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BUSI 690
Case Study: Historical Financial Analysis Assignment Instructions
Overview
Complete a case study of ABC Corporation. You will find the case in the case section of the text.
A formal, in-depth case study analysis requires you to utilize the entire strategic management process. Assume you are a consult asked by the ABC Corporation to analyze its external/internal environment and make strategic recommendations. You must include exhibits to support your analysis and recommendations.
Instructions
The completed case study must include these components, with portions to be submitted over several modules as the Case Study: Matrices Assignment, the Case Study: Historical Financial Analysis Assignment, and the Case Study: Projections, NPV, Compilation Assignment.
·
Cover page (must include the company name, your name, the date of submission, and a references page; the document must follow current APA guidelines)
· A total of 12 – 15 pages (for all three parts, combined) of narrative text, this does not include the financial statements, reference pages, or matrices
· Reference page (follow current APA guidelines)
· Historical Financial Statements, Proforma Financial Statements, NPV Calculations and a Cost Sheet for the strategy in an Excel document
· Matrices, which must be exhibits/attachments in the appendix and not part of the body of the analysis (The Strategy Club has excellent templates/examples for exhibits and matrices).
Your Case Study: Historical Financial Analysis Assignment paper must include:
1. Historical Financial Statements (Income Statement, Balance Sheet and Statement of Cash Flows) from the 3 most current years for the firm. These should be downloaded from the SEC website. The financial statements must include horizontal (shown between the years) and vertical analysis (shown to the right of the last year of historical data).
2. Ratio analysis for the ratios shown on Table 1 in the Guide to Case Analysis (CA) of the textbook:
a. Profitability ratios
b. Liquidity ratios
c. Leverage ratios
d. Activity ratios
e. Price-to-earnings ratio
f. The changes between years are included in the calculations.
3. Competitor ratios to compare with the ratios that were calculated in item 2. These should be included on the same tab as the ratio analysis for the firm.
4. Financial analysis should include comparisons to the firm’s main competitor as well as to the industry. How does the financial position of the firm influence the strategic direction of the company? This section should not be used to define what each ratio is rather it should clearly provide analysis based on the calculations as to the strategic choices and implications of the firm’s financial position. A compare and contrast with the main competitor should be included in this section of narrative.
Place the results of Case Study: Historical Financial Analysis, in the Case Study: Historical Financial Analysis submission link in Module 6: Week 6.
Options to Download SEC Financial Data into Excel Spreadsheets:
There are two ways to pull financial data in Excel format from the SEC site, depending on how recent the information is.
OPTION 1: For filings that are a year or two old
· Go to www.sec.gov.
· In the Filings & Forms box, click on Search for Company Filings.
· Then click on Company or fund name, ticker symbol, CIK (Central Index Key), file number, state, country, or SIC (Standard Industrial Classification).
· Enter either a company name or ticker symbol into the appropriate box. (Note: it may be easier to use a ticker symbol because this guarantees you have the right company.) Choose Find Companies.
· On the next screen, select the appropriate filing or filter by filing type (10-K).
· Newer filings have two button options: Documents and Interactive Data. Select Interactive Data if that is an option.
· Once in Interactive Data, select financial statements. A drop-down box will appear in the left-hand column. Select the statement that you want. Then, click View Excel Document above the left-hand column.
·
OPTION 2: For older filings
· Follow the steps in Option 1 to get to the company filing screen. Since Interactive Data will not be available, click on Documents.
· There will be several options. Find the link containing the full filing. This is usually the first link but not always. For a 10-K filing look for a link titled 10-K.
· Open Excel. Click on the Data tab in the ribbon and select From Web, the second icon from the left.
· A web browser will open up. Copy the link from the company 10-K and insert it into the New Web Query browser that opened up. Click Go to be taken to the filing. (Note: The browser sometimes runs slow.)
· Find the financial tables you wish to import. Above the tables you should see a yellow box with a black arrow pointing to the right. Click on each box corresponding with each financial table that you wish to import. The box will turn green with a check mark.
· Once all desired tables are selected, click the Import button at the bottom right of the web browser.
· You will be taken back into the Excel spreadsheet with an Import Data box open. To import the data, select either a cell in the existing worksheet or New Worksheet and click OK.
· Data will be uploaded into Excel. Note that this process does a poor job of formatting the tables. Brackets indicating negativity and currency symbols are often placed in adjacent cells, necessitating manual entry. For year-over-year analysis across multiple filings be careful to ensure that financial sheet items line up with one another.
Page 2 of 6
Criteria Ratings Points
Historical
Financial
Statements
35 to >31.
0 pts
Advanced
• Completes a thorough
analysis of the firm’s
financial statements for
the 3 most current
years. • Income
Statement • Balance
Sheet • Statement of
Cash Flows • Analysis
includes horizontal and
vertical changes for
each line item for the 3
most current years.
31 to >27.0 pts
Proficient
• Completes an analysis
of the firm’s financial
statements for the 3 most
current years. • Income
Statement • Balance
Sheet • Statement of
Cash Flows • Analysis
includes most of the
horizontal and vertical
changes for each line item
for the 3 most current
years.
27 to >0.0 pts
Developing
• Completes a basic
analysis of the firm’s
financial statements for the
3 most current years.
• Income Statement
• Balance Sheet
• Statement of Cash Flows
• Analysis includes some of
the horizontal and vertical
changes for each line item
for the 3 most current
years.
0 pts
Not
Present
35 pts
Ratios 21 to >18.0 pts
Advanced
• Profitability, Liquidity,
Leverage, Activity, and
Price-to-Earnings ratios
are present and
correctly calculated.
• Competitor ratios are
present and correctly
calculated. • Changes
between years are
included.
18 to >15.0 pts
Proficient
• Profitability, Liquidity,
Leverage, Activity, and
Price-to-Earnings ratios
are present and more than
half are correctly
calculated. • Competitor
ratios are mostly present
and correctly calculated.
• Most of the changes
between years are
included.
15 to >0.0 pts
Developing
• Profitability, Liquidity,
Leverage, Activity, and
Price-to-Earnings ratios are
present and less than half
are correctly calculated.
• Some of the competitor
ratios are present and
correctly calculated.
• Some of the changes
between years are included.
0 pts
Not
Present
21 pts
Case Study: Historical Financial Analysis Grading Rubric |
BUSI690_B06_202220
Criteria Ratings Points
Financial
Analysis
Narrative
35 to >31.0 pts
Advanced
• Financial analysis
included clear
comparisons to the
identified competitor and
to the industry. • The
financial position of the
firm and its impact on
strategic choice was
clearly identified and
discussed. • Analysis of
the firms financial
position was clear and
areas of weakness or
strength were identified.
• The analysis was
supported by research.
31 to >27.0 pts
Proficient
• Financial analysis
included mostly clear
comparisons to the
identified competitor and
to the industry. • The
financial position of the
firm and its impact on
strategic choice was
identified and discussed.
• Analysis of the firms
financial position was
mostly included and some
areas of weakness or
strength were mostly
identified. • The analysis
was mostly supported by
research.
27 to >0.0 pts
Developing
• Financial analysis
included some clear
comparisons to the
identified competitor and/or
to the industry. • The
financial position of the firm
and its impact on strategic
choice was mostly identified
and some discussion was
included. • Analysis of the
firms financial position was
briefly described but areas
of weakness or strength
were not clearly identified.
• The analysis included
some research.
0 pts
Not
Present
35 pts
Grammar,
Spelling &
Format
39 to >32.0 pts
Advanced
Proper spelling and
grammar are used. APA
format including a cover
page, citations and
references are correct.
32 to >24.0 pts
Proficient
Between 1–4 spelling,
grammar, format or
citation errors are present.
24 to >0.0 pts
Developing
Between 5–9 spelling,
grammar, format or citation
errors are present.
0 pts
Not
Present
More
than 10
spelling,
grammar,
format, or
citation
errors are
present.
39 pts
Total Points: 130
Case Study: Historical Financial Analysis Grading Rubric |
BUSI690_B06_202220
CASE
STUDY: MATRICES ASSIGNMENT – LULULEMON INC.
1
Case Study – Matrices Assignment, Lululemon Inc.
BUSI 690
Policy and Strategy in Global Competition
Close Comments
Good work on this week’s assignment!
The SWOT analysis did not include the IFE and/or EFE matrix as indicated within the rubric. Also,
you provided no or little narrative analysis (articulation), as noted in an announcement and grading
rubric, for the TOWS analysis found. Ensure you provide narrative for all charts or diagrams as
noted within the grading rubric.
https://canvas.liberty.edu/courses/211049/grades
CASE STUDY: MATRICES ASSIGNMENT – LULULEMON INC. 2
Case Study – Matrices Assignment, Lululemon Inc.
Lululemon Athletica Inc. is considered to be one of the leaders of athletic apparel within
the athletic market. The company makes a variety of clothing that their customers enjoy. Some
of the items include T-shirts, pants, shorts, and their popular yoga pants. The company has been
known to sell a lifestyle vice selling athletic apparel. As of February 2020, the company has 491
stores in 17 countries and an online presence on its website (Thompson & Harris, 2022).
In 1998, Chip Wilson founded the lululemon company. Chip previously owed a surf and
snowboard company and later transitioned into clothing. Starting a clothing company came to
mind when Chip was taking a yoga class in Vancouver and realized the need for comfortable
clothing while performing yoga. With no hesitation, Chip opened a yoga studio in 1998 that also
sold clothing. The company’s first actual store was opened in Vancouver, Canada, in November
2000 and called Lululemon. In the store, he sold clothing that he and his wife created. With the
incredible and unexpected success that the store developed, Wilson decided to expand. He
believed that the expansion would allow him to provide quality products to people who intend to
live a healthy lifestyle. Expanding would also allow him to provide his staff members the
opportunity to experience a fulfilling lifestyle by providing them with a meaningful salary.
Today, design facilities and stores can be found in Canada, the United States, India, Israel,
China, and many other countries worldwide.
After years of being in business, it was apparent that Lululemon Apparel was starting to
become a brand name within the yoga and athletic wear world. The brand became so popular that
mall owners/operators began seeking leasing options for the foot traffic they knew would come
with the partnership.
CASE STUDY: MATRICES ASSIGNMENT – LULULEMON INC. 3
Lululemon Inc. is very strategic when it comes to sales. The company sells its
merchandise through several retail stores and has an online presence. Five years after opening its
first store, the company had expanded and had a total of 27 company-owned stores and two
franchise stores. In 2005, the company saw its sales increase to $85 million. Wilson saw his
dreams come through by providing comfortable clothing and creating jobs for others.
To assist in the company’s expansion, Lululemon had to sell 48 percent of the company
to two private investors. Due to the expansion, Lululemon Athletica Inc was born. The company
ended 2006 with 41 owned stores, ten franchise stores, net revenues of $149 million, and net
income of $7.7 million, and in 2007, the company went public. Lululemon has dominated the
athletic apparel industry and has become a brand name associated with style, sports, and fitness.
