Matalan Memo 280819
- Understand Matalan’s competitive advantages which defend it against the rise of Primark, online competition and fashion vagaries
- Understand how resilient Matalan would be in recession (e.g. due to no-deal Brexit) – comparison to 2008/9 and prior challenging periods for the company
- Understand the importance of Matalan’s active loyalty scheme members
- Understand what it would take to cause significant further leverage, cash burn and liquidity pressure at Matalan
- Understand Matalan’s scope to reduce rent and valuation sensitivity to this
- Understand our DCF and peer multiples-based valuation of Matalan and sensitivity to gross margin, LFL sales growth and administrative expenses
- Understand seasonality in Matalan’s Adj EBITDA, working capital and FCF
- Analysis of UK value clothing market and strategies of major firms within it
- Long run performance comparison across firms both in UK value clothing and overall clothing market (Matalan, Primark UK, H&M UK, New Look, Peacocks, Boohoo, Asos, Next, M&S) – LFL sales growth, gross and Adj EBITDA margins, store sales area, market share, differentiated positioning, revenue and Adj EBITDA per square foot of sales area, rent per square foot and more
- Price comparison – Matalan v Primark, Asda, Tesco, Sainsbury, H&M, Boohoo
- Cost comparison – online v store-based v multi-channel retail
- What would it take to cause significant further leveraging, cash burn and liquidity pressure at Matalan and how (un)likely is this?
- Does it matter that Matalan’s UK value clothing market share has fallen from c. 17% in 2003 to c. 8% today and that its revenue growth has stagnated over that period?
- How big is the risk that active loyalty scheme members (c. 95% of revenue) cannot be adequately replaced with younger members as older shoppers exit Matalan’s key demographic?
- How much equity cushion is there?
- View, Variant Perception & Recommendations
- Business Analysis – UK Stores, UK Value Clothing Market
- What Does It Take To Break Matalan?
- Business Analysis – UK Online Clothing
- Historic Financial Analysis & Performance v Peers
- Seasonality & Working Capital
- Supply Chain & Leases
- Financial Model – Projections, Valuation, Sensitivity, Liquidity
- Cost Comparison – Online, Store-Based & Multi-Channel Retail
Group Structure & Capitalisation
FX & Cotton Price Risk
Gross Margin Definition
Marks & Spencer