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Parsimonious Forecasting

Parsimonious Forecasting. Discount, Variety Store - Costco Aileen Huang. Sales. Comparable firms’ 2013 financial information not available. Sales Forecast. Higher than Industry average Averages 2.3% for Warehouse Clubs and Supercenters from 2014-2018 Key drivers Economy

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Parsimonious Forecasting

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  1. Parsimonious Forecasting Discount, Variety Store - Costco Aileen Huang

  2. Sales • Comparable firms’ 2013 financial information not available

  3. Sales Forecast • Higher than Industry average • Averages 2.3% for Warehouse Clubs and Supercenters from 2014-2018 • Key drivers • Economy • Per capita disposable income increase by 2.5% during the next five years • Retain a large portion of customers gained during the recession by continuing to offer a diverse, comprehensive product range • New warehouses • Plan to open 30 to 36 new warehouses in 2014; 26 new in 2013 • Competition • Convenient, a mix of general merchandise, a more enjoyable shopping experience • Forecasting sales growth rate: 5.6%

  4. EPM and EPM from Sales • EPM from sales: more stable • Become more profitable in general

  5. EPM from Sales Forecast • Key drivers • Private-label items • 15% gross margin for private-label items • 12%-13% add-on for brand-name merchandise • Increase the penetration • Selection change • Decrease in fresh foods (higher margin) • Increase in optical and hearing aid (higher margin) • Management efficiency • 2013: Net sale 6% up; Gross margin 7 points up; SG&A 1 point up • Forecasting EPM from sales: 2.2%

  6. EATO • Different business model • Costco driven by high sales volume • Consistent better trend

  7. EATO Forecast • Key drivers • Inventory management • Cross-docking consolidation point, 22 • Higher inventory turnover • Hours of operation: not 24/7 • Forecasting EATO: 10.2

  8. Parsimonious Forecasting

  9. DCF Model • Assumption • Rate of return: 10% • Perpetual Growth rate: 4% • Higher than inflation rate; more favorable business model; mature in life cycle • Long-term objectives: reducing employee turnover and enhancing customer satisfaction

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