
and promote their individual businesses. They conduct operations including
product supply and in-store experience enhancement in order to extend DSW’s
reach past their own doors. Although they do not directly break out the ABG
segment in their financial statements, ABG accounts for roughly 3-5% of sales
year over year.
65%
70.4%
Industry
Overview
Source: IBIS World
Figure 4: Percent Change in Per Capita Change in
Disposable Income
The footwear and shoe industry is a vast and highly concentrated industry. They
can retail items from running shoes to gladiator sandals and can be located within
a larger retailer, or in their own establishment. As per capita disposable income
increases and unemployment continues to decline, the industry is in an optimal
position to grow and strengthen. As an industry that is heavily impacted by
changes in consumer spending and consumer confidence, macroeconomic factors
pose challenges and sometimes increased risks as these factors can be largely
unpredictable.
Macro factors
Consumer Confidence:
Consumer confidence is one of the main economic drivers impacting retail today.
As spending generally relies on consumer expectation of future economic
conditions, consumer confidence is an important measure to consider when
evaluating retail companies. Consumer confidence is expected to increase at a
decreasing rate going forward, which could stand to slow growth in the shoe retail
industry.
Source: IBIS World
Figure 5: Competitor Revenue Growth
Disposable Income/Consumer Spending:
Shoes in many cases, can be considered a luxury item. Disposable income and
consumer spending, therefore, can greatly affect customers’ ability to afford new
shoes on a recurring basis. As per capita disposable income continues to rise,
people may be more inclined to purchase more pairs of shoes. This can adversely
or conversely affect DSW depending on how strong their brand equity is.
Consumers who have a higher disposable income may prefer to buy higher end
shoes from more premium retailers such as Tory Burch. However, if DSW can
achieve its goal of increasing their brand awareness and customer loyalty,
customers, even with a higher disposable income, will shop at DSW but at a higher
capacity.
Competition
Although DSW is a unique shoe retailer with innovative ideas, there is strong
competition in this industry from online retailers and large department stores.
Recently, an increase in online shoe and clothing retailers has shifted a lot of the
market towards digital. In an industry that is already heavily saturated with
competition, online merchandisers only further deteriorate market share from
those already in the industry. Some may argue that in store retailers offer the
invaluable choice of trying on shoes before buying them, but many online retailers
counter this by providing free returns or exchanges to customers.
The strongest competitors in the footwear industry include DSW, Brown Shoe
Company, Payless, and Foot Locker. Although those competitors dominate as
Source: Financial Statements
UOIG 3
standalone shoe retailers, the industry also faces tough competition with retailers
who sell more than just shoes, including Nordstrom, Macy’s and J.C. Penny.
Figure 6: DSW Store
Online retailers are arguably DSW’s strongest adversaries at this time. Online
retailers have the unique capability of supplying a wide variety of shoes and facing
small set up costs because they do not have to build physical brick and mortar
stores. This eliminates the largest barrier to entry facing the market, enabling
those retailers to decrease costs.
Much of DSW’s future success will be greatly dependent on its ability to maintain
market share and predict trends accurately.
Strategic Positioning
Strong Supplier Relationships
Figure 7: Customer Revenue Contribution
DSW prides itself in its strong supplier relationships. They merchandise directly
from around five hundred domestic and foreign vendors. Most of their domestic
vendors import merchandise from overseas and their top three vendors make up
around 19% of net sales. These relationships are the main way that DSW is able
to control costs in order to maximize their margins. These relationships will put
them in an optimal position for negotiations and cost reduction going forward.
Brand Recognition
DSW is known nationally for selling high quality designer shoes at extremely
affordable prices. They use this as a tool to provide value to their customers as
well as retain customers. As men’s footwear gains traction, DSW hopes to use
their already strong foothold in the women’s department to boost sales and expand
of their men’s shoe department. Their effective branding strategy has led them to
hold a significant portion of the market share in this industry.
Wide Product Offering
Source: DSW 10-K
The intention of DSW is to provide the widest assortment of footwear to their
customers in order to fulfill each individual’s tastes and preferences. They want
to cater to every consumer in every market, offering brand name, designer, and
private brand footwear. Many of their competitors such as Nordstrom and Macys
carry a healthy selection of footwear, however, neither have the variety of
selection that DSW does. A typical DSW store carries up to 23,000 pairs of shoes
in 1,600 styles as well as a healthy assortment of handbags and accessories.
Accurate Trend Prediction
Figure 8: DSW Men’s Ad
DSW history is indicative of the company’s competence when it comes to
predicting trends. The fact that they provide shoes of every variety, catering to
every consumer, lowers the risk that they will be unsuccessful as a whole. When
they have fallen short of expectations in any way, management has been proactive
with finding ways to mitigate pit falls. They struggled in this area in 2013, but are
optimistic that they will be able to more accurately predict trends going forward.
DSW Rewards
The DSW Rewards Program is designed to incentivize customers to make DSW
their primary footwear destination. Points are correlated to dollars spent and
accumulated points can be converted into discounts. 90% of DSW’s sales were
conducted by DSW card holders in 2013. Their hope is to increase customer
retention rates through increased discounts and rewards for their most loyal
customers.
UOIG 4
Figure 9: Men’s Revenue Contribution
Business Growth Strategies
DSW Men’s
DSW men’s has historically made up around 16% of DSW’s total revenue.
Recently, there has been increased demand for men’s footwear at DSW and they
hope to capitalize on this opportunity to expand further into this segment. The
response to trends and the various products offered in the men’s department has
been increasingly positive and if this continues, the men’s department may be
poised to become a strong driver of revenue going forward. This segment has
enormous potential for growth and DSW could stand to benefit from this shift in
the long run.
Source: UOIG Projections
Figure 10: Omni-channel Distribution
DSW App/Online
Realizing that ecommerce is expanding rapidly, especially in the retail industry,
DSW intends to follow the trend by focusing more of their efforts on their online
retail. They launched an expansive online luxury accessory test in 2013, but it
proved to be unsuccessful. Since then, they have made efforts to sell more online
and even create a smartphone application where customers can track their
purchases, make new ones, and track their rewards points all from their mobile
device. They want to bring the most optimal shopping experience to their
customers and at this point, consumers are interested in ecommerce. In order to
accommodate this request, DSW is bringing customers free shipping and returns,
as well as in store fulfillment through their Omni-channel distribution. Although
this is a step in the right direction, most other retailers are already invested in
ecommerce and smartphone applications, begging the question of whether DSW
is a little late to the game.
Omni-channel Distribution
DSW is launching a new Omni-channel strategy with fresh new ways to deliver
their products to consumers. They recently launched shoephoria, a system that
provides them the ability to fulfill out-of-stock orders from their fulfillment
center. They also launched a new charge-send drop ship capabilities allowing
them to sell product online while fulfillment takes place out of their suppliers’
warehouse. If proven successful, these methods could prove to be pivotal as it
allows DSW to control inventory in a more efficient way than ever before.
Management and Employee Relations
Michael R. MacDonald, President and CEO
Figure 11: Michael MacDonald Executive Salary
Michael MacDonald has over 30 years of business experience in retail, enhancing
various spaces including merchandising, marketing, operations, and finance
functions. He served in various roles at Shopko Stores from 1998 to 2009,
including Chairman and Chief Executive Office from May 2007 to March 2009.