The company has built a reputation worldwide and has seen enormous revenue each year.
Existing mission, objectives, and strategies
Lululemon’s mission statement states, “To elevate the world from mediocrity to
greatness.” The company’s mission is to “Creating components for people to live longer,
healthier, fun lives.” Their mission/mission statement suggests that the company has a different
perspective from other athletic brands and any other businesses. The statement indicates that the
company wishes to give its customers a lifestyle rather than another company with a brand.
Objectives
Elevate the world by realizing its full potential. Inspire change by transforming its
industry and creating a healthier world. The company has a set of values that puts quality first.
The aim is to provide customer satisfaction and ensure the customer receives what they were told
they would receive. This shows that the brand is committed to changing as the world changes
CASE STUDY: MATRICES ASSIGNMENT – LULULEMON INC. 4
and the styles change as they maintain their lifestyle of comfort clothing. An example of this
would be the convenience of shopping online.
Strategies
The company aims to grow the business in North America, where most of its revenue
comes from. Once the company has grown in North America, they would like to expand to other
countries even more than they are currently doing. Another strategy would be to increase their
brand awareness online and through their customer service. Another strategy the company wants
to introduce is increasing their new product technology. The company also introduced its pickup
in-store option when customers order online. Doing this gives customers the comfort of shopping
at home but still receiving the same experience of shopping in-store. The company has seen sales
increase by 45%, and direct-to-consumer revenue jumped to 155% in Quarter 2 of 2020.
New Mission Statement
• Customers: The study suggests that the company targets men and women in middle
upper class and higher. The company initially targeted women that were interested in yoga. As
the study stated, this is the case that yoga paved the way for their company to expand. In 2013,
the company aggressively took more consideration for their male customers. Their focus was an
age group of men concerned about living a healthier lifestyle.
• Products or services: The firms’ major products are athletic wear and mainly catered to
their female customers. Their attire allows its customers to accomplish activities feeling
comfortable but trendy. The yoga pants that the company sells promote fitness and encourage a
particular lifestyle. Lululemon’s product innovation uses updated technology that makes the
customer feel comfortable. The technology used in their products makes it easier to consume
sweat and is breathable. Their services allow them to partner with yoga studios and run clubs.
CASE STUDY: MATRICES ASSIGNMENT – LULULEMON INC. 5
• Markets: As the case study suggests, the company continues to add Lululemon stores in
its primary United States market and as well as worldwide. The company included 16 new stores
in China throughout the years and planned to add more in 2020. The company also opened stores
in Japan, Germany, France, the United Kingdom, Malaysia, Netherlands, South Korea, and
many
other countries. As clearly illustrated, the expansion allowed the company to report incredible
advancements with their strategic progress in geographical market expansion.
• Technology: As indicated in the case study, the company continues to improve
In the technological area. The company focused on creating and providing products that
introduced fabrics with technological improvements and performance-enhancing features
throughout the years. These technological upgrades to their products have assisted the company
in expanding its market share worldwide. Customers enjoy wearing Lululemon’s products
because of its technology and how it makes them feel about themselves. As the company makes
new products, they continue to incorporate technology within their product lines.
• Concern for survival, growth, and profitability: The company understands that the
the only way they will survive in this market is through expansion. Direct-to-consumer sales
through their website have become a critical component for the company. As indicated in the
reading, in 2011 the lululemon’s e-commerce sales increased from $106.3 million to $1.14
billion in the financial year ending 2019. During the pandemic, Lululemon’s majority of retail
outlets in the domestic market were closed. Like many other businesses that figured it out,
ordering online became the way to continue profit. This showed that the company could adjust
through diversity overcome slight roadblocks and profit.
CASE STUDY: MATRICES ASSIGNMENT – LULULEMON INC. 6
• Philosophy: The company takes its philosophy stance seriously as it aligns with its core
values and its mission. As it states, it allows “people with the components to live longer,
healthier and more fun life.” Lululemon is set up to and has arranged to operate the company in
the methodology in which it is stated within their mission. The company attempts to manage its
staff ethically and encourages all to follow its motto. Ensuring the company is managed
accordingly starts with the staff then the suppliers to ensure the products are produced and sold
within company standards.
• Self-concept: Lululemon’s specific product design and its processes for innovation is the
The reason it can make quality products. This is believed to be the key to its competitive
strength. Lululemon had to make well-designed products that offer a comfortable fit and
competitive pricing to be competitive and set itself apart in this competitive athletic apparel
market. Within this market, the company competes with brands such as Nike, Adidas, Reebok,
and Under Armor, as stated in the strategic group map within this paper. Additionally, the
company sets itself apart by focusing on the customer and what they want. Lululemon
understands the importance of customer relationship management and promoting brand loyalty.
This is part of their strategic market approach.
• Concern for public image: Yes, the company is responsive to community needs through
its business processes. One way it does this is by “Omni Guest Experiences.” It uses a marketing
strategy that connects them with people who shop at its stores. The company creates
opportunities through communities to live “sweatlife” and live long healthy lives. Through this
avenue, people can connect. The company also takes part in dealing with environmental issues
by following environmental protection protocols in its supply chain and within the community.
CASE STUDY: MATRICES ASSIGNMENT – LULULEMON INC. 7
• Concern for employees: es, employees are an asset to the firm. Lululemon
provides its staff members with a supportive and encouraging working environment. It aims to
encourage its employees to set goals in their personal and professional life. The employees are
valuable assets of the company, and it shows in the numerous employee programs that lululemon
offers. Some of these programs include personal development workshops and goal-coaching
courses, just to name a few.
SWOT Analysis
A successful company such as Lululemon Inc needs to identify its areas of concern. To
do so, it first needs to be identifying their issues by creating a SWOT matrix to include the four
categories. When thoroughly conducted, the chart will show the company the improvements it
needs to improve its sales or achieve sales goals.
Strength
Lululemon was created to create apparel for people to live healthier lives and have fun
doing so. The first thing someone needs prior to starting a business is vision. In 1998, Wilson
had a vision to “elevate the world from mediocrity to greatness” (Thompson & Harris., 2022, pg.
C-81). The company hoped to serve their customer at all costs and be a leader in customer
satisfaction. Understanding this, their strength is the detail they put in their clothing. Their
fabric’s comfortable fit and feel has made them a trusted brand. The technology that the company
puts in its line cannot be duplicated. The clothing prevents odor as the material restricts bacteria
and can be washed often without worrying about washing away (Thompson & Harris, 2022).
Another strength the company possesses is being aware of its brand and the market. From
the date of conception, the company has never switched or changed who they were. Lululemon
Inc. has gained notoriety from its competitors as well as customers. Due to brand awareness, the
CASE STUDY: MATRICES ASSIGNMENT – LULULEMON INC. 8
company has jumped from 40% in sales in 2020. Wilson has also created a strong relationship
within the community. The company’s mission statement resonated with its core audience.
Weaknesses
The company’s weaknesses may be attributes that they stressed with their strengths.
Lululemon has a reputation for creating comfortable and excellent quality clothing. This is all
too apparent because it is part of its mission statement and sales strategy. In 2013, the company
saw issues with one of their pants lines that recalled the item. Another recall occurred in 2015
where the tops were said to have an issue with the neck area. All these concerns with the clothing
did do not reflect their mission statement.
Another weakness the company has is its pricing compared to all its competitors’ prices.
The company has set itself as a high-end company, while its competitors like Under Armor sell
affordable clothing with the same comfortable quality. Another weakness would be the
constraints on the company with supply chain issues.
Opportunities
When speaking of opportunities, the company has left an opening in the market for its
competitors. Through the years, Lululemon has focused on women’s apparel. The company’s
competitors have seen significant gains with men’s athletic apparel, which has accounted for over
half of their sales. In 2020, research showed that more men are shopping for athletic gear than
women. Men are now accounting for more of the sales than women. With the growth of men’s
athletic apparel, the company should try to focus on shifting its focus on capitalizing on the
recent surge of sales. CEO Laurent Potdevin stated, ” Retail is evolving at an increasingly rapid
pace” Potdevin added, saying, “consumers now connect with brands in a way that is driven by
experiences, rather than transactions” (Shaw, 2016).
CASE STUDY: MATRICES ASSIGNMENT – LULULEMON INC. 9
A great opportunity for the company would be to open more stores in the United States.
In 2020, the U.S will lead apparel sales within the market with sales of 160 billion dollars. In
2021. According to the article, “The market is growing enormously, as people are progressively
enticed by the product’s capability to offer sweat-wicking and breathability and enhancement of
physical movement” (Fortune Business, 2021).
Threats
The critical threat that should be listed is the threat of other companies. The price of their
competitors is reasonable and well below that of Lululemon’s. The price of yoga pants was 20%
lower than that of their competitors. Other stores also provide significant discounts that
Lululemon does not. Another threat is that Lululemon does not provide a wide range of sizes like
its competitors. The company typically caters to smaller sizes like sizes 2 to 12. At the same
time, other stores like Under Armor sell XL and XX clothing. The final threat might be the
possibility of a company creating better quality at a better price than Lululemon. The company
must remain vigilant and continue looking for better quality at an affordable cost.
SWOT Analysis Chart
Strengths (Internal Factors) Weaknesses (Internal Factors)
• Lululemon Inc. is not only one
of the most prominent t and fastest Athletic
clothing apparel globally, it is also one of the
most profitable and respectable brands.
• Lululemon Inc has a signature line of
Yoga apparel is often imitated but cannot be
duplicated in quality or price.
• The company leads the market in brand
Awareness from 40% in 2020.
• The company has a strong relationship
within the community.
• The company must deal with Recalls that
goes again their mission statement.
• Clothing not fitting comfortable or pilling
in the inner thigh.
• Shirt tops are a threat to safety.
• Using third-party suppliers within their
distribution supply chain. Causing time delays
CASE STUDY: MATRICES ASSIGNMENT – LULULEMON INC. 10
Opportunities (external factors) Threats (external factors)
• The company should focus on Men’s
clothing to capitalize on the surge of men’s
interest in athletic apparel.
• The company should capitalize on the
massive numbers that North American
generates for sports apparel by opening more
North America stores.
• Lululemon has many competitors in
the athletic clothing arena, such as Under
Armor, Athleta, Adidas, and Nike.
• Many of its competitors offer more sizes
of clothing. Those companies cover a more
comprehensive range of customers that
Lululemon cannot reach.
Tows Matrix
The TOW Matrix listed will assist in the strategic planning that Lululemon can use to
enhance its strengths, eliminate its weaknesses, and avoid the challenges identified within the
threats. The Matrix shows how the company can benefit from opportunities to enhance its profit
margins.
TOW Matrix Chart
TOWS MATRIX
LULULEMON INC.
