TM008

Executive Summary

We initiate coverage on Stores Specialists Inc. (SSI) with a Buy recommendation. Using the
discounted cash flow analysis, we arrive at an intrinsic value of Php 8.16, a 16.6% upside from
its current share price of Php 7.00. Our recommendation is primarily driven by ability of the firm
to adapt to a changing environment through leveraging their economies of scale and integrating
their management strategies. Also, stable business performance and positive operating cash
flows have been a factor for the improving growth of their brand portfolio. This is to best guide
the investors in making a decision to avail of SSIs shares or not.

Company Description

Stores Specialist Inc. (SSI) is a corporation organized and established in 1987 with brand
management and specialty retailing as its principal business. As the leading specialty retailer of
international brands in the Philippines, their portfolio provides all aspects of a quality lifestyle
and is sustained by a strategic retail presence. Their network of stores covers a broad range of
categories and brands, from luxury and bridge apparel to casual wear and fast fashion,
footwear, accessories and luggage, food, home and dcor, and beauty and personal care,
aiming to target the growing market of the middle to high class. Among their business strategies
are continuous expansions of brand portfolio, increasing market penetration through store
expansion strategy, and developing an integrated omni-channel approach.

Analysis: Financial Ratios

Revenue Growth
Operating Profit Growth
Net Profit Growth
Gross Profit Margin
Operating Profit Margin
Net Profit Margin
Return on Average
Equity
Inventory Turnover
Inventory Days
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2011
X
X
X
40.1%
3.2%
2.6%

2012
14.0%
94.2%
74.9%
43.9%
5.4%
4.0%

2013
10.1%
45.5%
32.8%
49.2%
7.2%
4.8%

2014
3.8%
49.8%
55.9%
50.0%
10.3%
7.2%

X
X
X

0.39
1.30
281.61

0.30
1.15
317.29

0.28
1.18
309.23

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TM008

Receivables Turnover
Average Collection
Period
Current Ratio
Quick Ratio
Debt to Equity Ratio
Times Interest Earned

81.17

64.64

39.9

X
1.01
0.31
0.53
0.04

4.50
0.98
0.22
0.48
0.03

5.65
1.03
0.21
1.84
0.10

9.2
0.73
0.29
1.83
0.06

3 Major Strengths
1. Effective implementation of credit policies the low receivables turnover indicate fast
collection of credit, which indicates managements ability to compel consumers to
comply with the policy, thus, lowering the risk of incurring bad debts.
2. In compliance with the debt-to-equity ratio provided by financial covenants SSI
maintains the same level as suggested by external bodies which is 1.84x.
3. Growth in profitability ratios the growth is expected to earn investors confidence in
investing in the Company.
3 Major Weaknesses:
1. Stocks inventory past the policy SSI normally keep 3 to 6 months worth of inventory.
However, inventory days would tell us that the Company went beyond the policy and
took a longer period to convert raw materials into cash. This brings the possibility of
selling the raw materials at a lower price, which would lessen sales.
2. High operating expenses the table shows low net and operating profit margins despite
high gross profit margins. The difference can be traced back to the operating expenses
the Company incurs per period, which, if not regulated, will eat up a large amount of
sales.
3. Low quick ratio eliminating less liquid current assets, SSI will experience difficulty in
repaying current liabilities. This may be unattractive to investors.
Recommendation
Based on the analysis made using discounted cash flow method and a result of an intrinsic
value of Php 8.16, we recommend a BUY decision.

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INVST PRE-CASE CHALLENGE

THIS DOCUMENT IS AN EXCLUSIVE PROPERTY OF THE UP JFA