He then left when he was appointed President and CEO of DSW, Inc.
Jay L. Schottenstein, Chairman of the Board
Mr. Schottenstein serves as the Chairman of the Board of Directors. He served in
many executive roles at Schottenstein Stores Corporation since 1976 and served
as CEO of Retail Ventures from 1991 to 1997. He also serves as Chairman of the
Board of directors at American Eagle Outfitters, and Schottenstein Stores
Corporation. He was CEO of DSW from 2005 to 2009 and now serves as a
director at American Eagle Outfitters in addition to his present position at DSW.
Source: Morning Star
James O’Donnell, Inside Director
UOIG 5
James O’Donnell has an extensive background in retail and consumer goods. He
was a member of the Board of Directors of The Gap from 1987 to 1992 and holds
various other executive positions at Coleman Capital Advisors, Computer
AidedSystems and Lyte. He also served as CEO, and COO at American Eagle
Outfitters. Today, O’Donnell is an inside director and member of the Technology
Committee at DSW and a strategic advisor for American Eagle Outfitters.
Figure 12: Joseph Schottenstein Executive Salary
Joseph A. Schottenstein, Inside Director
Joseph Schottenstein has served in many executive capacities at the Schottenstein
Property Group, a privately held company that develops shopping centers in the
United States. He has also served as a Manager of Indigo Nation until 2004 and
currently serves as an inside director and member of the Technology Committee
at DSW.
Management Guidance
Source: Morning Star
Management guidance has been rather scarce historically. However, the seldom
times that they do set expectations, they usually achieve or surpass them.
Although their projections to grow stores by about 3% every year for the next five
years may seem bullish, they have not closed any stores in the past two years and
do not anticipate doing so in the future. Management predicts that with the
positive response to men’s footwear this past year, the men’s section as DSW will
continue to grow and expand with potential to become a strong driver of revenue.
Portfolio Strategy
Because I believe DSW is not a strong investment at this time, I will not be
pitching DSW to any portfolios.
Recent News
“DSW Announces Management Changes”
01/29/2015
Figure 13: Revenue Projections
This article discuss the new management changes that DSW has put in place as of
February 2, 2015. They decided to promote several key executives in order to
“strengthen company organization, establish a single pyramid in charge of all
customer touch points, increase bench strength, and balance workload in those
parts of the organization that are undergoing significant change.” Carrie
McDermott, current Executive Vice President was appointed Executive Vice
President and Chief Operating Officer. Ms. McDermott has been an employee of
DSW for over eight years. She will add to her responsibilities, DSW site
operations, the Shoephoria call center, and marketing, making the customer
service experience more streamlined throughout the business. Bill Jordan, current
Executive Vice President and General Counsel was appointed Executive Vice
President and Chief Administrative Officer. He has been with DSW for nine years
and will add Information Technology to his responsibilities. Finally, Harris
Mustafa, Executive Vice President of Supply Chain, was appointed Executive
Vice President and Chief Supply Chain Officer. After eight years at DSW, the
company believes Mustafa is best suited for their new omi-channel initiative and
extra responsibilities as the company evolves.
“DSW Enhances Shareholder Returns”
02/18/2015
UOIG 6
Figure 14: One Year Stock Price
DSW has increased their quarterly dividend by 6.7% to 20 cents from 18.75 cents
per share, in an effort to enhance shareholder returns. The new dividend will go
into effect on March 31, 2015.
Catalysts
Upside


Source: Yahoo Finance


Continued growth in DSW’s men’s department could be a strong driver
in revenue going forward
Omni-channel strategies focused on making shopping more convenient
for customers could increase incentive to shop at DSW as opposed to
less convenient retailers
Reorganization of executive roles may serve to strengthen leadership
Everyday value prices and strong quality assurance will increase
customer retention
Downside


Figure 15: Foot Locker Logo


Inability to accurately predict trends will have an adverse effect on
revenue and stock price
Merchandise manufactured abroad proses risks such as economic and/or
political instabilities; international discourse could increase shipping
costs, delays, or stoppages.
Increased consumer spending could drive customers to purchase higher
end shoes from higher end specialty retailers rather than DSW
Deceleration in consumer confidence could slow growth in the retail
industry
Comparable Analysis
Overview
Comparable companies were screened for a variety of different metrics,
specifically focusing on companies with similarities to DSW in terms of product
offering, markets, market cap, growth rates, capital structure, margins, and shared
risk factors. After these metrics were evaluated, I assigned weightings based upon
which companies I felt like satisfied the various criteria the best.
Foot Locker (FL) - 40%
Foot Locker Inc., is an American sport and footwear retailer in about twenty
countries worldwide. A household name when it comes to athletic shoes, Foot
Locker is the ultimate sports footwear destination for those looking for a wide
variety of choices.
Figure 16: Steve Madden Logo
Foot Locker operates in a different segment of the footwear industry with a
different focus, however Foot Locker offers the strongest value in terms of a
comparable. It is similar to DSW in terms of the fact that it has a similar market
cap, little debt, and rather similar margins as well. They have similar growth rates
and are susceptible to similar risks as DSW, including accuracy of trend
predictions, and supplier relationships.
Steve Madden (SHOO) - 35%
Steve Madden is a large shoe retailer for men, women, and children online, in
stores, and through wholesale. They sell a variety of shoes from sandals to
stilettos, but they do not sell athletic footwear. Their main objective is to offer the
most fashionable style shoes to the market.
UOIG 7
Figure 17: Brown Shoe Co Logo
Steve Madden is one of the strongest comparable companies to DSW
quantitatively and qualitatively. Not only do they offer arguably identical value
to customers and cater to the same consumer base, but they also operate stores
extremely similarly to DSW, with less variety and a bit higher price. The two
companies are also extremely in line with regards to margins, share a similar
capital structure and risk as well. They do not have the same objectives in terms
of offering shoes at an everyday price, but they do price their shoes at a reasonably
cost for the average middle class American. Although their growth expectations
and plans for growth differ quite a bit from DSW’s, I believe Steve Madden is a
strong comparable to DSW.
Brown Shoe Co (BWS) - 20%
Brown Shoe Company is a global footwear company that owns and operates a
variety of brands. They are the shoe conglomerate responsible for the brands
Famous Footwear, Naturalizer, Life Stride, Dr. Scholl’s, Ryka, Via Spiga, Sam
Edelman, Vince, Franco Sarto, Fergie, and Carlos.
Brown Shoe Company is an interesting comparable because it caters to much of
the same consumer base that DSW does- mid to high end shoes that are affordable
and comfortable. They are a small cap company with similar product offering but
they do vary from DSW a bit in terms of margins. All things considered, I do
believe that qualitatively they are a very beneficial comparable to DSW.
Sketchers (SKX) - 5%
Figure 18: Sketchers Logo
Sketchers is an American shoe company that operates over 731 stores globally.
Sketchers offers a variety of shoes ranging from athletic to work shoes, however
they only retail their own brand of shoes unlike Brown Shoe Company or DSW.
Recently, Sketchers has been trying to increase their customer base by widening
their product offering and catering to consumers with special footwear needs, such
as orthopedics.
I wanted to evaluate Sketchers as a comparable because they have similar market
caps and they both operate in the footwear industry. They are however, expected
to grow faster than DSW and have a bit higher margins. That being said, I believed
it to be reasonable to give Sketchers a 5% weighting in my analysis.