Strength – S (Internal)
1. An existing Brand
2. A loyal customer base
3. Brand awareness
Weaknesses – W (Internal)
1. Company Recalls/ Brand
perception
2. Clothing issues
3. Third-party support
Opportunities – O (External)
1. Cross-selling
2. New Markets
3. New services
Strengths/Opportunities SO
Leverage the strength to
maximize the opportunities at
hand. = Attaching strategies
Weaknesses/Opportunities WO
Counter weakness through
exploiting opportunities = Build
strengths for attacking
strategy
Threats – T
1. New competitors
2. Old competitors
3. Customer choices
ST Strategies
Leverage strengths to
minimize threats = Defensive
strategy
WT Strategies
Counter weakness and threats =
Build strengths for defensive
strategy
CASE STUDY: MATRICES ASSIGNMENT – LULULEMON INC. 11
Strategic Group Map
The strategic group map of Lululemon depicts a brand that all belongs to the athletic
apparel market. The prices, the quality of the brand, and the customer’s viewpoint then its reality
the group map depicts them as such. Lululemon has made a name for the brand by having good
quality products. The company also has a substantial female following. The Under Armer and
Columbia company is more well-known and caters to a broader market with more sports apparel.
Nike, Adidas, and Reebok are the signature brand. They are well known in sports and highly
marketable within sports franchises. As shown on the map, these companies are highly favored
and have a competitive edge over the other companies. The companies listed are highly
competitive and are some of the world’s most recognized brands within the market. As listed,
“The annual revenue of these three competitors approaches $50 billion, with Nike achieving
revenues of more than $25 billion, Adidas nearly $20 billion, and Under Armor topping $2
billion” (Jensen et al., 2016, para. 2).
Strategic Group Map Diagram
CASE STUDY: MATRICES ASSIGNMENT – LULULEMON INC. 12
PESTLE’s Analysis
Political
The company was able to stay ahead of the tariffs bill enacted for China. The company
has limited its exposure to China as the U.S placed a levy of 15% on most clothing from China.
The company was well ahead of the bill, shifting to other locations.
Economical
Canada remains a stable country with no significant economic issues that could affect the
companies’ earnings. This also factors the pandemic that plagued the country and the rest of the
world. Its Canadian clients are willing to spend their money, and the company is thriving within
that market
Social
Certain social factors drive every market. This will determine how customers and clients
respond to the market. The company could use yoga as a feel-good experience and create an
experience for their customers. Also, In the wake of Covid-19, people stopped going to the stores
and started buying products and merchandise online. The company was able to capitalize on and
improve its online presence. Store sales suffered due to closures, but the company’s online
business surged 70%, accounting for 54% of overall sales compared with 27% a year earlier
(Terlep, 2020).
Technological
The company has invested accurately in the latest technology through sound and
deliberate strategic moves. This strategic step has given the company the ability to improve the
efficiency of its product and maintain customer satisfaction. Doing this has also secured their
competitive advantage over their competitors.
CASE STUDY: MATRICES ASSIGNMENT – LULULEMON INC. 13
Legal
Not all companies can follow all rules and regulations dictated by certain regions that
they operate in, but lululemon has followed the legal stipulations by law. They have remained
compliant with regulations as required to operate. They have avoided fines that would affect
their bottom line.
Environmental
Lululemon strives to lead from the front in limiting emissions within the atmosphere. The
company also manages its waste accurately before it goes out in the environment. They
understand that if they do not respect the environment, it may negatively affect their reputation.
PESTLE Chart
Political Economical
1. Tariffs on Chinese goods 1. Stable economy
2. COVID 19
Social Technological
1. Using Yoga as a feel-good idea across the
world.
2. COVID 19.
1. Constant technological innovations to
enhance customer satisfaction.
2. Technolgy for fit and performance.
Legal Environmental
1. Ensuring tax laws are adequate in all
regions.
1. Limit waste footprint
2. Balancing greenhouse emissions
3. Accountability for raw materials
CASE STUDY: MATRICES ASSIGNMENT – LULULEMON INC. 14
Porter’s Five Force’s Chart
Competitive Rivalry
Lululemon has multiple competitors, and they are aware of that. Some of these
competitors are Nike, Adidas, Reebok, and Under Armor, just to name a few. As far as cost,
Lululemon prices are higher than their competitors, and the company does not provide discounts
on their product, unlike its competitors, which offer a more comprehensive range of discounts.
Supplier Power
Lululemon has a great partnership with its suppliers. This is due to having multiple
suppliers throughout different countries with which they have created a strong relationship. Due
to their strategic approach, lululemon has enforced strict ethical manufacturing practices within
the facilities.
Buyer Power
Lululemon does not offer discounts on its apparels at their main store. The company does
provide discounts on merchandise but only at their few outlet stores. The company prices on
their products are much higher than their competitors, but it is due to the material and fabrics
they use to make their products. The company states that premium raw material is what they use,
and the cost of those materials is much more than what their competitors are using.
Threat of Substitution
Many athletic gear producers within this market, such as Nike, Adidas, and Reebok.
These companies make it easier for lululemon customers to stay loyal to the company. The loyal
consumers of the lululemon company would consider these companies as substitutes. Meaning
their quality would never match up to those of lululemon.
CASE STUDY: MATRICES ASSIGNMENT – LULULEMON INC. 15
Threat of New Entry
The possibility of new entry within the industry of high-quality athletic gear is low. This
is because the apparel market requires a large amount of capital even to begin. If a new entrant
attempted to step into the market, the new company would need much money to compete.
Porter’s Five Force’s Chart
Industry Rivalry
Nike, Adidas, Under
Armor and many others.
Legal Constraints Threat of new entrants
Bargaining power
of suppliers
Bargaining power
of consumers
Threat of substitute products
-Low entry barriers due
to the internet
-No cultural barrier,
athletic clothing worn by
many
-Environmental
Conditions
-increase material
pricing
-relationship with
customers
-Product service
quality
-Buyer Choice
-Brand loyalty
-Product service
quality
-An attractive industry to
get into.
-Trendy clothing and
comfortable.
-Many customers for that
market
CASE STUDY: MATRICES ASSIGNMENT – LULULEMON INC. 16
References
Fortune Business (2021). Apparel & Footwear.
https://www.fortunebusinessinsights.com/sportswear-market-102571
Jensen, J. A., Wakefield, L., Cobbs, J. B., & Turner, B. A. (2016). Forecasting sponsorship costs:
marketing intelligence in the athletic apparel industry. Marketing Intelligence &
Planning, 34(2),
https://www.proquest.com/central/docview/1776674712/DBA5DAE211F4463FPQ/6?acc
o
untid=12085
Press, T. C. (2020). Lululemon withholds 2020 forecast due to COVID-19 as Q4
profits rise – BNN Bloomberg. https://www.bnnbloomberg.ca/lululemon- withholds-2020-
forecast-due-to-covid-19-as-q4-profits-rise-1.1413041
Shaw, H. (2016). Lululemon sales jump with athleticwear frenzy; Lululemon sees sales jump 14
% in Q2. The London Free Press.
https://www.proquest.com/central/docview/2232496237/FE71AA3F095B4545PQ/1?acco
untid=12085
Terlep, S. (2020). Lululemon Sales Slump on Closings. Wall Street Journal
https://www.proquest.com/central/docview/2412018933/FE71AA3F095B4545PQ/2?acco
untid=12085
Thompson, A. A., Harris, R.D. (2022) Lululemon athletica’s strategy in 2020: Is the recent
growth in retail stores, revenues, and profitability sustainable? (23RD ed.). McGraw-Hill.
Attachedyou will find a document (an example) of a historical financial spreadsheet for another case
study company (Costco). These spreadsheets are useful as an “example” and should aid you in
generating one for lululemon. Don’t forget that a narrative should accompany and explain the
spreadsheet results.
Criteria Ratings Points
Executive
Summary
8 to >6.
0 pts
Advanced
• Provides a clear
overview of the
paper’s contents.
• Contains enough
information about the
case study.
• Captures the
purpose and the main
recommendation(s) in
1–2 sentences.
• Provides key
evidence for the
major points.
• Closes with a brief
summary and
rationale for the
chosen strategy.
6 to >5.0 pts
Proficient
• Provides an overview of
the paper’s contents.
• Contains some
information about the case
study. • Captures most of
the purpose and the main
recommendation(s) in 1–2
sentences. • Provides
most key evidence for the
major points. • Closes with
a brief summary that
contains some rationale for
the chosen strategy.
5 to >0.0 pts
Developing
• Provides a less than
clear overview of the
paper’s contents.
• Lacking in information
about the case study.
• Captures some of the
purpose and the main
recommendation(s) in 1–2
sentences. • Provides
some key evidence for
the major points. • Brief
summary and rationale
are lacking in content for
the chosen strategy.
0 pts
Not
Present
8 pts
Alternative
Strategies
10 to >8.0 pts
Advanced
Lists two or more
alternative strategies
(giving advantages
and alternatives for
each).
8 to >7.0 pts
Proficient
Lists 1 or more alternative
strategies giving some
advantages and
alternatives for each.
7 to >0.0 pts
Developing
Lists less than 2
alternative strategies and
gives a minimum amount
of advantages and
alternatives for each.
0 pts
Not
Present
10 pts
Pro-Forma
Financial
Statements
30 to >26.0 pts
Advanced
• Includes and
analyzes Pro-Forma
Financial Statements
(I/S, B/S and
Statement of Cash
Flows) with deltas out
3 years. • Each
Pro-Forma year has 2
columns: 1 with
strategy and 1
column without
strategy. • Includes
Pro-Forma ratios for
the first year out with
deltas contrasting
from the
26 to >20.0 pts
Proficient
• Includes and analyzes
Pro-Forma Financial
Statements (I/S, B/S and
Statement of Cash Flows)
with deltas out 3 years with
minor errors. • Each
Pro-Forma year has 2
columns: 1 with strategy
and 1 column without
strategy, with 2-5 minor
errors. • Includes most of
the Pro-Forma ratios for
the first year out with deltas
contrasting from the most
current year’s ratios.
20 to >0.0 pts
Developing
• Includes and analyzes
Pro-Forma Financial
Statements (I/S, B/S and
Statement of Cash Flows)
with deltas out 3 years.
• Each Pro-Forma year
has 2 columns: 1 with
strategy and 1 without
strategy, there are greater
than 6 errors. • Includes
some of the Pro-Forma
ratios for the first year out
with deltas contrasting
from the most current
year’s ratios.
0 pts
Not
Present
30 pts
Case Study: Projections, NPV, Compilation Grading Rubric |
BUSI690_B06_202220
Criteria Ratings Points
NPV and Cost
Analysis
20 to >16.0 pts
Advanced
• Develops an NPV
figure/table. • Clearly
articulates the cost of
the strategy (-cf0).
• Clearly articulates
the subsequent
Pro-Forma cash
flows (cf) for the NPV
analysis.
