You are an analyst reporting to Jennifer Jerabek, CFO of Teuer Furniture. As noted in the case, several Teuer’s investors have taken issue with the FCF DCF analysis done previously. They believe that DCF analysis is unreliable since it requires dozens or hundreds of assumptions about the future of the company. Jerbek (and you) have been instructed to prepare a valuation that does not depend on assumptions about future growth, profitability, capital investment or require discretion by the finance team. She has asked you to value the company using the market multiples approach. Your analysis should include a discussion about whether your analysis is free of any assumptions about the future of the company or based on any discretionary choices on your part. Detail your analysis in a one-page report.
Background to Teuer Furniture
Teuer Furniture was launched in 2003 to serve the demand for high-quality designer furniture sold in a high-touch environment outside of the major metropolitan areas. The firm opened its first showroom in Omaha and has since grown to 29 showrooms, concentrating on second-tier cities such as Des Moines (Iowa), Columbia (Missouri) and Lawrence (Kansas). The company has plans to open six additional showrooms over the next three years. These showrooms will be in the same region of the country and be served by the company’s centrally located distribution center.
The company sells a range of styles of furniture for all rooms of the home. The distinguishing feature of Teuer is that all of its offerings are very high-quality and are targeted to upper-income customers who are willing to spend money but have limited time. Key to the Teuer buying experience is a focus on convenience and customer service provided by an attentive but low-pressure sales staff. As a result, a large portion of sales in established showrooms was to repeat customers and friends of past customers. The company used in-store technology to enhance the shopping experience. For examples, sales associates could quickly pull up 3D pictures of furniture showing any of the offered patterns and styles, making it easier for customers to envision the final product. Included in the price of Teuer furniture was complementary delivery and set-up.
Teuer does not manufacture any of the furniture it sells but relies on a network of domestic producers, mainly in the southeast, who design and manufacture products that are sold under the Teuer brand name. While the company carried fewer furniture lines than many of its competitors, the carried a wide range of customization options (fabrics, styles, patterns) for those it did carry.