Phillip Van Heusen (PVH) – 0%
Phillip Van Heusen is a large cap American clothing and accessory company
which owns various brands such as Tommy Hilfiger, Calvin Klein, and Heritage
and licenses various other brands such as BCBG Max Azria and Geoffrey Beene.
Figure 19: PVH Logo
Although PVH is not a shoe retailer, they do cater to a similar consumer base. I
originally saw this company as an interesting comparable to evaluate. However,
upon further research I realize that quantitatively they do not offer any significant
value, and qualitative value is minimal as well.
Discounted Cash Flow Analysis
Revenue Model
Because DSW is in the retail industry, revenue per year for DSW is calculated
based on revenue per square foot and total square footage. For 2014-2023,
management guidance was used to project total stores. Management has
previously spoken about their average square feet per store to be favorable around
22,000 square feet per store and I anticipate that they will continue to keep average
UOIG 8
square feet per store around that number. I project revenue per square foot to
increase at a constant rate of 3% from 2016 into perpetuity because despite the
lack of guidance or historical consistency, I believe that 3% is a reasonable
estimate based upon correlations between historical increase in revenue and store
openings. When DSW opened a great amount of stores one year, their increase in
revenue was much less than when they focused their attention on their current
stores rather than rapid expansion. For my second revenue model, I wanted to
project sales by segment in order to give the other analysts an idea of what DSW
plans to do in each segment going forward. This was largely based on
conversations had during earnings call transcripts and historical performance. Due
to lack of management guidance and information, I decided to take a relatively
bearish stance with regard to revenue, having it increase at a decreasing rate going
forward.
Figure 20: Cost of Goods Sold Projections
Operating Expense
Figure 21: Beta Calculations
WFM
Beta
SE
Weighting
0.19
0.00%
1.03
0.08
40.00%
3 year weekly
0.95
0.18
0.00%
3 Year Daily Vasicek- Comps
0.93
5.00%
3 Year Daily Vasicek-ETF
0.70
5.00%
3 Year Daily Hamada
0.93
0.00%
3 Year Daily Hamada- Comps
1.04
5.00%
3 Year Daily Hamada-ETF
0.68
5.00%
3 Year Weekly Hamada
1.08
0.00%
5 year daily
1.07
1 Year Daily
0.75
1 Year Daily Hamada-Comps
1.13
3 year daily
0.00%
0.08
5 Year Daily Hamada
1.46
40.00%
0.00%
Operating expenses consist of expenses relating to store management and payroll
costs, advertising, ABG operations, new store advertising and other costs as well
as corporate expenses. DSW is actively engaged in making revenue boosting
improvements in their company. In 2013, they experimented with expanding their
luxury accessory line online and were unsuccessful. They have spoken about
doing more product line experimenting and making other potential improvements
that would increase operating expense. 2014’s operating expense was projected
based on management guidance and I predict that going forward, these
experiments will yield results and operating expense will marginally decline into
perpetuity.
Capital Expenditures
Capital expenditures are connected with DSW expansion, improving ecommerce,
remodeling existing stores, and growing infrastructure. Capital expenditures are
set to increase this year as DSW is projected to open 39 new stores and continue
to open stores at a strong rate going forward. DSW is also investing in their
ecommerce, ramping up their smart phone application, in an effort to increase
customer retention.
Weight Average Unlevered Beta Beta 1.01
Beta
DSW’s beta was calculated using various linear regressions in comparison with
the S&P 500. I also used the Hamada and Vasicek methods to compare DSW
against its comparable companies in order to obtain a series of betas to evaluate.
I placed the most emphasis on my three and five-year daily betas because of their
low standard of error and the five-year reflected a longer period of time. I took
out of consideration betas with standard errors above 0.1 and weighted my ETF
betas 5% each.
Figure 22: Beta Sensitivity Table
Implied Price
Undervalued/(Overvalued)
Adjusted Beta
Terminal Growth Rate
31
2.0%
2.5%
3.0%
3.5%
4.0%
0.82
34.93
36.66
38.74
41.28
44.45
0.92
31.12
32.41
33.93
35.75
37.96
1.02
28.00
28.99
30.13
31.47
33.06
1.12
25.41
26.17
27.05
28.06
29.24
1.22
23.22
23.82
24.50
25.28
26.18
Cost of Goods Sold
DSW’s cost of goods sold are set to go up in 2015 due to their experimenting with
product lines. Management has not been very forthcoming with information
pertaining to their experimentation unless it has failed or succeeded. I anticipate
that their experiments will run through 2014-2015 and eventually slow down.
Because much of their footwear is manufactured abroad, they have opportunities
UOIG 9
to decrease cost of goods sold even further by increasing their overseas
manufacturing.
Tax Rate
Figure 23: Final Valuation
Final Implied Price
Price Target
Weight
DCF
$30.56
50.00%
Forward Comparable Analysis
$28.79
50.00%
Price Target
Current Price
Overvalued
$29.68
$37.35
(20.54%)
DSW’s tax rate has been relatively consistent historically, ranging from about
38%-40%. They have not disclosed information regarding whether or not they
will be doing anything to decrease their tax rate going forward, nor have not put
any international expansion plans into place, so they will not have the opportunity
to take advantage of a lower tax rate. For those reasons, I took the average of the
historical tax rates and standardized them into perpetuity.
Recommendation
Given DSW’s slowing growth and unsuccessful product tests, a reasonable
overvaluation has been identified in both the DCF Assumptions and Forward
Comparable Analysis. For those reasons, I recommend a HOLD for all portfolios.
UOIG 10
December 5, 2014
Appendix 1 – Relative Valuation
Comparables Analysis
($ in millions)
Stock Characteristics
Current Price
Beta
Max
$110.26
1.38
Min
$28.39
1.01
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Non-Controlling Interest
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
0.09
199.01
858.00
127.80
151.67
9,079.01
8,571.01
82.50
48.81
1,251.66
1,368.17
136.00
372.00
67.38
3,114.03
2,885.97
Growth Expectations
% Revenue Growth 2014E
% Revenue Growth 2015E
% EBITDA Growth 2014E
% EBITDA Growth 2015E
% EPS Growth 2014E
% EPS Growth 2015E
20.80%
11.74%
20.40%
12.00%
43.20%
22.70%
(1.10%)
2.30%
(15.70%)
2.00%
(13.00%)
7.60%
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
52.67%
12.06%
14.34%
8.11%
32.99%
5.17%
7.26%
3.10%
Credit Metrics
Interest Expense
Debt/EV
Leverage Ratio
Interest Coverage Ratio
Operating Results
Revenue
Gross Profit
EBIT
EBITDA
Net Income
Multiples
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
0.15
1.03
-
-
Median
Weight Avg.