• Thoroughly
analyzes the NPV.
16 to >11.0 pts
Proficient
• Develops an NPV
figure/table, some minor
errors. • Articulates the
cost of the strategy (-cf0).
• Articulates the
subsequent Pro-Forma
cash flows (cf) for the NPV
analysis. • Analyzes the
NPV.
11 to >0.0 pts
Developing
• Develops an NPV
figure/table, calculation is
incorrect or missing key
components. • Discusses
but does not include
details of the cost of the
strategy (-cf0).
• Discusses the
Pro-Forma cash flows (cf)
for the NPV, lacks detail
and thoughtful analysis.
• Discusses the NPV,
analysis should be further
developed.
0 pts
Not
Present
20 pts
Implementation
of Strategic
Plan
10 to >8.0 pts
Advanced
• Includes an
actionable timetable
agenda for
accomplishing the
new strategy.
• Addresses the key
items of who, what,
how, and when of the
implementation
process.
8 to >7.0 pts
Proficient
• Includes a timetable
agenda, with most details,
for accomplishing the new
strategy. • Addresses
most of the key items of
who, what, how, and when
of the implementation
process.
7 to >0.0 pts
Developing
• Includes a basic
timetable agenda for
accomplishing the new
strategy, additional details
are needed. • Addresses
some of the key items of
who, what, how, and
when of the
implementation process.
0 pts
Not
Present
10 pts
Recommended
Strategies and
Objectives
20 to >17.0 pts
Advanced
• Thoroughly
analyzes the new
strategy. • States and
discusses the cost to
implement the new
strategy. • Explains
the benefits of the
new strategy for long
term organizational
success. • Outlines
the challenges and/or
disadvantages of the
strategic choice.
17 to >15.0 pts
Proficient
• Analyzes the new
strategy. • States and
discusses the cost to
implement the new
strategy, minor details
missing. • Explains the
benefits of the new
strategy for long term
organizational success.
• Outlines the challenges
and/or disadvantages of
the strategic choice.
15 to >0.0 pts
Developing
• Thoroughly analyzes
the new strategy. • States
and discusses the cost to
implement the new
strategy, missing details.
• Explains the benefits of
the new strategy for long
term organizational
success. • Outlines the
challenges and/or
disadvantages of the
strategic choice.
0 pts
Not
Present
20 pts
Case Study: Projections, NPV, Compilation Grading Rubric |
BUSI690_B06_202220
Criteria Ratings Points
Grammar,
Spelling,
Format, and
References
42 to >35.0 pts
Advanced
Proper spelling and
grammar are used.
APA format including
a cover page,
citations and
references are
correct. Matrices
were included and
properly labeled.
35 to >30.0 pts
Proficient
Between 1–4 spelling,
grammar, format or citation
errors are present.
Matrices were mostly
included but there were a
few errors or missing a few
data items.
30 to >0.0 pts
Developing
Between 5–9 spelling,
grammar, format or
citation errors are present.
Some matrices were
included but there were
errors or missing data.
0 pts
Not
Present
More
than 10
spelling,
grammar,
format, or
citation
errors are
present.
42 pts
Total Points: 140
Case Study: Projections, NPV, Compilation Grading Rubric |
BUSI690_B06_202220
BUSI690
Page 1 of 3
CASE STUDY: PROJECTIONS, NPV, COMPILATION ASSIGNMENT
INSTRUCTIONS
OVERVIEW
Continue working on the individual case study started in Case Study 1: Matrices Assignment
of ABC Corporation. Complete this portion of the case study: Case Study 3: Projections, NPV,
Compilation Assignment (3rd and final assignment).
A formal, in-depth case study analysis requires you to utilize the entire strategic management
process. Assume your group is a consulting team asked by the ABC Corporation to analyze its
external/internal environment and make strategic recommendations. You must include exhibits
to support your analysis and recommendations.
INSTRUCTIONS
The completed case study must include these components, with portions to be submitted over
several modules as the Case Study 1: Matrices Assignment, the Case Study 2: Historical
Financial Analysis Assignment, and the Case Study 3: Projections, NPV, Compilation
Assignment.
• Cover page (must include the company name, your name, the date of submission, and a
references page; the document must follow current APA guidelines)
• A total of 12 – 15 pages (for all there parts, combined) of narrative text, this does not
include the financial statements, reference pages, or matrices
• Reference page (follow current APA guidelines)
• Historical Financial Statements, Proforma Financial Statements, NPV Calculations and a
Cost Sheet for the strategy in an Excel document
• Matrices, which must be exhibits/attachments in the appendix and not part of the body of
the analysis (The Strategy Club has excellent templates/examples for exhibits and
matrices).
You will use the information completed in Case Study 1: Matrices, and
Case Study 2: Historical Financial Analysis as part of your Case Study 3: Projections, NPV,
Compilation Assignment final document. Be sure to make any corrections to Part One and Part
Two based on feedback given on each of the assignments.
Your Case Study 3: Projections, NPV, Compilation Assignment paper must include:
Case Study 1: 1-7
1. Executive Summary – this should be no more than one page and provide the reader
with an overview of what will be contained in the following pages. The problem and
strategic solution being recommended should be in this summary.
2. Existing mission, objectives, and strategies
3. A new mission statement (include the number of the component in parenthesis
before addressing that component)
4. Analysis of the firm’s existing business model
5. SWOT Analysis
6. TOWS Matrix
7. Competitive forces analysis
BUSI 690
Page 2 of 3
Case Study 2: 8-10
8. Historical Financial Statements (Income Statement, Balance Sheet, and Statement of
Cash Flows) from the 3 most current years for the firm
9. Historical Ratio Analysis
10. Competitors Ratio Analysis
Note from student: Parts 1-10 are already completed as they were part of case
study’s 1 and 2. These parts are being uploaded to show what was previously done in
order to complete part 3 accurately. Requesting assistance with part 3 only (highlight
in yellow).
Case Study 3: 11-18
11. Alternative strategies (giving advantages and disadvantages for each). There should
be at least two alternative strategies identified and discussed.
12. Projected Financial Statements (Income Statement, Balance Sheet and Statement of
Cash Flows) for 3 years into the future. This must be broken down by year into two
(2) columns: 1 column without your strategy and 1 column with your strategy. The
without column should serve as the basis for your with strategy column and only
those financial statement accounts that will be changed, based on your strategy,
should be impacted.
13. Include Projected ratios for the without and with strategy by year. Discuss how
these ratios compare and contrast with the historical findings.
14. Cost Analysis completed on an Excel tab that outlines the cost that will be incurred
to implement the strategy. This information should correspond with the With
Strategy on the Projected Financial Statements, linking of cells to the financial
statements is encouraged.
15. Net Present Value analysis of proposed strategy’s new cash flow – you may also use
Excel to solve for this. From the income statement the change in operating income
between your with and without strategy should serve as your cash inflow for each
year.
NOTE: To construct the first cash flow (cf1) the new revenue from your strategy(s) must
be discounted back to the present value by calculating EBIT (Operating Income on the
Income Statement) and that figure will be your cfn for each year. cf0 (initial cost of your
strategy), cf1 (discounted cash flow first year), r (opportunity cost of capital, the rate of
the next best alternative use of cash/debt/equity resources).
a. 𝑁𝑃𝑉 = −𝑐𝑓0 +
𝑐𝑓1
(1+𝑟)1
+
𝑐𝑓2
(1+𝑟)2
+
𝑐𝑓3
(1+𝑟)3
…
𝑐𝑓𝑛
(1+𝑟)𝑛
BUSI 690
Page 3 of 3
16. Implementation strategy – how and when will the strategy be implemented, this
should outline the who, how, what, and when of the implementation process.
17. Specific recommended strategy and long term objectives
Explain why you chose the strategy, discuss the advantages/benefits to
organizational success and sustainability. Incude a discussion of the challenges or
disadvantages that may arise as a result of the strategic choice.
18. Text must accompany all data for each section explaining the information on the
spreadsheet that was calculated. This will be completed in current APA level for
each component.
Place the results of the case study analysis in a Word document include matrices as appendices
and a reference page. Submit a separate Excel document for your Historical financials,
Projections, NPV, and Cost of the strategy.
CASESTUDY: PROJECTIONS, NPV, COMPILATION ASSIGNMENT 1
CASE STUDY: PROJECTIONS, NPV, COMPILATION ASSIGNMENT 11
Case Study Assignment: Lululemon Athletica Inc.
BUSI 690
Policy and Strategy in Global Competition
3/2/2022
Author Note
Patrick Donacien
I have no known conflict of interest to disclose.
Correspondence concerning this article should be addressed to Patrick donacien
Email: Pdonacien@liberty.edu
Case Study Assignment: Lululemon Athletica Inc.
Executive Summary
Lululemon Athletica Inc. is one of the leaders in selling athletic apparel worldwide. The company focuses on healthy living and ensures their clothing provides comfort while performing strenuous activities. Lululemon is a yoga inspired clothing store but also makes a variety of other clothing. Some of the items include T-shirts, sweatshirts, pants, and shorts. The company wants its customers to know that they sell a lifestyle vice just selling clothing. As of February 2020, the company has 491 stores in 17 countries and an online presence on its website (Thompson & Harris, 2022). The company was founded in 1998 in Vancouver, Canada, by Chip Wilson. In the store, he sold clothing that he and his wife created. With the success that he received at this location; Chip decided the company. Chip’s intent was to create quality products to people who intend to live a healthy lifestyle.
Currently, the company has seen success as an international brand with about 300 stores that spans across Canada, the United States, India, Israel, China, and many other countries worldwide. The brand became so popular that mall owners/operators began seeking leasing options for the foot traffic they knew would come with the partnership. The company has seen success but not with seeing issues and problems. An ethics issue was discovered at their Youngone factory located in Bangladesh. The female workers at this facility reported verbal abuse, being beaten, being forced to work overtime, and being underpaid (Logan, 2019). Another issue was when the company was forced to pull certain yoga pants form its stores after finding out it was see-through when the individual bent over. This report offers a new mission statement appropriate for the brand and aligns with its business strategy. Based on the financial analysis conducted, alternative strategies have been proposed to ensure continues success of the company.
Existing mission, objectives, and strategies
Lululemon’s mission statement states, “To elevate the world from mediocrity to greatness.” The company’s mission is to “Creating components for people to live longer, healthier, fun lives.” Their mission/mission statement suggests that the company has a different perspective from other athletic brands and any other businesses. The statement indicates that the company wishes to give its customers a lifestyle rather than another company with a brand.
Objectives
Elevate the world by realizing its full potential. Inspire change by transforming its industry and creating a healthier world. The company has a set of values that puts quality first. The aim is to provide customer satisfaction and ensure the customer receives what they were told they would receive. This shows that the brand is committed to changing as the world changes and the styles change as they maintain their lifestyle of comfort clothing. An example of this would be the convenience of shopping online.
