Term Paper: Bean Financial Analysis Founded

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SAMPLE EXCERPT:

[. . .] Projected expansion would bring this number to 28,000 square feet.

L.L. Bean's manufacturing business had more than tripled to 72,000 square feet. The factory employed 230 employees. In 1980, it produced 175,872 pairs of Maine Hunting Shoes. 164,339 pairs of handsewn footwear, and 528,574 specialty items, such as tote bags, garment bags and sheepskin covers. These products accounted for 17% of the company's total sales.

L.L. Bean bought from a total of 400 vendors. The buying organization was made up of three product managers, three assistant product managers, six control buyers, and four administrative assistants. This mix allowed the company to concentrate on both product selection and inventory management.

According to Mert Greenleaf, director of manufacturing at L.L. Bean, the company would be missing an opportunity for growth if it did not invest in manufacturing. With a new markup structure, the factory yielded an after-tax return on equity on 17%. By investing a few million dollars to expand the manufacturing building by another 50,000 square feet, the company could start making its own backpacks, tents and other simple apparel items. It could also consider selling its products to outside companies.

A third option for increasing growth existed in two specialty areas -- premium sales and international sales. In 1980, premium sales reached about $500,000. Banks were buying tote bags for customer, companies were giving away gift certificates, etc., etc. This area had a lot of potential for L.L. Bean.

Analysis of Financial Conditions and Projected Results

Basic Financial Information

Company Type

Public

Fiscal Year-End

January

Financial Filings

SEC

Annual Report

Harvard Business School Case

Financial Overview

Common Stock Price Range

High Bid

Low Bid

Dividends

0.20 per share

Price/Earnings Ratio

Consolidated Sales ($ mill.)

Annual Net Earnings ($ mill.)

Net sales for 1980 were $121,545,307 compared to $93,423,678 in 1979. Mail order sales increased by more than 20% and represented the majority of total net sales, as they did in 1979. This increase was driven by the recent increase of mail order sales in the United States. According to Harvard Business School, total U.S. mail order sales in 1979 totaled $25.8 billion, or 9.7% of all general merchandise sales and 2.5% of all retail sales. Specialty merchandisers accounted for $17.8 billion and general merchandisers for $8 billion of mail-order sales. L.L. Bean ended the year with store space totaling 24,000 square feet compared to 15,000 square feet of store space at year end 1979. Store sales had grown from about $6.5 million in 1975 to nearly $20 million in 1980, indicating a need to expand retail store sales.

Total retail store sales increased from $16,212,594 in 1979 to $20,257,457 in 1980, demonstrating that store sales are likely to increase with additional square footage. The increase was driven by the increase in L.L. Bean's mail-order sales, which were affected by higher catalog productivity and increased circulation, as well as by the continued effect of new credit policies on the company's proprietary credit card. Catalog circulation at L.L. Bean was increased from 5,900 in 1975 to 26,624 in 1980, with further circulation reductions planned for 1981. L.L. Bean's greatest source of new customers was advertising, although customer referrals caused a major upswing in new customers, as well.

The gross profit margin on net sales was 42.5% for 1980, compared to the projected 43.1% for 1981. The increase in margin rate in 1981 is expected to be driven by store expansion and improved catalog sales, as well as the company's continuing efforts to reposition its merchandise assortment and eliminate products that do not fit within the company's updated merchandising plans. Through repositioning, L.L. Bean can strengthen its mail-order offerings while increasing its efforts to make its brick-and-mortar store a world-class destination.

L.L. Bean's increase in store space contributed to the increase in the company's gross margin from 1979 to 1980, and is expected to do so in 1981, as well. L.L. Bean also effectively managed inventory risk, ending the year with $31,630,000 of inventory, only about $3 million over the 1979-year-end level despite below-plan sales and the addition of more retail store space. Selling, general and administrative expenses were $2,680.60 and $2,145.30 for the years 1980 and 1979, respectively.

In conclusion, the company stands to benefit from all of the above. By improving its mail-order capabilities, it can increase sales in that aspect of the business. The company has a solid reputation and stands to gain from new forms of customer contact and advertising. In addition, by increasing its store and manufacturing space, it can increase its market share in both retail sales and manufacturing.

In addition to the high numbers of catalog customers, L.L. Bean's criteria for retail sites should have certain requirements, including proximity to… [END OF PREVIEW]

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