$53.22
$42.00
1.09
1.09
DSW
Fl
SHOO
BWS
SKX
PVH
DSW
Foot Locker
Steve Madden
Brown Shoe Co
Sketchers
PVH Corporation
$37.35
1.01
40.00%
$53.22
1.01
35.00%
$34.34
1.01
20.00%
$28.39
1.38
5.00%
$60.35
1.19
0.00%
$110.26
1.09
0.00
101.09
441.40
45.04
96.61
4,405.82
4,110.55
112.02
94.59
3,460.46
3,348.44
136.00
858.00
151.67
8,012.95
7,290.95
180.28
127.80
67.38
2,270.29
2,217.82
199.01
82.50
48.81
1,251.66
1,368.17
0.09
137.75
372.00
6.10
51.86
3,114.03
2,885.97
85.00
593.00
83.13
9,079.01
8,571.01
2.80%
4.10%
3.10%
4.70%
19.30%
12.20%
4.98%
6.34%
0.47%
6.44%
10.84%
12.13%
7.62%
11.74%
10.92%
8.28%
(13.00%)
15.00%
9.40%
4.10%
10.80%
4.70%
21.40%
9.40%
(1.10%)
9.80%
(15.70%)
8.80%
(10.70%)
12.20%
2.80%
3.70%
3.10%
4.40%
19.30%
14.80%
20.80%
10.60%
20.40%
12.00%
43.20%
22.70%
1.10%
2.30%
1.40%
2.00%
3.40%
7.60%
40.62%
11.15%
13.33%
7.30%
35.94%
10.21%
12.12%
6.74%
32.99%
8.28%
10.66%
5.27%
33.48%
11.15%
13.54%
7.30%
34.89%
12.06%
13.33%
8.11%
40.62%
5.17%
7.26%
3.10%
44.29%
9.94%
11.78%
7.16%
52.67%
11.41%
14.34%
7.62%
0.02
0.14
-
0.04
0.28
-
0.15
1.03
-
0.05
0.40
-
0.01
0.07
-
-
0.02
0.14
-
-
$8,366.10
$4,406.45
$954.70
$1,199.49
$637.44
$288.33
$1,409.20
$491.67
$137.50
$187.89
$82.52
$20.04
$2,913.73
$1,290.59
$289.60
$343.31
$208.52
$53.19
$4,081.15
$1,427.07
$425.93
$515.57
$279.29
$106.84
$2,848.29
$939.76
$235.77
$303.69
$149.98
$113.93
$7,276.14
$2,436.16
$811.20
$985.11
$530.90
$216.91
$1,409.20
$491.67
$169.93
$187.89
$114.28
$20.04
$2,658.96
$1,079.94
$137.50
$192.99
$82.52
$52.00
$2,913.73
$1,290.59
$289.60
$343.31
$208.52
$53.19
$8,366.10
$4,406.45
$954.70
$1,199.49
$637.44
$288.33
1.6x
4.5x
14.2x
11.8x
17.6x
23.1x
0.5x
1.3x
9.0x
7.1x
9.4x
14.2x
1.0x
2.2x
10.0x
7.4x
9.7x
15.1x
1.1x
3.1x
10.7x
8.9x
10.9x
16.8x
1.2x
3.6x
14.2x
11.0x
17.6x
23.1x
1.0x
3.0x
9.0x
7.4x
9.5x
15.1x
1.6x
4.5x
13.1x
11.8x
13.2x
19.9x
0.5x
1.3x
10.0x
7.1x
9.7x
15.2x
1.0x
2.2x
10.0x
8.4x
9.9x
14.9x
1.0x
1.9x
9.0x
7.1x
9.4x
14.2x
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Price Target
Current Price
Overvalued
Implied Price
$34.43
$32.39
$27.73
$29.85
$22.97
$26.59
$28.79
$37.35
(22.91%)
Weight
0.00%
0.00%
50.00%
50.00%
0.00%
0.00%
UOIG 11
December 5, 2014
Appendix 2 – Discounted Cash Flows Valuation
Discounted Cash Flow Analysis
($ in Millions)
Q3
Q4
2/1/2015E
Q1
Q2
Q3
Q4
2015E
2015E
2015E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
$2,368.7
$598.9
$587.1
$669.9
$693.2
$2,549.1
$701.5
$709.9
$718.3
$718.6
$2,848.3
$3,057.5
$3,251.3
$3,453.9
$3,665.8
$3,850.1
$4,034.5
$4,226.5
$4,410.1
% YoY Growth
4.08%
9.55%
13.71%
11.08%
11.53%
4.91%
(0.40%)
4.45%
5.83%
21.13%
7.62%
17.13%
20.92%
7.22%
3.67%
11.74%
7.35%
6.34%
6.23%
6.13%
5.03%
4.79%
4.76%
4.35%
Cost of Goods Sold
1,047.5
1,088.4
1,208.4
1,319.1
1,475.3
1,565.3
394.6
398.3
434.5
457.5
1,684.9
463.0
475.6
466.9
503.0
1,908.5
2,044.9
2,170.4
2,301.3
2,437.9
2,555.6
2,672.9
2,794.8
2,910.7
71.60%
67.91%
66.31%
65.16%
65.34%
66.08%
65.88%
67.85%
64.86%
66.00%
66.10%
66.00%
67.00%
65.00%
70.00%
67.01%
66.88%
66.75%
66.63%
66.50%
66.38%
66.25%
66.13%
66.00%
(6.6)
(4.9)
(5.4)
(6.1)
$415.4
$507.6
$609.0
$699.8
28.40%
31.67%
33.42%
336.3
440.8
396.1
22.99%
27.51%
21.74%
% Revenue
Depreciation and Amortization
% Revenue
% Net PP&E
Earnings Before Interest & Taxes
% Revenue
Interest Income
% Revenue
Income from Discontinued Ops
% Revenue
Non-Operating Income
% of Revenue
Earnings Before Taxes
% Revenue
Less Taxes (Benefits)
Tax Rate
Net Income
% Revenue
Net Working Capital
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$776.4
$803.4
$204.4
$188.8
$235.4
$235.7
$864.2
$238.5
$234.3
$251.4
$215.6
$939.8
$1,012.6
$1,080.9
$1,152.6
$1,227.9
$1,294.5
$1,361.6
$1,431.7
$1,499.4
34.57%
34.39%
33.92%
34.12%
32.15%
35.14%
34.00%
33.90%
34.00%
33.00%
35.00%
30.00%
32.99%
33.12%
33.25%
33.37%
33.50%
33.62%
33.75%
33.87%
34.00%
448.6
481.8
497.9
126.8
118.6
138.9
144.4
528.6
157.1
142.0
165.2
171.7
636.1
679.6
719.3
760.5
803.4
839.8
875.8
913.1
948.2
22.16%
21.34%
21.02%
21.16%
20.20%
20.73%
20.83%
20.74%
22.40%
20.00%
23.00%
23.90%
22.33%
22.23%
22.12%
22.02%
21.92%
21.81%
21.71%
21.60%
21.50%
48.3
51.2
57.8
64.1
16.4
17.6
16.8
13.1
57.4
17.2
17.3
17.3
17.6
67.9
76.7
84.7
92.6
100.6
107.3
114.1
120.3
125.8
2.53%
2.56%
2.71%
2.73%
2.99%
2.51%
1.89%
2.25%
2.45%
2.43%
2.41%
2.45%
2.38%