Strategies
The company aims to grow the business in North America, where most of its revenue comes from. Once the company has grown in North America, they would like to expand to other countries even more than they are currently doing. Another strategy would be to increase their brand awareness online and through their customer service. Another strategy the company wants to introduce is increasing their new product technology. The company also introduced its pickup in-store option when customers order online. Doing this gives customers the comfort of shopping at home but still receiving the same experience of shopping in-store. The company has seen sales increase by 45%, and direct-to-consumer revenue jumped to 155% in Quarter 2 of 2020.
New Mission Statement
· Customers: The study suggests that the company targets men and women in middle
upper class and higher. The company initially targeted women that were interested in yoga. As the study stated, this is the case that yoga paved the way for their company to expand. In 2013, the company aggressively took more consideration for their male customers. Their focus was an age group of men concerned about living a healthier lifestyle.
· Products or services: The firms’ major products are athletic wear and mainly catered to
their female customers. Their attire allows its customers to accomplish activities feeling comfortable but trendy. The yoga pants that the company sells promote fitness and encourage a particular lifestyle. Lululemon’s product innovation uses updated technology that makes the customer feel comfortable. The technology used in their products makes it easier to consume sweat and is breathable. Their services allow them to partner with yoga studios and run clubs.
· Markets: As the case study suggests, the company continues to add Lululemon stores in
its primary United States market and as well as worldwide. The company included 16 new stores in China throughout the years and planned to add more in 2020. The company also opened stores in Japan, Germany, France, the United Kingdom, Malaysia, Netherlands, South Korea, and many other countries. As clearly illustrated, the expansion allowed the company to report incredible advancements with their strategic progress in geographical market expansion.
· Technology: As indicated in the case study, the company continues to improve
In the technological area. The company focused on creating and providing products that introduced fabrics with technological improvements and performance-enhancing features throughout the years. These technological upgrades to their products have assisted the company in expanding its market share worldwide. Customers enjoy wearing Lululemon’s products because of its technology and how it makes them feel about themselves. As the company makes new products, they continue to incorporate technology within their product lines.
· Concern for survival, growth, and profitability: The company understands that the
the only way they will survive in this market is through expansion. Direct-to-consumer sales through their website have become a critical component for the company. As indicated in the reading, in 2011 the lululemon’s e-commerce sales increased from $106.3 million to $1.14 billion in the financial year ending 2019. During the pandemic, Lululemon’s majority of retail outlets in the domestic market were closed. Like many other businesses that figured it out, ordering online became the way to continue profit. This showed that the company could adjust through diversity overcome slight roadblocks and profit.
· Philosophy: The company takes its philosophy stance seriously as it aligns with its core
values and its mission. As it states, it allows “people with the components to live longer, healthier and more fun life.” Lululemon is set up to and has arranged to operate the company in the methodology in which it is stated within their mission. The company attempts to manage its staff ethically and encourages all to follow its motto. Ensuring the company is managed accordingly starts with the staff then the suppliers to ensure the products are produced and sold within company standards.
· Self-concept: Lululemon’s specific product design and its processes for innovation is the
The reason it can make quality products. This is believed to be the key to its competitive strength. Lululemon had to make well-designed products that offer a comfortable fit and competitive pricing to be competitive and set itself apart in this competitive athletic apparel market. Within this market, the company competes with brands such as Nike, Adidas, Reebok, and Under Armor, as stated in the strategic group map within this paper. Additionally, the company sets itself apart by focusing on the customer and what they want. Lululemon understands the importance of customer relationship management and promoting brand loyalty. This is part of their strategic market approach.
· Concern for public image: Yes, the company is responsive to community needs through
its business processes. One way it does this is by “Omni Guest Experiences.” It uses a marketing strategy that connects them with people who shop at its stores. The company creates opportunities through communities to live “sweatlife” and live long healthy lives. Through this avenue, people can connect. The company also takes part in dealing with environmental issues by following environmental protection protocols in its supply chain and within the community.
· Concern for employees: es, employees are an asset to the firm. Lululemon
provides its staff members with a supportive and encouraging working environment. It aims to encourage its employees to set goals in their personal and professional life. The employees are valuable assets of the company, and it shows in the numerous employee programs that lululemon offers. Some of these programs include personal development workshops and goal-coaching courses, just to name a few.
SWOT Analysis
A successful company such as Lululemon Inc needs to identify its areas of concern. To do so, it first needs to be identifying their issues by creating a SWOT matrix to include the four categories. When thoroughly conducted, the chart will show the company the improvements it needs to improve its sales or achieve sales goals.
Strength
Lululemon was created to create apparel for people to live healthier lives and have fun doing so. The first thing someone needs prior to starting a business is vision. In 1998, Wilson had a vision to “elevate the world from mediocrity to greatness” (Thompson & Harris., 2022, pg. C-81). The company hoped to serve their customer at all costs and be a leader in customer satisfaction. Understanding this, their strength is the detail they put in their clothing. Their fabric’s comfortable fit and feel has made them a trusted brand. The technology that the company puts in its line cannot be duplicated. The clothing prevents odor as the material restricts bacteria and can be washed often without worrying about washing away (Thompson & Harris, 2022).
Another strength the company possesses is being aware of its brand and the market. From the date of conception, the company has never switched or changed who they were. Lululemon Inc. has gained notoriety from its competitors as well as customers. Due to brand awareness, the company has jumped from 40% in sales in 2020. Wilson has also created a strong relationship within the community. The company’s mission statement resonated with its core audience.
Weaknesses
The company’s weaknesses may be attributes that they stressed with their strengths. Lululemon has a reputation for creating comfortable and excellent quality clothing. This is all too apparent because it is part of its mission statement and sales strategy. In 2013, the company saw issues with one of their pants lines that recalled the item. Another recall occurred in 2015 where the tops were said to have an issue with the neck area. All these concerns with the clothing did do not reflect their mission statement.
Another weakness the company has is its pricing compared to all its competitors’ prices. The company has set itself as a high-end company, while its competitors like Under Armor sell affordable clothing with the same comfortable quality. Another weakness would be the constraints on the company with supply chain issues.
Opportunities
When speaking of opportunities, the company has left an opening in the market for its competitors. Through the years, Lululemon has focused on women’s apparel. The company’s competitors have seen significant gains with men’s athletic apparel, which has accounted for over half of their sales. In 2020, research showed that more men are shopping for athletic gear than women. Men are now accounting for more of the sales than women. With the growth of men’s athletic apparel, the company should try to focus on shifting its focus on capitalizing on the recent surge of sales. CEO Laurent Potdevin stated, ” Retail is evolving at an increasingly rapid pace” Potdevin added, saying, “consumers now connect with brands in a way that is driven by experiences, rather than transactions” (Shaw, 2016).
A great opportunity for the company would be to open more stores in the United States. In 2020, the U.S will lead apparel sales within the market with sales of 160 billion dollars. In 2021. According to the article, “The market is growing enormously, as people are progressively enticed by the product’s capability to offer sweat-wicking and breathability and enhancement of physical movement” (Fortune Business, 2021).
Threats
The critical threat that should be listed is the threat of other companies. The price of their competitors is reasonable and well below that of Lululemon’s. The price of yoga pants was 20% lower than that of their competitors. Other stores also provide significant discounts that Lululemon does not. Another threat is that Lululemon does not provide a wide range of sizes like its competitors. The company typically caters to smaller sizes like sizes 2 to 12. At the same time, other stores like Under Armor sell XL and XX clothing. The final threat might be the possibility of a company creating better quality at a better price than Lululemon. The company must remain vigilant and continue looking for better quality at an affordable cost.
SWOT Analysis Chart
Strengths (Internal Factors)
Weaknesses (Internal Factors)
· Lululemon Inc. is not only one
of the most prominent t and fastest Athletic clothing apparel globally, it is also one of the most profitable and respectable brands.
· Lululemon Inc has a signature line of
Yoga apparel is often imitated but cannot be duplicated in quality or price.
· The company leads the market in brand
Awareness from 40% in 2020.
· The company has a strong relationship
within the community.
· The company must deal with Recalls that
goes again their mission statement.
· Clothing not fitting comfortable or pilling
in the inner thigh.
· Shirt tops are a threat to safety.
· Using third-party suppliers within their
distribution supply chain. Causing time delays
Opportunities (external factors)
Threats (external factors)
· The company should focus on Men’s
clothing to capitalize on the surge of men’s interest in athletic apparel.
· The company should capitalize on the
massive numbers that North American generates for sports apparel by opening more North America stores.
· Lululemon has many competitors in
the athletic clothing arena, such as Under Armor, Athleta, Adidas, and Nike.
· Many of its competitors offer more sizes
of clothing. Those companies cover a more comprehensive range of customers that Lululemon cannot reach.
Tows Matrix
The TOW Matrix listed will assist in the strategic planning that Lululemon can use to enhance its strengths, eliminate its weaknesses, and avoid the challenges identified within the threats. The Matrix shows how the company can benefit from opportunities to enhance its profit margins.
TOW Matrix Chart
TOWS MATRIX
LULULEMON INC.
Strength – S (Internal)
1. An existing Brand
2. A loyal customer base
3. Brand awareness
Weaknesses – W (Internal)
1. Company Recalls/ Brand perception
2. Clothing issues
3. Third-party support
Opportunities – O (External)
1. Cross-selling
2. New Markets
3. New services
Strengths/Opportunities SO
Leverage the strength to maximize the opportunities at hand. = Attaching strategies
Weaknesses/Opportunities WO
Counter weakness through exploiting opportunities = Build strengths for attacking strategy
Threats – T
1. New competitors
2. Old competitors
3. Customer choices
ST Strategies
Leverage strengths to minimize threats = Defensive strategy
WT Strategies
Counter weakness and threats = Build strengths for defensive strategy
Strategic Group Map
The strategic group map of Lululemon depicts a brand that all belongs to the athletic apparel market. The prices, the quality of the brand, and the customer’s viewpoint then its reality the group map depicts them as such. Lululemon has made a name for the brand by having good quality products. The company also has a substantial female following. The Under Armer and Columbia company is more well-known and caters to a broader market with more sports apparel. Nike, Adidas, and Reebok are the signature brand. They are well known in sports and highly marketable within sports franchises. As shown on the map, these companies are highly favored and have a competitive edge over the other companies. The companies listed are highly competitive and are some of the world’s most recognized brands within the market. As listed, “The annual revenue of these three competitors approaches $50 billion, with Nike achieving revenues of more than $25 billion, Adidas nearly $20 billion, and Under Armor topping $2 billion” (Jensen et al., 2016, para. 2).
Strategic Group Map Diagram
PESTLE’s Analysis
Political
The company was able to stay ahead of the tariffs bill enacted for China. The company has limited its exposure to China as the U.S placed a levy of 15% on most clothing from China. The company was well ahead of the bill, shifting to other locations.
