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Financial Analysis of Tesla Motors

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Financial Analysis of Tesla Motors
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Netra Shetty
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Financial Analysis of Tesla Motors - February 15th, 2011

Tesla Motors Inc. is a Silicon Valley-based company that designs, manufactures and sells electric vehicles (EVs) and electric vehicle powertrain components. It is currently the only automaker building and selling a zero-emission sports car in serial production (as opposed to prototype or evaluation series production).[3] Tesla is also deep into the engineering and production development of a zero-emission premium sedan, the Model S, which will be built in Fremont, California.[4] Tesla also sells its electric powertrain components to other automakers, including Daimler and Toyota.[5]

Tesla Motors (TSLA) (NASDAQ:TSLA) designs, manufactures, and sells electric vehicles. Its first product, Tesla Roadster, is the first federally compliant electric vehicle that can travel on on the highway. The company has intellectual property in its electric powertrain technology. The company has a distribution network of 12 stores in North America and Europe. The company plans to release the Model S later on in the year. [1]

Electric automobile industry is an attractive industry. With the success of the hybrid vehicles, consumer tastes are changing. Furthermore, with government intervention, Tesla was able to receive a $465.0 million long-term loan under the United States Department of Energy’s Advanced Technology Vehicles Manufacturing Incentive Program. According to Frost & Sullivan, a business research and consulting firm, the market for electric-based vehicles, which include hybrids and plug-in hybrid cars, is expected to grow from 1.75 million, 3% of new cars sold, in 2008 to 10.6 million worldwide, 14% of new cars sold, by 2015. [1]

The company's initial public offering of stock filed on the NASDAQ and went public on 29 June 2010. It was priced at $17, above the initial price range of $14-$16. The major shareholders include VantagePoint Venture Partners, Bay Area Equity Fund, and others. Toyota also made a $50 million private placement. [2] [1]

For FY2009 with year ended 31 December 2009, the company reported total revenues of $111.94 million, a large increase from $14.74 million in total revenue for FY2008. Furthermore, the company had a net loss of $55.74 million for FY2009, an increase from $82.78 million in net loss for FY2008. [1]

Talbots (NYSE: TLB) is a high-end clothing company with stores in the U.S., Canada, and the UK. In early 2008, Talbots closed its men's and children's operations, in order to focus on high-income women over the age of 35, in particular the 40 million baby boomers who are nearing retirement.[1] Talbots merchandising strategy focuses on honoring the classics which emphasizes modern classic, relevant, and updated merchandise designed to appeal to baby-boomer and generation-X consumers, and they define their brand image as “Tradition transformed”.[2]

The worsening state of the U.S. economy, however, has caused the company trouble. Two of Talbot's lenders decided to not renew $265 million in credit to to the company, limiting its ability to borrow money and pay for inventory and possibly setting it up for the bankruptcy. Talbots competes with other luxury retailers like AnnTaylor Stores (ANN), Chico's FAS (CHS), and Limited Brands (LTD).

For 2010 (Talbots fiscal year ends January 30 of each year), Talbots had total revenues of $1.24 billion.

Company Overview

Talbots decided to close its men's and children's businesses in January 2008, and has also closed twenty underperforming stores in order to better focus on its aforementioned core demographic.[3] Net income has been below expectations for the past five years, even becoming negative in 2007. The company's lackluster performance is attributed mainly to decreased consumer spending in response to an unstable economy, as well as tough competition with more attractive product offerings.

1 Company Overview
1.1 Business Financials
1.2 Business Segments
1.2.1 Retail Stores (83% of 2009 Revenues)
1.2.2 Direct Marketing (17% of 2009 Revenues)
2 Key Trends and Forces
2.1 Worsening of U.S. Economy Will Further Curb Consumer Spending
2.2 Aging Baby Boomer Population Increases Talbots' Target Demographic
3 Competition
4 References
Despite the discontinuation of its men's and children's lines, Talbots has increased its number of stores for the past five years. The firm is currently improving its image among this demographic by further developing its apparel; focusing on exclusive colors and fabrics, as well as fashion-forward design.

Business Financials
Talbots improved its financial position between 2009 and 2010. For the year ended January 30, 2010, Talbots posted total revenues of $1.24 billion, a slight decline from its previous year's revenues of $1.50 billion.[4] However, despite the lower revenues, Talbots was able to decrease its operating loss from $98.4 million in 2009 to just $8.7 million in 2010. Partially as a result of this, Talbots had its net loss decline from $556 million in 2009 to just $29 million in 2010.[4]

Business Segments
Talbots breaks its operations into two business segments: i) Retail Stores and ii) Direct Marketing.

Retail Stores (83% of 2009 Revenues)
Talbots has 580 retail stores in 46 states, the District of Columbia, as well as Canada. In 2010, retail stores represented 83% of total revenues for Talbots.[2]

Direct Marketing (17% of 2009 Revenues)
The direct marketing segment includes Talbots catalog and Internet channels. This segment had 17% of Talbots total sales, and 70% of these came directly through internet sales.[5]

Key Trends and Forces

Worsening of U.S. Economy Will Further Curb Consumer Spending
Before the state of the economy became so uneasy, middle-class consumers were more confident, with more money and more access to credit, meaning they were more likely to purchase luxury goods. With the onset of a recession though, those same middle-class consumers have been holding back and buying less from luxury retailers, leading to the overall decrease in revenues. The quarterly increase, however, is due to Talbots' more affluent customers being relatively unfazed by recessionary fears, coupled with the company's decision to hold monthly sales instead of quarterly sales.[6]

Aging Baby Boomer Population Increases Talbots' Target Demographic
There are over 78.2 million baby boomers in the United States, of which about 40 million were women. With ages varying from 44 to 62, these women are part of Talbots' key demographic.[7] As baby boomer women move into the upper echelons of the professional world, and then retire, they will have more money to spend on luxury items, so Talbots is revamping its products and its image in order to best capitalize on this target demographic.


AnnTaylor Stores (ANN) is a clothing retailer with stores throughout the entire United States and Puerto Rico. Its principal store, Ann Taylor, provides professional clothing, while Ann Taylor Loft provides casual clothing, both geared towards professional women.

Limited Brands (LTD) owns a number of well-known brands, namely Victoria's Secret and Bath & Body Works. Victoria's Secret is a lingerie retailer, while Bath & Body Works focusees on beauty products.

Nordstrom (JWN) is an "affordable luxury" retailer that sells clothing, shoes, and accessories to individuals of both genders. It's target demographic is individuals between the ages of 25 and 54 who generate an income in excess of $100,000 per year.

Chico's FAS (CHS) sells casual clothing to middle-aged women with moderate to high income. It also owns Soma, a lingerie store, and WH|BM, a brand that targets a younger demographic.

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