2.51%
2.60%
2.68%
2.74%
2.79%
2.83%
2.85%
2.85%
13.07%
18.47%
18.77%
18.12%
17.80%
18.61%
4.63%
4.92%
4.59%
3.57%
16.76%
4.37%
3.88%
3.48%
3.20%
17.28%
17.47%
17.47%
17.47%
17.47%
17.47%
17.47%
17.47%
17.47%
$42.8
$20.0
$164.7
$200.0
$236.8
$241.4
$61.3
$52.6
$79.7
$78.2
$278.2
$64.2
$75.0
$68.9
$26.2
$235.8
$256.3
$276.9
$299.5
$324.0
$347.4
$371.6
$398.3
$425.4
2.93%
1.25%
9.04%
9.88%
10.49%
10.19%
10.23%
8.96%
11.90%
11.28%
10.92%
9.15%
10.57%
9.59%
3.65%
8.28%
8.38%
8.52%
8.67%
8.84%
9.02%
9.21%
9.42%
9.65%
0.8
13.6
13.5
11.8
0.9
0.6
0.1
0.1
0.2
-
0.4
-
-
-
-
-
-
-
-
-
-
-
-
-
.05%
.85%
.74%
.58%
.04%
.03%
.01%
.02%
.03%
-
.01%
-
-
-
-
-
-
-
-
-
-
-
-
-
3.4
2.3
3.2
2.6
4.7
3.2
1.0
0.7
0.8
1.1
3.7
1.2
1.1
1.1
0.9
4.2
4.9
5.2
5.5
6.2
0.1
6.9
7.2
7.5
.23%
.14%
.18%
.13%
.21%
.14%
.17%
.12%
.12%
.16%
.14%
.17%
.15%
.15%
.12%
.15%
.16%
.16%
.16%
.17%
.00%
.17%
.17%
.17%
0.00%
59.88
6.63
(4.86)
1.25
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3.74%
.36%
(.24%)
.06%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1.13)
(2.37)
1.50
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(.08%)
(.15%)
.08%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
44.3
66.2
162.5
185.9
241.9
244.0
62.2
53.2
80.3
79.3
281.5
65.4
76.1
69.9
27.1
240.0
261.2
282.1
305.0
330.2
347.5
378.5
405.5
432.9
3.03%
4.13%
8.92%
9.19%
10.71%
10.30%
10.39%
9.07%
11.99%
11.44%
11.04%
9.32%
10.72%
9.74%
3.77%
8.42%
8.54%
8.68%
8.83%
9.01%
9.03%
9.38%
9.59%
9.82%
17.38
12.06
59.97
(58.07)
95.43
92.71
23.57
20.82
31.79
31.8
108.0
22.5
22.5
22.5
22.5
90.0
98.0
105.8
114.4
123.8
130.3
141.9
152.1
162.3
39.25%
18.22%
36.90%
31.23%
39.45%
37.99%
37.89%
39.12%
39.59%
37.00%
38.35%
34.40%
29.57%
32.17%
83.07%
37.50%
37.50%
37.50%
37.50%
37.50%
37.50%
37.50%
37.50%
37.50%
$26.90
0.5
Current Liabilities
-
2.65%
Add Back: Interest Expense*(1-Tax Rate)
% Revenue
-
46.7
36.3
Current Assets
-
2.92%
Add Back: Depreciation and Amortization
% Revenue
-
36.3
Net Margin
Operating Cash Flow
-
2.48%
Interest Expense
% Revenue
2014E
2015E
$2,257.8
Operating Expenses
2013A
11/2/2014A
$2,024.3
Gross Margin
2012A
Q2
$1,822.4
Gross Profit
2011A
8/2/2014A
$1,602.6
-
2010A
Q1
$1,462.9
Change in Fair Value of Derivative Instruments
2009A
5/3/2014A
Total Revenue
% Revenue
2008A
$54.12
$102.56
$244.01
$146.44
$151.30
$38.64
$32.40
$48.50
$47.49
$173.57
$42.91
$53.59
$47.44
$4.58
$149.98
$163.26
$176.34
$190.63
$206.39
$217.17
$236.56
$253.45
$270.58
3.38%
5.63%
12.05%
6.49%
6.39%
6.45%
5.52%
7.24%
6.85%
6.81%
6.12%
7.55%
6.60%
0.64%
5.27%
5.34%
5.42%
5.52%
5.63%
5.64%
5.86%
6.00%
6.14%
46.7
48.3
51.2
57.8
64.1
16.4
17.6
16.8
13.1
57.4
17.2
17.3
17.3
17.6
67.9
76.7
84.7
92.6
100.6
107.3
114.1
120.3
125.8
8.5
8.1
0.5
0.4
0.0
0.1
0.1
-
0.2
-
-
-
-
-
-
-
-
-
-
-
-
-
11.1
$63.71
$112.00
$159.34
$303.36
$204.78
$215.77
$55.03
$50.04
$65.46
$60.61
$231.14
$60.07
$70.85
$64.77
$22.20
$217.90
$239.96
$261.00
$283.22
$306.94
$324.49
$350.69
$373.72
$396.42
4.36%
6.99%
8.74%
14.99%
9.07%
9.11%
9.19%
8.52%
9.77%
8.74%
9.07%
8.56%
9.98%
9.02%
3.09%
7.65%
7.85%
8.03%
8.20%
8.37%
8.43%
8.69%
8.84%
8.99%
297.5
317.6
381.9
492.2
508.6
476.6
507.5
516.8
562.8
523.8
590.0
599.2
604.1
577.5
543.2
618.2
663.6
704.7
747.7
793.6
832.4
872.3
913.8
953.5
20.34%
19.82%
20.96%
24.31%
22.53%
20.12%
84.74%
88.02%
84.02%
75.57%
23.15%
85.41%
85.10%
80.40%
75.58%
21.70%
21.70%
21.68%
21.65%
21.65%
21.62%
21.62%
21.62%
21.62%
156.0
223.1
261.3
275.9
273.7
283.6
306.8
350.7
343.5
337.5
337.5
291.9
320.5
360.3
393.7
393.7
404.0
422.9
442.1
461.7
484.0
506.2
529.3
551.2
10.67%
13.92%
14.34%
13.63%
12.12%
11.97%
51.23%
59.73%
51.28%
48.70%
13.24%
41.61%
45.15%
50.16%
54.78%
13.82%
13.21%
13.01%
12.80%
12.59%
12.57%
12.55%
12.52%
12.50%
$141.50
$94.52
$120.61
$216.27
$234.92
$192.92
$200.73
$166.08
$219.33
$186.25
$252.46
$307.30
$283.59
$217.20
$149.47
$224.49
$259.54
$281.85
$305.62
$331.93
$348.48
$366.13
$384.56
$402.32
% Revenue
9.67%
5.90%
6.62%
10.68%
10.41%
8.14%
33.51%
28.29%
32.74%
26.87%
9.90%
43.80%
39.95%
30.24%
20.80%
7.88%
8.49%
8.67%
8.85%
9.05%
9.05%
9.08%
9.10%
9.12%
Change in Working Capital
113.2
(47.0)
26.1
95.7
18.7
(42.0)
7.8
(34.6)
53.2
(33.1)
59.5
54.8
(23.7)
(66.4)
(67.7)
(28.0)
35.0
22.3
23.8
26.3
16.6
17.7
18.4
17.8
81.0
21.8
52.3
76.9
99.8
83.8
25.2
21.6
26.6
34.7
108.1
35.1
35.5