Economical
Canada remains a stable country with no significant economic issues that could affect the companies’ earnings. This also factors the pandemic that plagued the country and the rest of the world. Its Canadian clients are willing to spend their money, and the company is thriving within that market
Social
Certain social factors drive every market. This will determine how customers and clients respond to the market. The company could use yoga as a feel-good experience and create an experience for their customers. Also, In the wake of Covid-19, people stopped going to the stores and started buying products and merchandise online. The company was able to capitalize on and improve its online presence. Store sales suffered due to closures, but the company’s online business surged 70%, accounting for 54% of overall sales compared with 27% a year earlier (Terlep, 2020).
Technological
The company has invested accurately in the latest technology through sound and deliberate strategic moves. This strategic step has given the company the ability to improve the efficiency of its product and maintain customer satisfaction. Doing this has also secured their competitive advantage over their competitors.
Legal
Not all companies can follow all rules and regulations dictated by certain regions that they operate in, but lululemon has followed the legal stipulations by law. They have remained compliant with regulations as required to operate. They have avoided fines that would affect their bottom line.
Environmental
Lululemon strives to lead from the front in limiting emissions within the atmosphere. The company also manages its waste accurately before it goes out in the environment. They understand that if they do not respect the environment, it may negatively affect their reputation.
PESTLE Chart
Political
Economical
1. Tariffs on Chinese goods
1. Stable economy
2. COVID 19
Social
Technological
1. Using Yoga as a feel-good idea across the world.
2. COVID 19.
1. Constant technological innovations to enhance customer satisfaction.
2. Technolgy for fit and performance.
Legal
Environmental
1. Ensuring tax laws are adequate in all regions.
1. Limit waste footprint
2. Balancing greenhouse emissions
3. Accountability for raw materials
Porter’s Five Force’s Chart
Competitive Rivalry
Lululemon has multiple competitors, and they are aware of that. Some of these competitors are Nike, Adidas, Reebok, and Under Armor, just to name a few. As far as cost, Lululemon prices are higher than their competitors, and the company does not provide discounts on their product, unlike its competitors, which offer a more comprehensive range of discounts.
Supplier Power
Lululemon has a great partnership with its suppliers. This is due to having multiple suppliers throughout different countries with which they have created a strong relationship. Due to their strategic approach, lululemon has enforced strict ethical manufacturing practices within the facilities.
Buyer Power
Lululemon does not offer discounts on its apparels at their main store. The company does provide discounts on merchandise but only at their few outlet stores. The company prices on their products are much higher than their competitors, but it is due to the material and fabrics they use to make their products. The company states that premium raw material is what they use, and the cost of those materials is much more than what their competitors are using.
Threat of Substitution
Many athletic gear producers within this market, such as Nike, Adidas, and Reebok. These companies make it easier for lululemon customers to stay loyal to the company. The loyal consumers of the lululemon company would consider these companies as substitutes. Meaning their quality would never match up to those of lululemon.
Threat of New Entry
The possibility of new entry within the industry of high-quality athletic gear is low. This is because the apparel market requires a large amount of capital even to begin. If a new entrant attempted to step into the market, the new company would need much money to compete.
Porter’s Five Force’s Chart
Threat of new entrants
Legal Constraints
-Low entry barriers due to the internet
-No cultural barrier, athletic clothing worn by many
-Environmental
Conditions
-Buyer Choice
-Brand loyalty
-Product service quality
Industry Rivalry
Nike, Adidas, Under Armor and many others.
-increase material pricing
-relationship with customers
-Product service quality
Bargaining power
of consumers
Bargaining power
of suppliers
-An attractive industry to get into.
-Trendy clothing and comfortable.
-Many customers for that market
Threat of substitute products
Analyzing the company’s overall performance over the last three years, the metrics indicate an up trajectory, which can be seen clearly in the horizontal analysis of the organization. The historical financial analysis of the company, together with comparisons of its ratios and those of competitors, indicates a lot financially about lululemon. As indicated in lesson one, the top competitors for the analysis are Adidas and Nike. Looking at the company’s profitability, it is doing better than its competitors, and this is because it has a higher gross profit margin and net profit margin than the others. The data indicated shows that the company can increase shareholder wealth because the investors can pay net profits through dividends (Zorn et al., 2018). Looking at the return on Equity and the Return on Assets, Nike has a higher rate than Lululemon. When talking about weaknesses, the data shows that the company needs to increase its productivity and put its assets and equity from its investors into work (Rashid, 2018). Looking at the company’s profitability over the last three years, it is evident that it is increasing in profit. These numbers give the company an idea of possible growth if it wants to expand even further. Regarding the company’s liquidity position, the charts indicate it is doing better than its competitors also. The business’s liquidity is slightly improving, and with the current ratio of above two over the years, it means that the company has been able to settle its short-term obligations quickly. Lululemon has stable financial leverage due to its operations being financed by more considerable equity than debt, which is a precarious option for any company in the instance the company is unable to pay the debt. In a scenario like this, the company would need to sell off its assets to pay debts (Zeller et al., 2019). Lululemon has an average collection period of only five days; this means that the company collects its payments for sales within five days.
When reviewing all the financial information, its financial position can support its strategic choice to introduce its new product technology. With the improvement of its technology by offering in-store pick options, this could increase profits. For lululemon, this strategic direction of the company could lead to placing stores more geographically. Exposing to new markets translates to new clients, new customers, and new investors.
Balance Sheet
Income Statement
Statement of Cashflows
Ratio Analysis
Alternative strategies
List two or more alternative strategies…
Advantages
Disadvantages
Projected Financial Statements 3 Years in the Future
Income Statement
Balance Sheet
Statement of Cash Flows
Projected Ratios
Cost Analysis
Net Present Value (NPV) Analysis
Implementation Strategy
Recommended Strategies and Objectives
Reason of Chosen Strategy
Advantages/Benefits to Organizational Success and Sustainability
References
Fortune Business (2021). Apparel & Footwear.
https://www.fortunebusinessinsights.com/sportswear-market-102571
Jensen, J. A., Wakefield, L., Cobbs, J. B., & Turner, B. A. (2016). Forecasting sponsorship costs:
marketing intelligence in the athletic apparel industry. Marketing Intelligence & Planning, 34(2),
https://www.proquest.com/central/docview/1776674712/DBA5DAE211F4463FPQ/6?accountid=12085
Press, T. C. (2020). Lululemon withholds 2020 forecast due to COVID-19 as Q4
profits rise – BNN Bloomberg. https://www.bnnbloomberg.ca/lululemon- withholds-2020-forecast-due-to-covid-19-as-q4-profits-rise-1.1413041
Rashid, C. A. (2018). Efficiency of financial ratios analysis for evaluating companies’
liquidity. International Journal of Social Sciences & Educational Studies, 4(4), 110.
Shaw, H. (2016). Lululemon sales jump with athleticwear frenzy; Lululemon sees sales jump 14
% in Q2. The London Free Press. https://www.proquest.com/central/docview/2232496237/FE71AA3F095B4545PQ/1?accountid=12085
Terlep, S. (2020). Lululemon Sales Slump on Closings. Wall Street Journal
https://www.proquest.com/central/docview/2412018933/FE71AA3F095B4545PQ/2?accountid=12085
Thompson, A. A., Harris, R.D. (2022) Lululemon athletica’s strategy in 2020: Is the recent
growth in retail stores, revenues, and profitability sustainable? (23RD ed.). McGraw-Hill
References
Zeller, T., Kostolansky, J., & Bozoudis, M. (2019). An IFRS-based taxonomy of financial
ratios. Accounting Research Journal.
Zorn, A., Esteves, M., Baur, I., & Lips, M. (2018). Financial ratios as indicators of economic
sustainability: A quantitative analysis for Swiss dairy farms. Sustainability, 10(8), 2942.
.
