Vermont Teddy Bear Case Analysis
...beth Robert, the CFO, took over as President and CEO, still retaining the title of CFO as well. Elisabeth’s strategy for the company was that they were not in the teddy bear business, but in the gift/bear-gram/impulse/last minute business. Their competitors were not companies like Steiff or Gund, but rather 1-800-flowers. Her primary focus was a return to maximizing returns in the radio Bear Gram business. They also introduced their website, and by 1998 online orders accounted for 10-20% of Vermont Teddy Bear’s business. In 1998, the company announced they had been without a working capital line of credit and completed a sale-leaseback of its headquarters and some land. With this money they paid off the mortgage and had some extra cash. In 1998 Elisabeth revised the retail expansion strategy and planned to close the retail stores (except for the factory store) Also in 1998, Elisabeth decided to lower costs by shifting away from the all american made materials to offshore suppliers. They concluded that price was more important to customers than the “Made in America” label. During this time they also found that their factory tours, factory stores and build your own bear concepts had become very popular. They sought to increase sales through these channels and other unaffiliated retail stores and increase Bear Gram sales in existing markets and expanding into new market areas. Financial Analysis 1998 1997 1996 1995 1994 1993 1992 Inventory Turnover 17207543 = 2396245 7.18 16489482 = 3302313 4.99 17039618 = 1974731 8.63 20044796 = 3042484 6.59 20560566 = 4024247 5.11 17025856 = 2425233 7.02 10569017 = 1135940 9.30 % Expenses 10898559 = 17207543 63.3% 10899254 = 16489482 66.1% 9241809 = 17039618 54.2% 13463631 = 20044796 67.2% 12218746 = 20560566 59.4% 9046828 = 17025856 53.1% 5121661 = 10569017 48.5% % Sales Growth 17207543 – 16489482 = 16489482 4.4 % 16489482 – 17039618 = 17069618 -3.2% 17039618 – 20044796 = 20044796 15.0% 20044796 – 20560566 = 20560566 -2.5% 20560566 – 17025856 = 17025856 20.8% 17025856 – 10569017 = 10569017 61.1% -- -- --- --- Net Profit Margin -1611669 = 17207543 -9.4% -1901795 = 16489482 -11.5% 151953 = 17039618 .9% -2422477 = 20044796 -12.1% 17523 = 20560566 .08% 838955 = 17025856 4.9% 202601 = 10569017 1.9% Current Ratio 4652269 = 3264707 1.4 4436153 = 7316738 .61 3745868 = 2131352 1.8 4575654 = 3618908 1.3 8002536 = 4055465 2.0 11408488 = 1995600 5.7 1224436 = 2150509 .57 ROI -1683669 = 14489352 -11.6% -1901795 = 14649436 -12.9% 151953 = 14239272 1.1% -2422477 = 15361544 -15.8% 17523 = 14769713 .1% 838955 = 12495315 6.7% 202601 = 1930468 10.5% Gross Profit Margin 9810093 = 17207543 57% 9420933 = 16489482 57% 9730580 = 17039618 57% 10943768 = 20044796 55% 11940986 = 20560566 58% 9901926 = 17025856 58% 6013593 = 10569017 57% Debt to Equity Ratio 9584409 = 4902943 19.5% 8157807 = 6491629 126% 6274993 = 7964279 79% 7549984 = 7811560 97 % 4620085 = 10149628 46 % 2184386 = 10310929 21% 3251479 = -1321011 -246% Financial Analysis: Gross profit margin has stayed stable at around 57% for 1992-1998. The gross profit margin measures the total margin available to cover other expenses beyond cost of goods sold and still yield a profit. The debt-to-equity ratio is very telling. This measures the funds provided by creditors versus the funds provided by the owners. 1998 shoes a welcome change in the ratio, since from 1995-1997 the % ranged from 79-126%, which is horrible. Net profit margin shows how much after-tax profits are generated by each dollar of sales. 3 out of the last 4 years have been negative. That means no profits. The inventory turnover numbers are very good. There does not seem to be any problem with inventory. The current ratio indicates how much of current assets are available to cover each dollar of current liabilities. During the past 4 years, only 1996 had a favorable ratio. These numbers, especially 1997’s .61, indicate that there is less cash available that is preferable to cover expenses. The ROI measures the rate of return on the total assets. These numbers are dismal and indicate that the company would probably have difficulty in obtaining cash financing for future growth. The % expenses has remained steady, and % sales growth, although small, is headed in the right direction Analysis A CEO leaving is a triggering event for a new strategy. When John Sortino resigned and R. Patrick Burns took over, he implemented a new strategy. He decided that a directional strategy oriented towards growth was appropriate, and planned to focus on expanding retail and catalog operations and away from Bear-Grams. He decided they were not in the Bear Gram market, but in the retail teddy market. This strategy did not work because Bear Grams are their core competency. When R. Patrick Burns resigned and Elisabeth Robert took over, she implemented a retrenchment strategy; a turnaround to “stop the bleeding” brought on by Burns, as well as sell out/divestiture to focus on the core. She did this by closing the retail stores to focus on Bear Grams. Companies should apply resources to a place that gives you a competitive advantage. If it doesn’t, outsource it. They have cut costs by outsourcing one of their core competencys. A distinctive competency must be: Value: does it provide a competitive advantage? yes Rareness: do other competitors possess it? no Imitability – is it costly for others to imitate it? Yes, competitors would have to raise their costs significantly to use all American materials and labor Organization – is the firm organized to exploit the resour...