35.9
28.7
113.9
122.3
130.1
138.2
139.3
146.3
149.3
152.2
154.4
5.54%
1.36%
2.87%
3.80%
4.42%
3.54%
4.20%
3.68%
3.97%
5.00%
4.24%
5.00%
5.00%
5.00%
4.00%
4.00%
4.00%
4.00%
4.00%
3.80%
3.80%
3.70%
3.60%
3.50%
($130.5)
$137.2
$81.0
$130.8
$86.4
$174.0
$22.0
$63.1
($14.4)
$59.0
$63.5
($29.8)
$59.1
$95.2
$61.2
$131.9
$82.6
$108.6
$121.3
$141.3
$161.6
$183.8
$203.1
$224.3
(28.65)
55.57
87.82
83.44
85.89
92.28
97.31
% Revenue
Unlevered Free Cash Flow
Discounted Free Cash Flow
57.84
55.28
68.82
102.00
103.96
105.84
EBITDA
$79.14
$66.74
$212.93
$251.21
$294.60
$305.49
$77.60
$70.17
$96.54
$91.29
$335.60
$81.38
$92.29
$86.19
$43.84
$303.69
$333.02
$361.60
$392.07
$424.54
$454.73
$485.77
$518.60
$551.27
EBITDA Margin
$0.05
$0.04
$0.12
$0.12
$0.13
$0.13
$0.13
$0.12
$0.14
$0.13
$0.13
$0.12
$0.13
$0.12
$0.06
$0.11
$0.11
$0.11
$0.11
$0.12
$0.12
$0.12
$0.12
$0.13
EBITDA Growth
($0.35)
($0.16)
($0.75)
($0.10)
($0.07)
($0.49)
$5.93
$0.10
$0.09
$0.08
$0.08
$0.07
$0.07
$0.07
$0.06
$2.19
$0.18
$0.17
$0.04
$0.38
($0.05)
$2.68
($0.76)
$0.13
UOIG 12
December 5, 2014
Appendix 3 – Revenue Model
Revenue Model
($ in Millions)
Total Stores
% Growth
Total Square Feet
% Growth
Average Square Feet Per Store
% Growth
Revenue Per Square Foot
Q1
2008A
2009A
2010A
2011A
2012A
2013A
Q2
5/3/2014A
Q3
8/2/2014A
Q4
11/2/2014A
Q1
2/1/2015E
2014E
Q2
2015E
Q3
2015E
Q4
2015E
2015E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
298.0
305.0
311.0
326.0
364.0
394.0
408.0
410.0
431.0
433.0
433.0
438.0
443.0
448.0
448.0
448.0
463.0
478.0
493.0
508.0
518.0
527.0
536.0
543.0
15.06%
2.35%
1.97%
4.82%
11.66%
8.24%
3.82%
0.49%
5.12%
0.46%
9.90%
1.15%
1.14%
1.13%
0.00%
3.46%
3.35%
3.24%
3.14%
3.04%
1.97%
1.74%
1.71%
1.31%
6.7
6.8
7.0
7.3
8.1
8.7
9.0
9.0
9.5
9.5
9.5
9.6
9.7
9.9
9.9
9.9
10.2
10.5
10.8
11.2
11.4
11.6
11.8
11.9
9.88%
1.34%
1.93%
4.55%
11.40%
6.98%
3.82%
0.49%
5.12%
0.46%
0.46%
1.15%
1.14%
1.13%
0.00%
0.00%
3.35%
3.24%
3.14%
3.04%
1.97%
1.74%
1.71%
1.31%
22.6
22.4
22.4
22.4
22.3
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
(4.50%)
(.99%)
(.04%)
(.26%)
(.23%)
(1.16%)
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
216.7
234.3
261.4
277.7
278.1
272.7
66.7
65.1
70.6
72.8
275.2
72.8
72.8
72.9
72.9
291.4
300.2
309.2
318.5
328.0
337.8
348.0
358.4
369.2
22.80%
8.10%
11.56%
6.25%
0.12%
(1.94%)
(3.41%)
(2.46%)
8.54%
3.00%
0.94%
0.05%
0.05%
0.05%
0.05%
5.89%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
Stores Opened
41.0
9.0
9.0
17.0
39.0
30.0
14.0
2.0
21.0
2.0
39.0
5.0
5.0
5.0
0.0
15.0
15.0
15.0
15.0
15.0
10.0
9.0
9.0
Stores Closed
2.00
2.00
3.00
2.00
1.00
-
-
-
-
-
-
-
-
-
-
-
Total Revenue
$1,462.9
$1,602.6
$1,822.4
$2,024.3
$2,257.8
$2,368.7
$598.9
$587.1
4.08%
9.55%
13.71%
11.08%
11.53%
4.91%
0.28%
(1.98%)
% Growth
% Growth
-
-
-
-
-
-
7.0
-
-
$669.9
$693.2
$2,549.1
$701.5
$709.9
$718.3
$718.6
$2,848.3
$3,057.5
$3,251.3
$3,453.9
$3,665.8
$3,850.1
$4,034.5
$4,226.5
$4,410.1
14.10%
3.48%
7.62%
1.21%
1.19%
1.18%
0.05%
11.74%
7.35%
6.34%
6.23%
6.13%
5.03%
4.79%
4.76%
4.35%
Revenue Model
($ in Millions)
Women's Shoes
2009A
2010A
2011A
2012A
2013A
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
965.5
1,057.7
1,202.8
1,336.1
1,467.6
1,656.9
1,822.9
1,956.8
2,080.8
2,141.4
2,272.8
2,348.6
2,501.4
2,620.4
2,734.3
% of Sales
66.00%
66.00%
66.00%
66.00%
65.00%
65.00%
64.00%
64.00%
64.00%
62.00%
62.00%
61.00%
62.00%
62.00%
62.00%
% Growth
0.00%
9.55%
13.71%
11.08%
9.84%
0.00%
(1.54%)
0.00%
0.00%
(2.00%)
0.00%
(1.00%)
1.00%
0.00%
0.00%
219.4
240.4
273.4
303.6
361.2
433.3
512.7
580.9
650.3
759.9
806.5
885.5
927.9
972.1
1,014.3
% of Sales
15.00%
15.00%
15.00%
15.00%
16.00%
17.00%
18.00%
19.00%
20.00%
22.00%
22.00%
23.00%
23.00%
23.00%
23.00%
% Growth
0.00%
0.00%
0.00%
0.00%
1.00%
1.00%
1.00%
1.00%
1.00%
2.00%
0.00%
1.00%
0.00%
0.00%
Men's Shoes
Athletic Shoes
0.00%
190.2
208.3
236.9
242.9
270.9
305.9
218.7
215.3
208.1
214.1
227.3
234.9
250.1
262.0
273.4
% of Sales
13.00%
13.00%
13.00%
12.00%
12.00%
12.00%
12.00%
11.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
% Growth
(1.00%)
0.00%
0.00%
(1.00%)
0.00%
0.00
0.00%
(1.00%)
(1.00%)
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Accessories and Other
87.8
96.2
109.3
141.7
158.0
152.9
109.4
117.4
124.8
128.5
136.4
140.9
125.1
131.0
136.7
% of Sales
6.00%
6.00%
6.00%
7.00%
7.00%
6.00%
6.00%
