The North Face Company

Executive Summary
1997 was a year of record sales and profits for The North Face, Inc. The company experienced significant growth in sales, income, and earnings per share. This has been a continuation of their upward trend since 1995.
The North Face has been expanding their retail shops in both domestic and foreign markets. In the process of this expansion though, the company has dramatically increased its overhead costs resulting in greater total liabilities. During the course of 3 years, the liquidity of the company has gone down.
After analyzing the financial statements of The North Face, we have discovered a strong upward trend, which makes this company a prime candidate for investors. Its financial achievements have led us to believe that this is a solid company with strong prospects for future success.

The North Face Inc.
2013 Farallon Drive
San Leandro, CA 94577

TELEPHONE: (510) 618-3500

The North Face designs and distributes technically sophisticated outerwear, ski wear, functional sportswear, tents, sleeping bags, backpacks and daypacks, all under the North Face name. The company characterizes its apparel-related products
as "equipment for the body". The North Face products are original designs and carry a lifetime warranty for the original owner against defects in materials and workmanship. The company\'s goal is to offer the most technically advanced products in its field and to establish the industry standard in each product category.

Present and Projected Activities

The North Face currently operates 202 Summit Shops with a projected number of 375 shops to be opened by the end of 1998. The company recently introduced a new multidimensional research design and development process involving a 32 member product development team, the input of The North Face\'s team of world class athletes, explorers and external technology partners. The North Face also announced a $130 million global credit facility that they will institute in the near future, which will enable them to fund future expansion and support their working capital requirements as they continue to grow.

The TNFI is planning to launch an outdoor performance footwear line in the Spring of 1999. They have completed substantial market tests and concluded that footwear is an integral part of being a complete outdoor and exploration brand. Currently, the shoe market is a $2.8 billion industry internationally with a 6% forecasted growth rate annually over the next five years. This presents a significant sales opportunity which will help The North Face become a more balanced year round business. The company has also instituted an in depth European sales and marketing strategy in hopes of generating an internationally known and respected name of quality outdoor equipment.

Liquidity ratios indicate the corporation\'s ability to meet short-term cash requirements and are important to potential and existing creditors. The current ratio indicates whether the firm will have enough resources to meet obligations becoming due during the next period. In 1997, The North Face had a current ratio of 1.98:1 down from 3.6:1 in 1996. Their current ratio falls below the current industry standard of 2.3:1. Being that the ratio was still greater than one, the company was able to meet current liabilities as they fell due. Their working capital had increased in 1997 to $59,117,000 from $50,438,000 in 1996.
The quick ratio is a more stringent test of short-term liquidity. This shows us The
North Face\'s ability to pay off their loans without relying on the sale of their inventories.
In 1997 the Quick Ratio was 1.05:1 compared to 1.72:1 in the previous year.
The decreased liquidity ratios show that the increase in liabilities could pose a threat to the companys abilities to generate the capital needed to pay the short-term borrowings in the near future.

Profitability ratios indicate the degree of success of a company\'s operations during the year. This is accomplished through showing the amount of resources needed to generate profits versus the capital consumed in the process and finally, the cash availability to stockholders.
Profit margin represents the average percentage of each sales dollar translates into profit. The North Face had a profit margin of 10.2 % for 1997 and 8.6% for 1996, which were both noticably above the current industry average of 2.9%. The North Face\'s high profit margin is an indication of their efficiency so a lesser amount of sales