Welcome

A Case Study
on
Spiegel, Inc.
 Group-2

ID No Name
16004 Sabrina Tazin
16002 Sk. Nausheen Laila
16010 Farhana Hossain Erna
18058 Masud Rana
Sabrina Tazin
ID-16004
 Company Overview

• The Spiegel Group is a lifestyle retailer, selling apparel,

home furnishings and other specialty products.
• Spiegel, Inc was founded in 1865 & began its catalog
business in 1905.
• Spiegel competes with other purveyors of clothing and
household goods, including: The Gap; Lands' End; The
Limited; Lillian Vernon, New Process, Sharper Image,
Williams-Sanoma, Charming Shoppes, Nordstrom etc.
• The main target market for the apparel and home
furnishings featured in Spiegel's catalogs and stores consists
primarily of middle-class working women, ranging in age
from 21 to 59.

Rivalry among existing firms:
Low
•Company emphasize on
Differentiation
which limits intra industry rivalry
Bargaining power of Buyer: Low
•Buyers are not concentrated
•Do not buy in large volume
Industry Analysis
Threats of substitute product:
Threats of new entrants: High
High
•Customer base is increasing
•Substitute products are fairly
•Switching cost is low
priced
Industry Profitability
Bargaining power of Supplier: Low
•Switching cost among suppliers are low
Farhana Hossain Erna
ID-16010
 SWOT Analysis
Strength:
• Catalog selling is a great
business idea to serve different
group of consumers by saving
their valuable time.
• Lifestyle resource for the
working woman.
• Offering an extensive array of
fashionable apparel and home
furnishings.
• Main target market contains
middle class working woman
ranging in age of 21 to 59 years.
Weakness:
• Sales of the business is greatly
influenced by seasonal effect
• Sales can be lagging due to
lower Consumer demand, and
apparel sales.
• Increased cost of postage and
paper can increase the cost of
the business
 SWOT Analysis
Opportunity
• Can start an online
version of catalog sales
products
• it can add a consumer
electronics line
Threat
• The business could be
harmed by any restrictive
trade legislations.
• -The threat of import
restrictions on textile and
knitted goods is increased
by the pressure for
legislative protections of
the domestic textile
industries.
• A unexpected tightening in
paper market or strike by
parcel service workers can
be a great threat for the
company.
 IPO Details
Proposed Features:
The shares would be nonvoting
The shares would not carry a stated dividend
Otto-Versand would maintain ownership of
more than 80% of the total number of shares in
order to continue consolidated Spiegel for tax
purposes
The proceeds would be at least $100 million
The shares offered would be sold for a price at
least 20* 1987 projected earnings.
Sk. Nausheen Laila
ID-16002
 Ratio Analysis
Particulars 1985 1986
Current Ratio 3.75 3.53

Quick Ratio 3.01 2.93

Inventory Turnover 6.74 8.39

Gross Profit Margin 0.38 0.40

Net Profit Margin 0.15 0.36

 Ratio Analysis
Particulars 1985 1986

Total Asset Turnover 1.25 1.35

Fixed Asset Turnover 22.44 25.32

ROA 1.91% 4.86%

ROE 11.66% 27.65%

 Ratio Analysis

Particulars 1985 1986

EPS 0.33 0.93

Debt Ratio 0.84 0.82

TIE 1.72 2.96

 Ratio Analysis
•Assets are being used efficiently to generate sales.
•Spiegel made effective use of leverage-the company
has borrowed money at a lower rate of interest & was
able to earn profit by using the borrowed money.
•Spiegel’s ROE increased by almost 16%.
•A large percentage of the firm’s assets is supported
by debt financing resulting into a high financial risk
scenario.
•Earning of Spiegel is increasing proportionately with
the financial expense of the company. Their earning is
sufficient enough to cover the increasing financial
expense of the company.
Masud Rana
ID-18058
 Problem Statements

•What Should be the offer price?

•When should Spiegel go for IPO?
Prospective Analysis: Assumptions

Sales Growth for next five years is 20%,

15%, 12%, 8% and 5% respectively
Cost of Sales (COS): 61.47% of sales
SGA Expenses :31% of sales
Weighted Average Interest Rate: 8.36%
Tax Rate: 48%
 Valuation-DFCFE: Assumptions
(Discounted Free Cash Flow to Equity)

Perpetual Growth Rate: 3%

Cost of Equity (Ke): 20%
Floatation Cost : 5.75% of IPO
Proceeds.
Depreciation: Flat Lining Method
New Funding: To support Sales growth
Change in Net Working Capital
 Valuation-DFCFE: Assumptions
(Discounted Free Cash Flow to Equity)

Scenario Summary Current values Likely Best Worst

Changing Cells
Discount rate 20.00% 18.00% 16.00% 25.00%
Terminal growth 3.0% 2.0% 3.5% 1.0%
Tax Rate 48.0% 40.0% 36.0% 55.0%
Result cells:
Equity value 22.47 24.94 30.92 16.40
 Valuation: Relative Analysis
P/E Multiple Method:
Average P/E of Specialty 20.7 26.48
Forecasted EPS-1987 0.52 0.52
Estimated Price 10.76 13.76

P/BV Multiple Method:

Average Price/BV of Specialty 7.84 5.62
Interim BV per share 2.78 2.78
Estimated Price 21.79 15.62
 Valuation Summary

Valuation Summary
Valuation Method Price Range Estimated Price
DFCF $16.40-$30.92 $23.66
P/E Multiple $10.76-$13.76 $12.26
P/BV Multiple $15.62-$21.79 $18.71
Cutoff Price $18.21
 Reasons for Immediate Issue
•Social changes are conspicuous favoring Spiegel’s business.
•Favorable macro economic variables.
•Upcoming pre- Christmas sale.
•Customer’s confidence about quality of the product of Spiegel
due to its distinctive nature.
•Consumer confidence climbed for the third consecutive month in
September, to the highest level in nearly 15 years.
•High job security fuels more consumption and demand of
products for Spiegel
•Large number of domestic and international syndicate members,
which will create depth and breadth of the issue
•Successful road show and positive feedback from institutional
investors
Holding Period Return of Investors

Immediate offering
Sales GR (Y1) Sustainable GR
Assumptions 20% 3%
Price after 2 months 22.47
Investor's Price 18.21
Dividend 0.0529
HPR 23.67%
Annualized Return 142.02%

Soft Issue
Sales GR (Y1) Sustainable GR
Assumptions 15% 2.50%
Price after 2 months 24.94
Investor's Price $22.47
Dividend 0.049
HPR 11.24%
Annualized Return 67.42%
 Net Proceed from IPO

Particulars Amount %
Issue Management Fee 1,751,738 33.85%
OTC Market Listing Fee 632,903 12.23%
Application Fee 275,828 5.33%
Underwriting Commission 456,953 8.83%
Legal Fee and Others 862,155 16.66%
Printing and Others 1,195,943 23.11%
Total 5,175,000 100%
Net Proceed from IPO 84,825,000
 Recommendation &
Conclusion
The industry is currently profitable but degree or possibility
of abnormal profit in the future is low.
Spiegel has better liquidity position in terms of short term
debt paying ability.
The company is running profitably right now, but future
competition may hamper the future profitability.

SI’s efficiency ratio is good.

The financial risk is gradually increasing due to higher debt
using in their capital structure.
The price of shares should be $18.21.
The company should go for immediate public offering
to attract higher investor’s attention and interest.
Thank You