6.00%
6.00%
6.00%
6.00%
6.00%
5.00%
5.00%
5.00%
% Growth
1.00%
0.00%
0.00%
1.00%
1.00%
1.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
(1.00%)
0.00%
0.00%
298.0
305.0
311.0
326.0
364.0
433.0
448.0
463.0
478.0
493.0
508.0
518.0
527.0
536.0
543.0
15.06%
2.35%
1.97%
4.82%
11.66%
18.96%
3.46%
3.35%
3.24%
3.14%
3.04%
1.97%
1.74%
1.71%
1.31%
$1,462.9
$1,602.6
$1,822.4
$2,024.3
$2,257.8
$2,549.1
$2,848.3
$3,057.5
$3,251.3
$3,453.9
$3,665.8
$3,850.1
$4,034.5
$4,226.5
$4,410.1
4.08%
9.55%
13.71%
11.08%
11.53%
4.91%
.28%
(1.98%)
14.10%
3.48%
7.62%
1.21%
1.19%
1.18%
.05%
Total Stores
% Growth
Total Revenue
% Growth
UOIG 13
December 5, 2014
Appendix 4 – Working Capital Model
Working Capital Model
( $ in millions)
Total Revenue
Current Assets
Accounts Receivable
Days Sales Outstanding A/R
% of Revenue
Inventory
% of Revenue
Prepaid Expenses
Days Prepaid Expense Outstanding
% of Revenue
Deferred Income Taxes
% of Revenue
Total Current Assets
% of Revenue
Long Term Assets
Net PP&E Beginning
Depreciation and Amortization
Net PP&E Ending
Total Current Assets & Net PP&E
% of Revenue
Current Liabilities
Accounts Payable
Days Payable Outstnading
% of Revenue
Accrued Charges
Days Charges Outstanding
% of Revenue
Dividends Payable
% of Revenue
Total Current Liabilities
% of Revenue
2009A
2010A
2011A
2012A
2013A
2014A
Q1
Q2
Q3
Q4
5/3/2014A
8/2/2014A
11/2/2014A
2/1/2015E
2014E
Q1
Q2
Q3
Q4
2015E
2015E
2015E
2015E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
$1,462.9
$1,602.6
$1,822.4
$2,024.3
$2,257.8
$2,368.7
$598.9
$587.1
$669.9
$693.2
$2,549.1
$701.5
$709.9
$718.3
$718.6
$2,848.3
$3,057.5
$3,251.3
$3,453.9
$3,665.8
$3,850.1
$4,034.5
$4,226.5
$4,410.1
6.9
1.7
0.47%
244.0
16.68%
24.8
26.9
1.69%
21.9
1.50%
$297.5
20.34%
5.4
1.2
0.34%
262.3
16.37%
20.8
17.2
1.30%
29.1
1.82%
$317.6
19.82%
12.4
2.5
0.68%
309.0
16.96%
29.9
27.6
1.64%
30.5
1.68%
$381.9
20.96%
16.9
3.0
0.83%
334.4
16.52%
24.4
19.9
1.21%
116.5
5.75%
$492.2
24.31%
26.8
4.3
1.19%
393.8
17.44%
20.6
15.6
0.91%
67.4
2.99%
$508.6
22.53%
26.6
4.1
1.12%
397.8
16.79%
34.1
25.0
1.44%
18.1
0.77%
$476.6
20.12%
22.8
3.5
3.80%
420.0
70.12%
44.4
32.2
7.41%
20.4
3.40%
$507.5
84.74%
27.9
4.4
4.74%
415.0
70.68%
51.6
40.0
8.79%
22.3
3.80%
$516.8
88.02%
26.5
3.6
3.96%
486.3
72.59%
26.6
17.6
3.97%
23.5
3.51%
$562.8
84.02%
31.6
4.2
4.00%
450.6
65.00%
34.7
7.1
5.00%
6.9
1.00%
$523.8
75.57%
31.6
4.5
1.24%
450.6
17.68%
34.7
23.9
1.36%
73.1
2.87%
$590.0
23.15%
31.3
4.1
4.46%
498.1
71.00%
52.6
30.8
7.50%
17.2
2.46%
$599.2
85.41%
33.2
4.3
4.67%
496.9
70.00%
56.8
36.8
8.00%
17.2
2.43%
$604.1
85.10%
27.3
3.5
3.80%
502.8
70.00%
30.2
16.8
4.20%
17.2
2.40%
$577.5
80.40%
23.4
3.0
3.26%
464.6
64.65%
37.9
20.3
4.00%
17.2
2.40%
$543.2
75.58%
32.0
4.1
1.12%
478.2
16.79%
39.0
22.4
1.37%
68.9
2.42%
$618.2
21.70%
34.3
4.1
1.12%
513.4
16.79%
41.9
22.5
1.37%
74.0
2.42%
$663.6
21.70%
35.6
4.0
1.10%
545.9
16.79%
44.5
22.6
1.37%
78.7
2.42%
$704.7
21.68%
36.9
3.9
1.07%
579.9
16.79%
47.3
22.7
1.37%
83.6
2.42%
$747.7
21.65%
39.2
3.9
1.07%
615.5
16.79%
50.2
22.8
1.37%
88.7
2.42%
$793.6
21.65%
40.1
3.8
1.04%
646.4
16.79%
52.7
22.9
1.37%
93.2
2.42%
$832.4
21.62%
42.0
3.8
1.04%
677.4
16.79%
55.3
23.0
1.37%
97.6
2.42%
$872.3
21.62%
44.0
3.8
1.04%
709.6
16.79%
57.9
23.1
1.37%
102.3
2.42%
$913.8
21.62%
45.9
3.8
1.04%
740.5
16.79%
60.4
23.3
1.37%
106.7
2.42%
$953.5
21.62%
233.4
81.0
36.3
278.0
$575.5
19.00%
278.0
21.8
46.7
253.1
$570.6
15.79%
253.1
52.3
48.3
257.1
$639.0
14.11%
257.1
76.9
51.2
282.8
$775.0
13.97%
282.8
99.8
57.8
324.7
$833.3
14.38%
324.7
83.8
64.1
344.4
$821.0
14.54%
344.4
25.2
16.4
353.3
$860.8
58.98%
353.3
21.6
17.6
357.3
$874.0
60.86%
357.3
26.6
16.8
367.1
$929.9
54.80%
367.1
34.7
13.1
388.6
$912.4
56.06%
342.3
108.1
57.4
393.0
$983.0
15.42%
393.0
35.1
17.2
445.2
$1,044.4
63.47%
445.2
35.5
17.3
498.0
$1,102.1
70.15%
498.0
35.9
17.3
551.2
$1,128.7
76.75%
551.2
28.7
17.6
597.6
$1,140.7
83.16%
393.0
113.9
67.9
439.0
$1,057.2
15.41%
439.0
122.3
76.7
484.6
$1,148.2
15.85%
484.6
130.1
84.7
530.0
$1,234.7
16.30%
530.0
138.2
92.6
575.6
$1,323.3
16.66%
575.6
139.3
100.6
614.3
$1,407.9
16.76%
614.3
146.3
107.3
653.3
$1,485.7
16.97%
653.3
149.3
114.1
688.4
$1,560.7
17.06%
688.4
152.2
120.3
720.3
$1,634.1
17.04%
720.3
154.4
125.8
748.8
$1,702.4
16.98%
92.9
32.4
6.35%
63.1
22.0
4.31%
$156.0
10.67%
119.1
39.9
7.43%
104.0
