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Interco_521_2011 (1)

Interco_521_2011 (1) - Interco HBS Case Study Interco Case...

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Interco HBS Case Study
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Interco Case Study Background: Started out as shoe company – been around a long time Business has spread to other consumer products / services through acquisitions Fairly conservative financially, debt level is relatively low
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Operations Currently has four major operating divisions: 1. Apparel (e.g., London Fog) 2. General retail merchandising (Central Hardware) 3. Footware (Converse, Florsheim) 4. Furniture and home furnishings (Ethan Allen)
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Interco’s Goals Improve long-term sales and earnings growth Earn increased return on assets and equity
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How does Interco plan to achieve these goals? Improve profitability of existing assets Divest/sell unproductive assets Make acquisitions that will improve growth/returns Use corporate finance! (adjust payout policy and debt policy to maximize firm value – we will discuss this in depth later in the course)
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Recent Interco History (from 1984-88) Interco has moved away from apparel and general retail (went from 59% to 40% of total sales) Placed more emphasis on the footwear division (acquired Converse in 1986) Placed much more emphasis on the furniture division (sales rose from 20-33% of Interco’s total sales)
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Economic environment in August 1988 Cheap imports hurting profitability of U.S. apparel manufacturers Retailing industry profits reduced due to drop-off in consumer spending and deep discounting programs being offered by retailers in 1987 Furniture and home furnishings prospects appear bright
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