Cataracts Is a coffee retailer that owns Its own outlets and provides licenses to outsiders to open outlets. At these outlets, they provide premium coffee and food products while bringing, “the Idea of the French and Italian cafe Into the busy North American lifestyle. ” Ironically, while the Idea was to bring the French and Italian cafe concept to North America. They have through international expansion brought this to idea to countries across the globe, including France and Italy. They operate three main segments worldwide: united States, International, & Global ConsumerProducts.
The “Global Consumer Products” segment refers to prepared beverages, coffee beans, and other branded items sold at grocery outlets. 2. Are they at a start-up stage, growth stage, mature stage, or declining stage? Even though Cataracts seems to already be on every corner within the united States– over 9,200 company operated stores and nearly 7,500 stores run by licensees domestically & Internationally– the company continues to experience Impressive growth.
According to the text, “prior to 2008, Cataracts had generated Impressive revenue growth rates of 20. Percent in fiscal 2007 and 22. Percent in fiscal 2006. ” Poor financial performance attributable to the great recession is not reason to think that Cataracts will not continue to flourish once the economy turns around. It is because of this that I believe Cataracts is still at the growth stage.
3. How have they grown in a past few years? The great recession was responsible for one of Cataracts first poor financial performances In years In 2008. While the prior 2 years saw growth rates exceeding 20% annually, Cataracts still grew over 10% during the recession.One Important detail to add Involves a move towards restructuring.
In 2008, Cataracts made an important decision to shut down approximately 600 poorly performing outlets. Of these, 205 were closed in fiscal 2008. The effect of this is evident in the income statement, where we see “restructuring charges” of $266.
9 million in 2008. While this caused their bottom line to take a hit, Cataracts puts a positive spin on it saying that they, “may not fully realize the anticipated positive impacts to future financial results from the the restructuring measures announced in July 2008. ” 4.What is the Coo’s message to shareholders? What kind of strategy is planned by the CEO? The Coo’s message to shareholders Is clearly a response to one of the first mediocre annual reports the company has published In recent times. He spends some time talking about the financial crisis and how decreases in expendable income and foot expansion plans, the CEO gives a message about how the company intends to tighten up. He begins is discussion on strategy by talking about the company shutting down approximately 600 US stores (205 in fiscal 2008), and 61 company operated stores in Australia.
He continues, adding that the company will be eliminating approximately 1,000 open and filled positions to reflect the decrease in umber of stores. Lastly, he discusses the roll of several new beverages and breakfast offerings in an attempt to fortify their brand during the tough financial times. 5. What data is given in support of his message? Aside from the number of stores mentioned that the company plans to shut down (approximately 600 in the US and 61 in Australia), Cataracts provides a forecast of the effect they expect this to have.Per the financial statements, “the company estimates that the combination of the US and Australia store closures and head count reductions will result in a pre-tax benefit to operating income of approximately $200 lion to $210 million in fiscal 2009, which equates to approximately $0. 17 to $0.
18 of PEPS. ” 6. What are their strengths? Clearly one of the biggest strengths of Cataracts is their brand name. They say that, “Cataracts believes it has built an excellent reputation globally for the quality of its products, for delivery of a consistently positive consumer experience and for its corporate social responsibility programs. Another strength of the company is their sheer size. Because there are few barriers to entry in the coffee business, Cataracts has many different competitors worldwide. Few competitors though can take advantage of economies of scale and supply chain leverage the way Cataracts can. This creates an enormous advantage over competition.
7. What are their weaknesses? One of Cataracts admitted weaknesses is the number of licensees and partnerships they have, especially in international markets. While this helps expansion and localized expertise, it also takes some of the control over brand and reputation out of their hands.Cataracts also operates in a business with few barriers to entry, so new localized companies are always appearing to challenge for a piece of the market hare. Lastly, Cataracts has $5.
1 billion in minimum future payments on non- concealable operating leases. Increases in interest rates could create high a interest expense that could seriously cut into profits. 8. What are their opportunities? Still represent a small portion of their overall revenue (20%). This means that the company can still expand significantly in foreign markets.Additionally, their “Global Consumer Products” represent a paltry 4% of total revenue, and the company could increase this significantly with proper marketing and quality control. They would Just need to find more products to market through grocery retailers. Lastly, although the company has shut down over 600 locations in the the US, the CEO still expressed an interest in expanding better run stores throughout the US, especially in the near future.
This would indicate that they feel like their is still significant opportunity for expansion within the US. 9. What are their threats?One of the biggest threats to Cataracts is that they are dependent on commodities with prices that can fluctuate as a result of weather, politics, and economics.
They an somewhat combat this or at least provide a degree of certainty through fixed price & price to be fixed forward contracts, but there is no denying their reliance on commodities. In addition to coffee beans, Cataracts relies on the supply of milk, commodity paper, and plastic resin. Volatility with any of these commodities would cause unexpected expenses for the company. There is also the threat of new entrants, which could cause new, unexpected competition at any time.Lastly, because Cataracts is beginning to rely more and more on its international outlets, it deeds to spend money to maintain regional expertise, to maintain licensing agreements, and experiences monetary exchange risk. Again, Cataracts could provide a degree of certainty to the exchange rate risk through use of forward contracts. 10. How would you analyze whether they are successful in its strategy? It is not difficult to tell from the financial statements that 2008 was a difficult year for Cataracts.
2008 operating income was less than half of its 2007 fugue. Basic net earnings per share decreased from . 9 to . 43 PEPS.Another interesting observation relates to the purchase and sale of securities. According to the balance sheet, short- term investments for OAFS securities decreased from $83. 8 million to $3 million, and trading securities decreased from $73.
6 to $49. 5 million. A look at the investing activities on the Cash Flow statement shows a sharp drop in their purchase of OAFS securities and dramatic increase in OAFS security sales.
This would seem to indicate a cash flow problem. It is a bit concerning that Cataracts has significantly decreased the supply of some of its most liquid assets. We see this in the decrease in quick ratio from . 337 to . 98 from 2007 to 2008.
Another interesting observation is the increase in “other long-term liabilities” by $88 million. A further look at this shows that most of this is attributable to a significant increase in unrecognized tax benefits resulting from FIN 48. Lastly, we see that since 2006, interest expense has increased by $45 million.
All of this is indicative of the tough year Cataracts endured in 2008. Information however. Tough times are due too financial crisis affecting the entire globe, and Cataracts more than its multitude of small local competitors has the resources to endure the tough times and to emerge stronger than ever.