34.9
6.49%
$223.1
13.92%
148.2
44.8
8.13%
113.1
34.2
6.21%
$261.3
14.34%
148.9
41.2
7.36%
127.0
35.1
6.27%
98.86
4.88%
$275.9
13.63%
150.5
37.2
6.66%
123.2
30.5
5.46%
98.86
4.38%
$273.7
12.12%
167.9
39.2
7.09%
115.7
27.0
4.88%
98.86
4.17%
$283.6
11.97%
148.5
34.6
24.79%
158.3
36.9
26.43%
$306.8
51.23%
192.3
44.4
32.76%
158.3
36.6
26.97%
$350.7
59.73%
185.2
39.2
27.64%
158.3
33.5
23.64%
$343.5
51.28%
198.9
40.0
28.70%
138.6
27.9
20.00%
$337.5
48.70%
198.9
43.1
7.80%
138.6
30.0
5.44%
$337.5
13.24%
151.0
30.0
21.52%
140.9
28.0
20.09%
$291.9
41.61%
191.3
37.0
26.95%
129.2
25.0
18.21%
$320.5
45.15%
208.1
41.0
28.97%
152.2
30.0
21.20%
$360.3
50.16%
218.7
40.0
30.43%
175.0
32.0
24.35%
$393.7
54.78%
218.7
41.8
7.68%
175.0
32.0
6.14%
$393.7
13.82%
219.2
39.1
7.17%
184.9
33.0
6.05%
$404.0
13.21%
232.6
39.1
7.15%
190.3
32.0
5.85%
$422.9
13.01%
246.7
39.1
7.14%
195.5
31.0
5.66%
$442.1
12.80%
261.3
39.1
7.13%
200.4
30.0
5.47%
$461.7
12.59%
273.9
39.1
7.11%
210.0
30.0
5.46%
$484.0
12.57%
286.5
39.1
7.10%
219.7
30.0
5.45%
$506.2
12.55%
299.5
39.1
7.09%
229.7
30.0
5.43%
$529.3
12.52%
312.0
39.1
7.07%
239.2
30.0
5.42%
$551.2
12.50%
UOIG 14
December 5, 2014
Appendix 5 – Discounted Cash Flows Valuation Assumptions
S
Discounted Free Cash Flow Assumptions
Tax Rate
Risk Free Rate
37.50% Terminal Growth Rate
% Equity
3.00%
1.96% Terminal Value
Beta
Market Risk Premium
Considerations
4,968
1.01 PV of Terminal Value
1,416
6.45% Sum of PV Free Cash Flows
1,475
100.00% Firm Value
2,891
% Debt
0.00% Total Debt
0
Cost of Debt
0.00% Cash & Cash Equivalents
CAPM
8.46% Market Capitalization
WACC
8.46% Fully Diluted Shares
Terminal Risk Free Rate
2.71% Implied Price
$30.56
Terminal CAPM
9.21% Current Price
$37.35
Terminal WACC
9.21% Overvalued
Final Implied Price
Price Target
112
2,891
95
(18.17%)
Weight
DCF
$30.56
50.00%
Forward Comparable Analysis
$28.79
50.00%
Price Target
$29.68
Current Price
$37.35
Overvalued
(20.54%)
UOIG 15
December 5, 2014
Appendix 6 – Sensitivity Analysis
Implied Price
Adjusted Beta
31
2.0%
2.5%
3.0%
3.5%
4.0%
(0)
2.3%
2.3%
3.0%
3.8%
4.5%
0.82
34.93
36.66
38.74
41.28
44.45
0.81
(2.73%)
(2.73%)
5.58%
16.88%
33.13%
0.92
31.12
32.41
33.93
35.75
37.96
0.91
11.25%
11.25%
22.93%
39.58%
65.25%
1.02
28.00
28.99
30.13
31.47
33.06
1.01
11.25%
11.25%
22.93%
39.58%
65.25%
1.12
25.41
26.17
27.05
28.06
29.24
1.11
(2.73%)
(2.73%)
5.58%
16.88%
33.13%
1.22
23.22
23.82
24.50
25.28
26.18
1.21
(22.75%)
(22.75%)
(18.17%)
(12.33%)
(4.63%)
Adjusted Beta
Implied Price
2.3%
3.0%
3.8%
4.5%
(0)
2.3%
2.3%
3.0%
3.8%
4.5%
0.07
30.5
30.5
32.2
34.4
37.3
0.07
(19.77%)
(19.77%)
(15.19%)
(9.35%)
(1.65%)
0.08
29.9
29.9
31.6
33.8
36.7
0.08
(18.16%)
(18.16%)
(13.58%)
(7.74%)
(0.04%)
0.08
29.3
29.3
31.1
33.2
36.1
0.08
(18.16%)
(18.16%)
(13.58%)
(7.74%)
(0.04%)
0.09
28.8
28.8
30.5
32.7
35.6
0.09
(19.77%)
(19.77%)
(15.19%)
(9.35%)
(1.65%)
0.09
28.3
28.3
30.0
32.2
35.1
0.09
(22.75%)
(22.75%)
(18.17%)
(12.33%)
(4.63%)
WACC
WACC
, possibly consider doing an intermediate growth
31 rate 2.3%
Implied Price
2.3%
2.3%
3.0%
3.8%
4.5%
(0)
2.3%
2.3%
3.0%
3.8%
4.5%
26.45%
6.09
6.09
6.10
6.11
6.12
0.95
-0.95
-0.95
-0.95
-0.95
-0.95
16.45%
4.38
4.38
4.38
4.38
4.38
0.85
-0.94
-0.94
-0.94
-0.94
-0.94
6.45%
4.38
4.38
4.38
4.38
4.38
0.75
-0.94
-0.94
-0.94
-0.94
-0.94
16.45%
3.48
3.48
3.48
3.48
3.48
0.85
-0.94
-0.94
-0.94
-0.94
-0.94
26.45%
2.56
2.56
2.56
2.56
2.56
0.95
-0.95
-0.95
-0.95
-0.95
-0.95
Market Risk
Premium
Market
Risk
Premium
31
Implied Price
2.2%
2.3%
3.0%
3.8%
4.5%
(0)
2.3%
2.3%
3.0%
3.8%
4.5%
0.58
28.75
28.85
30.56
32.75
35.62
0.58
-22.7%
-22.7%
-18.2%
-12.3%
-4.6%
0.48
28.75
28.85
30.56
32.75
35.62
0.48
-22.7%
-22.7%
-18.2%
-12.3%
-4.6%
0.38
28.75
28.85
30.56
32.75
35.62
0.38
-22.7%
-22.7%
-18.2%
-12.3%
-4.6%
0.48
28.75
28.85
30.56
32.75
35.62
0.48
-22.7%
-22.7%
-18.2%
-12.3%
-4.6%
0.58
28.75
28.85
30.56
32.75
35.62
0.58
-22.7%
-22.7%
-18.2%
-12.3%
-4.6%
Tax Rate
Tax Rate
31
UOIG 16
December 5, 2014
Appendix 7 – Sources
BWS Filings
Damodoran
DSW Earnings call transcripts
DSW Filings
FactSet
FL Filings
Google Images
IBIS World
Market Watch
Morning Star
Press Releases
PVH Filings
SHOO Filings
SKX Filings
Yahoo! Finance
UOIG 17
December 5, 2014
UOIG 18

DSW, Inc. - University of Oregon Investment Group

Transcription

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