CONSOLIDATED BALANCE SHEETS – USD ($) $ in Thousands
Percentage
Change between
2020 and 2021
Percentage
change
between
2019 and
2020
2021 line
items as a
percentage
of Total
assets
2020 line
items as a
percentage
of total
assets
2019 line
items as a
percentage
of total
assets
Vertical Analysis
202120202019
Current assets
Cash and cash equivalents115051710935058813205.21%24.08%27.49%33.32%42.28%
Accounts receivable62399402193578655.15%12.39%1.49%1.23%1.72%
Inventories64723051851340484224.82%28.08%15.46%15.80%19.42%
Prepaid and receivable income taxes139126851594938563.37%72.44%3.32%2.60%2.37%
Prepaid expenses and other current assets125107705425794977.35%21.73%2.99%2.15%2.78%
Total current assets21243791807938142928217.50%26.49%50.76%55.10%68.56%
Property and equipment, net74568767169356723711.02%18.41%17.82%20.47%27.21%
Right-of-use lease assets7348356896646.55%17.56%21.02%0.00%
Goodwill38687724182242391499.86%-0.24%9.24%0.74%1.16%
Intangible assets, net8008024133128.22%1.91%0.01%0.00%
Deferred income tax assets67313143526549-78.59%18.40%0.16%0.96%1.27%
Other non-current assets106626562013740489.72%50.25%2.55%1.71%1.79%
Total assets41852153281354208471127.55%57.40%100.00%100.00%100.00%
Current liabilities
Accounts payable1722467999795533115.32%-16.26%4.12%2.44%4.58%
Accrued inventory liabilities14956634416241135.75%-60.94%0.36%0.19%0.78%
Other accrued liabilities21191111264188.13%5.06%3.43%0.00%
Accrued compensation and related expenses130171133688109181-2.63%22.45%3.11%4.07%5.24%
Current lease liabilities16609112849729.26%3.97%3.92%0.00%
Current income taxes payable83572643667412-68.39%-60.78%0.20%0.81%3.23%
Unredeemed gift card liability1558481204139941229.43%21.13%3.72%3.67%4.77%
Other current liabilities235981240211269890.28%-89.00%0.56%0.38%5.41%
Total current liabilities88317862041850047742.35%23.97%21.10%18.91%24.01%
Non-current lease liabilities6325906114643.45%15.11%18.63%0.00%
Non-current income taxes payable431504822642099-10.53%14.55%1.03%1.47%2.02%
Deferred income tax liabilities58755434321424935.28%204.81%1.40%1.32%0.68%
Other non-current liabilities897655968191160.40%-93.17%0.21%0.17%3.93%
Total liabilities1626649132913663873622.38%108.09%38.87%40.51%30.64%
Commitments and contingencies
Stockholders’ equity
Undesignated preferred stock, $0.01 par value: 5,000 shares
authorized; none issued and outstanding000
Exchangeable stock, no par value: 60,000 shares authorized; 5,203
and 6,227 issued and outstanding000
Special voting stock, $0.000005 par value: 60,000 shares authorized;
5,203 and 6,227 issued and outstanding000
Common stock, $0.005 par value: 400,000 shares authorized;
125,150 and 124,122 issued and outstanding6266216080.81%2.14%0.01%0.02%0.03%
Additional paid-in capital3886673555413152859.32%12.77%9.29%10.84%15.12%
Retained earnings23464281820637134689028.88%35.17%56.06%55.48%64.61%
Accumulated other comprehensive loss-177155-224581-216808-21.12%3.59%-4.23%-6.84%-10.40%
Total stockholders’ equity25585661952218144597531.06%35.01%61.13%59.49%69.36%
Total liabilities and stockholders’ equity41852153281354208471127.55%57.40%100.00%100.00%100.00%
Horizontal Analysis
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME – USD ($) shares in Thousands, $ in Thousands
Percentage
Change
between 2020
and 2021
Percentage
Change
between 2019
and 2020
2021 line items
as a percentage
of total
revenue
2020 line
items as a
percentage of
Total revenue
2019 line items
as a percentage
of total
revenue
202120202019
Income Statement [Abstract]
Net revenue44018793979296328831910.62%21.01%100.00%100.00%100.00%
Cost of goods sold19378881755910147203210.36%19.28%44.02%44.13%44.77%
Gross profit24639912223386181628710.82%22.41%55.98%55.87%55.23%
Selling, general and administrative expenses16090031334247111037920.59%20.16%36.55%33.53%33.77%
Amortization of intangible assets5160297217693.10%-59.72%0.12%0.00%0.00%
Acquisition-related expenses29842000.68%
Income from operations819986889110705836-7.77%25.97%18.63%22.34%21.46%
Other income (expense), net-63682839414-107.68%-12.01%-0.01%0.21%0.29%
Income before income tax expense819350897393715250-8.70%25.47%18.61%22.55%21.75%
Income tax expense230437251797231449-8.48%8.79%5.23%6.33%7.04%
Net income588913645596483801-8.78%33.44%13.38%16.22%14.71%
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment47426-7773-73885-710.14%-89.48%1.08%-0.20%-2.25%
Comprehensive income636339637823409916-0.23%55.60%14.46%16.03%12.47%
Basic earnings per share4.524.953.63-8.69%36.36%0.00%0.00%0.00%
Diluted earnings per share4.54.933.61-8.72%36.57%0.00%0.00%0.00%
Basic weighted-average number of shares outstanding (in shares)130289130393133413-0.08%-2.26%2.96%3.28%4.06%
Diluted weighted-average number of shares outstanding (in shares)130871130955133971-0.06%-2.25%2.97%3.29%4.07%
Horizontal Analysis Vertical Analysis
Percentage
change between
2020 and 2021
Percentage
change
between 2019
and 2020
2021 line items as
a percentage of
the ending cash
balance
2020 line items
as a percentage
of ending cash
balance
2019 line
items as a
percentage of
ending cash
balance
202120202019
Cash flows from operating activities
Net income588913645596483801-8.78%33.44%51.19%59.04%54.90%
Adjustments to reconcile net income to net cash provided by operating
activities: 0.00%0.00%0.00%
Depreciation and amortization18547816193312248414.54%32.21%16.12%14.81%13.90%
Stock-based compensation expense50797455932856811.41%59.59%4.42%4.17%3.24%
Derecognition of unredeemed gift card liability-13696-11939-685914.72%74.06%-1.19%-1.09%-0.78%
Settlement of derivatives not designated in a hedging relationship4485-1925-14876-332.99%-87.06%0.39%-0.18%-1.69%
Deferred income taxes34908241291678644.67%43.74%3.03%2.21%1.90%
Changes in operating assets and liabilities: 0.00%0.00%0.00%
Inventories-96548-117591-85942-17.90%36.83%-8.39%-10.75%-9.75%
Prepaid and receivable income taxes-53966-35775-43750.85%8086.50%-4.69%-3.27%-0.05%
Prepaid expenses and other current assets-70999-53754-2854632.08%88.31%-6.17%-4.92%-3.24%
Other non-current assets-49056-27852-210776.13%1221.88%-4.26%-2.55%-0.24%
Accounts payable82663-1481071962-658.16%-120.58%7.18%-1.35%8.17%
Accrued inventory liabilities8046-95984312-183.83%-322.59%0.70%-0.88%0.49%
Other accrued liabilities91115142769416538.24%51.61%7.92%1.31%1.07%
Accrued compensation and related expenses-66922532641600-126.42%-39.12%-0.58%2.32%4.72%
Current and non-current income taxes payable-24125-3413746428-29.33%-173.53%-2.10%-3.12%5.27%
Unredeemed gift card liability47962332892488544.08%33.77%4.17%3.04%2.82%
Right-of-use lease assets and current and non-current lease liabilities13267174220-23.85%1.15%1.59%0.00%
Other current and non-current liabilities1078491333130418.08%-70.82%0.94%0.84%3.55%
Net cash provided by operating activities80333666931674277920.02%-9.89%69.82%61.21%84.28%
Cash flows from investing activities 0.00%0.00%0.00%
Purchase of property and equipment-229226-283048-225807-19.02%25.35%-19.92%-25.88%-25.62%
Settlement of net investment hedges-14607347-16216-4309.51%-102.14%-1.27%0.03%-1.84%
Acquisition, net of cash acquired-45258100-39.34%0.00%0.00%
Other investing activities8824293-771-79.45%-656.81%0.08%0.39%-0.09%
Net cash used in investing activities-695532-278408-242794149.82%14.67%-60.45%-25.46%-27.55%
Cash flows from financing activities 0.00%0.00%0.00%
Proceeds from settlement of stock-based compensation152631817017650-16.00%2.95%1.33%1.66%2.00%
Taxes paid related to net share settlement of stock-based compensation-32388-21944-877947.59%149.96%-2.82%-2.01%-1.00%
Repurchase of common stock-63663-173399-598340-63.29%-71.02%-5.53%-15.86%-67.89%
Other financing activities00-745-100.00%0.00%0.00%-0.08%
Net cash used in financing activities-80788-177173-590214-54.40%-69.98%-7.02%-16.20%-66.97%
Effect of exchange rate changes on cash29996-1550-18952-2035.23%-91.82%2.61%-0.14%-2.15%
Increase (decrease) in cash and cash equivalents57012212185-109181-73.13%-294.34%4.96%19.40%-12.39%
Cash and cash equivalents, beginning of period109350588132099050124.08%-11.02%95.04%80.60%112.39%
Cash and cash equivalents, end of period115051710935058813205.21%24.08%100.00%100.00%100.00%
Horizontal Analysis Vertical Analysis
CONSOLIDATED STATEMENTS OF CASH FLOWS – USD ($) $ in Thousands
AdidasNike202120202019
Change of Ratios
between 2020 and
2021
Change of
Ratios between
2019 and 2020
Ratio Analysis
Profitability Ratios
Gross profit margin52%45.97%55.98%55.87%55.23%0.10%0.64%
Operating profit margin6.80%15.48%18.63%22.34%21.46%-3.72%0.88%
Net profit margin9.52%13.32%13.38%16.22%7.04%-2.85%9.19%
Return on total assets9.70%16.73%14.07%19.67%23.21%-5.60%-3.53%
Return on stockholder’s equity21.60%48.26%23.02%33.07%33.46%-10.05%-0.39%
Earnings per share2.343.641.471.611.21-0.140.40
Liquidity Ratios
Current Ratio1.662.72.412.912.86-50.87%5.82%
Quick Ratio1.341.771.672.082.05-0.410.03
Working capital1241201118752092880553681258715
Leverage Ratios
Debt to asset ratio0.470.270.390.410.31-1.64%9.87%
Debt to equity Ratio0.312.890.640.680.44-4.51%23.91%
Longterm debt to equity ratio0.630.290.220.107.46%12.04%
Times-interest-earned ratio
Activity Ratios
Days of inventory92 days54484563
Inventory turnover2.273.976.807.678.12-0.87-0.45
Average collection period54410
Price earnings ratio29.8538.4144.7443.7643.650.980.11
Lululemon
Individual Case Study – Chipotle
BUSI
6
9
0 – Policy and Strategy in Global Competition
1
CHIPOTLE
Individual Case Study – Chipotle
Executive Summary
Chipotle Mexican Grill, Inc. is one of the leading quick-service restaurant chains in the US and
operates
2
,622 restaurants. The company’s existing strategy and business model indicate that it
operates firm-owned restaurants and focuses on delivering high-quality food at low prices
everyday to customers. The company has been successful but faces numerous complaints
regarding food contamination. This report presents a new mission statement appropriate for its
businesses and carries an internal analysis of the company. Based on the internal and financial
analysis, two alternative strategies have been proposed, and projections based on the
recommended strategy to open up new casual dining restaurants in the US are presented in this
report. It is suggested that the new strategy will increase the company’s profitability and generate
a positive net present value.
Existing Mission, Objectives, and Strategies
The company’s existing mission is “food with integrity” [CITATION Chi
20
1 \l
10
3
3 ] which
implies that it ensures that its supplies are from sustainable sources without the use of chemicals
that could have harmful effects on humans. The primary goal of the company is to “focus on safe
and delicious food made with better ingredients” [CITATION Chi202 \l 1033 ]. Its strategy
remained to have a small menu that offers limited choices of healthy, nutritious, and good quality
food items at competitively low prices. Furthermore, its focus is on expanding the network on its
restaurants in the United States until recently, as the company has launched its online and mobile
food ordering systems. It relies on providing efficient customer service and carrying out strong
advertising and marketing programs to communicate with customers and increase its sales.
2
CHIPOTLE
A New Mission Statement
The new mission statement of Chipotle is to (1) serve customers (2) healthy and delicious food
(3) without boundaries (
4
) by using sustainable food production technologies (
5
) and consistently
growing its business (6) by expanding its network and following ethical practices (7) and
challenging its competitors (
8
) by giving best quality food and value and services (9) by its
highly trained employees.
Analysis Of the Firm’s Existing Business Model
The existing business model of Chipotle focuses on providing enhanced food experience to its
customers. The key to the company’s business model is that it was not based on the standards of
Quick Service Restaurants (QSR) and offered a new approach to the business that challenged
other companies in the market. The company operates a large network of more than two
thousand restaurants in the United States and thirty restaurants in internal markets. Its business
model is based on a simple menu with a limited number of options available to customers at
comparatively low prices. The reason for this approach is that it aims to deliver high-quality food
quickly and efficiently for its customers rather than giving them greater choices with a lack of
focus on maintaining the level of quality and cleanliness. The company only operates company-
owned restaurants and does not offer franchise opportunities. The model is also based on low-
profit margins and greater sales volume. The company maintains low risk and margins on its
products and also has a low-pricing strategy to attract customers and also gain their loyalty to the
brand. Chipotle also treats its employees differently as it is noted that the company pays them
higher sales and wages as compared to other companies. Moreover, the company has diversified
its point of sale by developing an online ordering website and a mobile app.
