Sales growth will be aggressive the first 18 months as we sharpen our merchandise assortment, size scales, and stock levels to better meet our customer's requirements. We anticipate a sales increase of 33% during our second year of operation.
Marketing will continue to average 3% of total sales.
We will invest residual profits into reducing debt and the lost income from large cash holdings.
Company expansion, while not a necessity, will be an option if sales projections are met and/or exceeded.
We predict that during the second year of operation, our high level of customer service and strong assortment will allow us to generate approximately 5% profit. This will be above the normal two to three year period required for a start-up retailer. Our sales projections are conservative. Should sales increase as we anticipate, the profit-to-sales ratio could be as high as 10% by the end of year three.
A Break-even Analysis table has been completed on the basis of average costs/prices. With fixed costs, per average sale and average variable costs, we need monthly sales, as shown below, to break even.
We are positioning ourselves as a minimal risk concern, with steady cash flows. While we have not accounted for it in the projections, we anticipate receiving two or three months free base rent after store opening. That will help us reduce costs and increase marketing during the start-up period. We have allowed for a more aggressive cash balance initially, to allow us to react quickly to unforseen merchandise needs, missed classifications, "hot item" reorders and hopefully, higher than anticipated sales. This is particularly important for our first back to school and holiday sales periods. If we capture previous "mall customers" as anticipated, our sales could increase as much as 25% during the first two quarters of operations.
Once we have established a required cash balance level, (approximately six months after opening), we will reduce the projected cash balance to decrease debt and decrease the opportunity of cash held.
All of our tables will be updated monthly to reflect past performance and future assumptions. Future assumptions will not be based solely on past performance but rather on economic cycle activity, regional retail indicators, national athletic footwear trends, and future cash flow possibilities. We have been, and will continue to be, working with an experienced partner in a large and well respected regional CPA firm, who has both personal and professional experience in start-up retail operations.
We expect solid growth in net worth beyond the first fiscal year of operation.
The following table contains important business ratios for the retail athletic shoe store industry, as determined by the Standard Industry Classification (SIC) Index code 5661.
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