Sectors > Top Reports > Douglas Memo 130220

Douglas Memo 130220

Douglas. Gross Margin Pressure From Online vs Stake Sale & Self-Help Possibilities. Capital Structure Opportunities
PUBLISHED: 13 February 2020
PAGES: 346
SUBMARKET: Douglas, Top Reports, Top Reports,


Why Read & What’s New?

  • Machine-learning online price comparison and other website data scraping to estimate Douglas’ potential gross margin downside from online price competition expanding significantly beyond the margin decline seen in Germany since FY 17
  • Detailed profitability and business analysis of Douglas vs 14 competitors – across countries, online, multi-channel and direct to consumer. Understand levers available to Douglas to meaningfully increase its Adj EBITDA margin to defend against online gross margin compression
  • Machine-learning based mapping and analysis of Douglas Germany’s store footprint – competitor overlaps by catchment area, locations across income-weighted population size, high street vs. shopping centre for Germany, store density, scope to rationalize. Store density estimates across Douglas’ other countries
  • Understand what is driving intensified industry competition, why we do not expect it to subside, Douglas’ competitive advantages and resilience to our bear case scenarios around potential gross margin compression, negative store LFL sales growth and macroeconomic sensitivity of Douglas’ exposure to Christmas gifting in Fragrances
  • Douglas’ EV and equity valuation – DCF, multiples (transactions and listed) and regression-based value map
  • Potential stake sale and debt paydown scenario and resulting valuation and IRR implications for CVC and improved refinancing prospects
  • Understand how Senior Secured Notes vs Term Loan B and RCF EBITDA guarantor coverage may have diverged significantly since issuance based on our analysis of solo financials, meaningful differences in security packages and what this means for refinancing prospects
  • Machine-learning analysis of Douglas’ SKU online mix – how does it differ from Douglas’ sales mix and what are the implications?
  • Find out about new and emerging business models within the Speciality Beauty retail industry

Questions Answered

  • Why do we believe there may be material structural subordination of Senior Secured and Senior Notes?
  • Why do we believe in an equity stake sale ASAP?
  • Who do we think the likely trade buyers are?
  • What kind of synergies can be achieved via M&A?
  • Why do we believe a stake sale is a necessary step to any IPO?
  • Can Douglas withstand our bear case scenarios, stressing for potential gross margin compression, negative store LFL sales growth and macroeconomic sensitivity of Douglas’ exposure to Christmas gifting in Fragrances and what kind of recovery rates would we expect on the TLB, SSNs and SNs?
  • How does Douglas Germany’s income statement compare to that of German competitors?
  • Why do we expect competition, particularly in Germany, to remain elevated or increase?
  • How much decline do we estimate there has been in Guarantor EBITDA to Group EBITDA for the SSNs?
  • Which intra-group receivables might provide extra recovery support for the TLB over the SSNs?
  • How large is Douglas’ equity cushion?
  • How much deleveraging is possible over the medium term?
  • What does peer group profitability look like?
  • Where can Douglas achieve cost savings and drive Adj EBITDA margin improvement?
  • Who and what are the companies disrupting Beauty retail?
  • Why do we think Douglas’ product mix is overly exposed to the gifting season?
  • Why do we think Douglas is over stored?
  • How many of Douglas’ German stores are located on the high street vs shopping centres?
  • What does the store footprint in Germany look like relative to competitors?
  • What does the store footprint in Germany look like relative to the German population?
  • Which competitor chains are physically closest to Douglas’ German stores and what is the overlap?
  • Which are the most common non beauty retail chains in proximity to Douglas German stores that may help sustain footfall?
  • What does a “basket” of goods from these non beauty retail chains tell us about the typical Douglas consumer?

  1. View, Variant Perception & Recommendations

  2. Valuation

  3. Credit Risk & Recoveries

  4. Indenture Analysis

  5. Industry Overview & Analysis

  6. Market Overview & Analysis

  7. Business Overview & Analysis

  8. Q4 19 Results

  9. Q3 19 Results

  10. Competitive Position

  11. Store Footprint – Machine Learning-Based

  12. Online Segment Analysis – Machine Learning-Based



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