3
CHIPOTLE
SWOT Analysis
4
CHIPOTLE
Internal Factor Evaluation (IFE) Matrix.
External Factor Evaluation (EFE) Matrix.
5
CHIPOTLE
SWOT Bivariate Strategy Matrix
Boston Consulting Group (BCG) Matrix
Competitive Forces Analysis, Competitive Profile Matrix (CPM), and Competitor’s Ratio
Analysis
6
CHIPOTLE
Competitive forces analysis.
FP
SP
Defensive
Conservative Aggressive
Competitive
CP IP
7
–
7.0
-5.0 -3.0 -1.0 1.0 3.0 5.0 7.0
-7.0
–
5.0
–
3.0
–
1.0
1.0
3.0
5.0
7.0
CHIPOTLE
Competitive Profile Matrix (CPM).
Competitor’s Ratio Analysis.
The competitor selected for review in this section is McDonald’s Corporation, which is a leading,
global chain of QSR. The key ratios of two years, 20
18
and 20
19
are presented in the following
table:
8
CHIPOTLE
The profitability ratios indicate that the company operated at healthy profit margins in both
years. The ratio values improved in 2019 as compared to 2018, which was a positive sign for the
company’s shareholders[CITATION Reu201 \l 1033 ]. The net profit margin of 28.8% and 28.5%
in 2018 and 2019 respectively implied that the company had strong profitability, which was
added to its retained earnings that could be used for further expansion and product development.
9
CHIPOTLE
The DuPont analysis indicates that the company’s asset turnover declined in 2019, which implies
that the company only generated $0.52 in sales in that year as compared to $0.63 in 2018 from
the use of its assets. The liquidity position of the company weakened in 2019 as its current ratio,
and quick ratio values fell below 1. However, the cash cycle of McDonald’s reduced from 2.3 in
2018 to 2.0 in 2019. Moreover, the times interest earned also reduced as the company’s interest
obligations increased more than proportional to the increase in its operating income. The
company’s long-term borrowing increased as a proportion to its equity. It implies that the
solvency position of McDonald’s was weak in both years, with a further decline in 2019. The
receivables turnover of the company also reduced in 2019, which is the reason it took a long time
to receive cash from its credit sales. On the other hand, the inventory turnover of McDonald’s
was significantly high, as in the case of the QSR business, and it only held inventory for less than
two days. The payable turnover had a similar trend as receivables. The ROIC of the company
also declined from 19.8% in 2018 to
16
.5% in 2019, which implies that its investment capital
increases but did not generate a high return as compared to the previous year.
Historical Financial Statements
This section of the report performs trend analysis of Chipotle’s financial statements for the last
three years and also calculates deltas between those years.
Income Statement
10
CHIPOTLE
Note. Annual standardized in millions of U.S. dollars.
It is noted that the company;’s revenue increased by
14
.83% in 2019 as compared to 8.68% in
2018. On the other hand, its cost of sales increased by
12
.61% in 2019 as compared to 6.34% in
2018. There was a significant increase in the company’s selling, general, and administrative
expenses in 2019. Furthermore, there was a 5.35% increase in unusual income generated from
restructuring, impairment, and gain on sale of operating assets in 2019. The company did not
have any debt-related interest expense, and its interest income from investments increased by
41.58% in 2019. The net profit of the company increased by $
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3.6 million in 2019 as compared
to just $0.3 million in 2018[ CITATION Chi204 \l 1033 ].
Balance Sheet
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CHIPOTLE
Note. Annual standardized in millions of U.S. dollars.
The trend analysis of the company’s balance sheet indicates that its total assets increased by
$2.83901 billion in 2019 as compared to $
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9.8 million in 2018. It shows that the company
significantly invested in the expansion of its restaurant’s network. Moreover, the company’s cash
and cash equivalents increased by 92.24% in 2019 due to the sharp increase in its operating
income. As the company’s sales increased in 2019, the value of its receivables also soared by
73.84% in 2019. The company did not have any debt, and its total liabilities increased by
3
15
.14% in 2019 as compared to just 20.99% in 2018. The significant increase in its liabilities
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CHIPOTLE
was due to the other liabilities related to the purchase of properties for new restaurants. Finally, it
is noted that the company’s total equity increased by 16.77% in 2019 as compared to 5.64% in
2018. The company bought back treasury stocks, and this is the reason that its retained earnings
only increased by
13
.51% in 2019 as compared to 7.36% in 2018 [ CITATION Chi204 \l 1033 ].
Cash Flow
Note. Annual standardized in millions of U.S. dollars.
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CHIPOTLE
The cash flow statement analysis indicates that the cash from operating activities increased by
$100 million in 2019, but the increase in 2018 was higher at $154.5 million. The reason for this
difference was due to the increase in the company’s working capital in 2019, which meant that a
significant amount of its cash was stuck in non-cash generating activities. In the last two years,
the company had made significant investments in buying new properties, which are now
managed by a separate entity, in expanding its sales network. The company had already repaid its
debt and was also buying back its stocks, which led to a cash outflow of $190.6 million, $160.9
million, and $285.9 million in 2019, 2018, and 2017 respectively. The company’s free cash flow
ha\s improved over the last three years. In 2019, it increased by 16.01% and rose by 33.52% in
2018 [ CITATION Chi204 \l 1033 ].
Ratio Analysis
Chipotle’s key financial ratios and their values for the last three years are provided in the
following table:
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CHIPOTLE
The profitability analysis of the company indicates that its profitability improved in 2019 as
compared to 2018[ CITATION Reu0a \l 1033 ]. The operating margin of the company had
declined in 2018 due to the case of food contamination. However, it has taken major steps to get
back the confidence of its customers by making improvements in its food management processes
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CHIPOTLE
and also dealing with the issue effectively through media, including social media. The net profit
margin of the company increased by 2.8% in 2019 after it fell by 0.4% in 2018. The company’s
ROE was 22.4% in 2019 as compared to 12.1% and 12.7% in 2018 and 2017, respectively. It
indicates that the company’s asset turnover and net profit margin increased substantially in the
last year. The liquidity position weakened in 2019 as the values of both the current ratio and
quick ratio gradually declined over the last three years but remained above the value of one. It is
noted that the company did not have external borrowing, and its assets were financed by internal
equity and capital raised from the stock market. The receivable turnover of Chipotle declined in
the last three years as its sales increased. The inventory turnover also reduced in those years, but
it had a high value similar to McDonald’s. Chipotle paid its suppliers in almost 36 days in 2019,
and this strategy was the same in 2017 and 2018 as well. The ROIC increased by 1.60% in 2019
as compared to a 0.60% decline in 2018.
Alternative Strategies
The two proposed strategies based on the the company analysis are provided in the following
along with their justification and advantages for Chipotle.
Investment in Casual Dinning Restaurants
This strategy is recommended on the basis that the company keeps its focus on the US market
and diversifies its revenue channels by opening up casual dining restaurants that have a different
theme and menu from its QSR restaurants. The company has tested this strategy already by
opening up Tasty Made burger restaurant and has opened up more than 200 restaurants. Further
expansion of similarly casual dining restaurants can help the company to overcome its
weaknesses of targeting a small customer segment and also avoid disruptions in its revenue that
are commonly caused by complaints about food contamination in its Chipotle restaurants. The
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CHIPOTLE
management will be able to pursue this strategy based on its experience and keep the risk of
failure low as compared to the other strategy proposed.
Expansion of International Business
The company does not have a significant international presence other than 30 restaurants
opening in Canada, the United Kingdom, France, and Germany. Chipotle can globally expand its
network of restaurants and target emerging markets like China and India that have more
significant potential for international brands. Although this strategy will increase the risk level of
business and the company will have to invest in R&D to develop products that suit consumer
tastes in those countries, the potential increase in its revenue and profitability is significantly
high. It will also assist the company to be less dependent on the US market and also benefit from
the localization of its strategy in international markets.
Pro-Forma Financial Statements
The projected income statement with and without the new strategy is provided in the following.
The ‘without strategy’ projections are based on the company’s recent quarterly report and the
‘with strategy’ projectsions are developed using the estimated increase in revenue of 3%.
Income Statement
Note. Annual standardized in millions of U.S. dollars.
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CHIPOTLE
Balance Sheet
Note. Annual standardized in millions of U.S. dollars.
Cash Flow
Note. Annual standardized in millions of U.S. dollars.
Ratio Analysis
Net Present Value Analysis
Based on the estimated invement of $300 million and the expected increase in the company’s
EBIT between with and without strategy estimations, the Net Present Value (NPV) is calculated
in the following:
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CHIPOTLE
The proposed strategy is expected to have a positive NPV. Therefore, the company should accept
it and go ahead with expanding its network by opening new casual dinning restaurants in the US.
EPS/EBIT Analysis
Specific Recommended Strategy and Long Term Objectives
Based on the current strategy and practices of Chipotle, it is recommended that the company
expands its network in the US by opening up casual dining restaurants. The justification of
proposing this strategy is that the company has no significant experience of the international
markets, and it has halted its franchise policy, which means that its risk level will phenomenally
increase if it decides to own and operate its restaurants in different countries. The management of
operations will become challenging, and this could lead to a significant financial loss and also
negatively affect its position in the US market. The company can develop new brands and offer a
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CHIPOTLE
healthy casual dining experience to US customers by innovating its products and give better
choices to customers in the US. The company can invest $300 million in opening 100 new
locations, which will allow the company to experience an increase of three percent in its revenue.
The new strategy can be implemented over the next three years, as depicted below.
Proposed New Business Model
The proposed business model is based on the creation of different segments and a flatter
organizational structure. The company can hire key personnel to manage different brands and
restaurant chains. The new business model will allow significant investment in research and
development of new products that will increase the scope of operations and target different
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CHIPOTLE
groups of customers other than low-income earners who are mainly served at Chipotle
restaurants. The company will have different teams to work on the marketing and advertising
strategies for its new brands and restaurants. The focus on the company will be expanding its
network and diversify its revenue channels. The company will have stricter controls over its
supplies and food preparation and hold its employees accountable after giving them the
necessary training.
Chipotle. (2020a). Day after day we’re committed. Retrieved from
https://www.chipotle.com/food-with-integrity
Chipotle. (2020b). Chipotle – Food sategy overview. Retrieved from
https://www.chipotle.com/foodsafety
Chipotle. (2020c). Chipotle Announces First Quarter 2020 Results. Retrieved from
https://ir.chipotle.com/2020-04-21-Chipotle-Announces-First-Quarter-2020-Results
Chipotle Mexican Grill. (2020). Chipotle Mexican Grill, Inc. – SEC Form 10K . Retrieved from
https://ir.chipotle.com/sec-filings
Reuters. (2020a). Chipotle Mexican Grill. Retrieved from Reuters
Reuters. (2020b). McDonald’s Corp. Retrieved from Reuters
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