YankeeCandle

The Yankee Candle Company: 

The Yankee Candle Company SMIP Presentation by David Galbraith November 18, 2002

Presentation Guidelines: 

Presentation Guidelines Company Overview Recent News Stock Performance Risk Analysis Stock Valuation Ratio Comparison Recommendation Questions/Comments

Company Overview: 

Company Overview NYSE: YCC Sector: Consumer/Non-Cyclical Industry: Personal and Household Products First Retail Store: 1971 IPO – July 01, 1999 The Company sells scented candles, approximately 170 different fragrances, through a growing wholesale customer network of approximately 13,500 stores primarily in non-mall locations, and through its retail store base located primarily in malls. As of December 29, 2001, Yankee Candle had 192 Company-owned and operated stores in 39 states. Headquartered in South Deerfield, Massachusetts, Yankee Candle employs approximately 3,000 people.

Overview Cont.: 

Overview Cont. The company has a 32-year history of offering distinctive products and marketing them as affordable luxuries and consumable gifts. Its flagship store in South Deerfield is the second-largest tourist destination in Massachusetts, with over 2 ½ million visitors annually. The Yankee Candle Company, Inc. is the leading designer, manufacturer, retailer and wholesaler of premium scented candles in the U.S. with annual sales of $380 million in 2001. Small Market Capitalization: $976,296,000

Recent News: 

Recent News August 21, 2002 – The Yankee Candle Company, Inc. announced the Company’s first advertising campaign designed to raise the level of brand and product awareness and drive consumer traffic in the fourth quarter to Yankee Candle retail stores and participating Yankee Candle Wholesale customer locations. October 7, 2002 – The company launched an online application which allows customers to design custom made scented candles online. October 23, 2002 – Company announced its 3rd quarter results. Sales up 17%, operating profit up 21%, net income up 34% and EPS up 31%. October 23, 2002 - Company announced that it expects 5% to 11% retail sales growth and 11% to 12% wholesale sales growth for the fourth quarter. EPS guidance for the fourth quarter has been adjusted from a range of $0.74 - $0.75 to a range of $0.70 - $0.74

Company Performance: 

Company Performance 52 Week High = 27.68 52 Week Low = 13.80 P/E Ratio = 16.4

YCC Compared to S&P 500: 

YCC Compared to S&P 500 * Outperformed S&P 500 for almost 2 years.

Competition: 

Competition No other competitive publicly traded scented candle manufacturing companies. Some competitive/leading companies in the Personal and Household Products Industry are: Avon Products Inc. (AVP) Gillette Company (G) Proctor and Gamble (PG) Colgate-Palmolive Co. (CL)

Yankee Candle Industry Comparison: 

Yankee Candle Industry Comparison

Annual Balance Sheet: 

Annual Balance Sheet

Balance Sheet Evaluation: 

Balance Sheet Evaluation Positive Asset Growth 1999-2002 Positive Long Term Debt Reduction from 1999-2002 Increasing Retained Earnings and Significant Investment in Treasury Stock Stock Repurchases are a positive sign of a company’s intention to grow.

Annual Income Statement: 

Annual Income Statement

Income Statement Evaluation: 

Income Statement Evaluation Steady Increase in Total Revenue and Gross Profit 1999-2002 Stable Net Income 2000-2001

Annual Cash Flow Statement: 

Annual Cash Flow Statement

Capital Asset Pricing Model: 

Capital Asset Pricing Model K = Rf + (Rm * Beta) Rf = 4.75% Rm = 5.0% Beta = 1.06 Required Rate of Return (K) = 10.05% YCC should yield a 10.05% return on investment.

Risk Grades Analysis: 

Risk Grades Analysis YCC Risk Grade: 240 The Company had increased risk after its IPO, but has become more stable in the past 2 years. Yankee Candle is less risky than 61% of the market.

Stock ValuationIntrinsic Value: 

Stock Valuation Intrinsic Value Free Cash Flow Model - $32.95 Quicken - $32.75 Valuepro.net - $24.48 Current Market Value = $17.55 Average Intrinsic Value = $30.06

EVA and MVA Evaluation: 

EVA and MVA Evaluation EVA: Firm is Creating Shareholder Wealth MVA: Firm is Creating Shareholder Wealth

Ratio Comparison: 

Ratio Comparison

Ratio Analysis: 

Ratio Analysis 5 Yr. Sales Growth of 27.62%, well above the Industry, Sector and S&P 500. 5 Yr. Earnings Growth of 60.66%, also well above the Industry, Sector and S&P 500. Low P/E Ratio (16.5) in comparison to Industry (26.38) is a sign that stock may be undervalued. YCC's total debt/equity ratio (.64) is approx. 73% lower than the industry average (2.36), which means the company is most likely paying a lot less in interest than its competitors. ROE of 38.62 shows that the company has managed its equity efficiently to help build its capital base.

Analyst Ratings: 

Analyst Ratings * Analysts from Quicken, Zacks, and Marketguide all gave Yankee Candle a strong buy recommendation

Summary: 

Summary The Yankee Candle Company is the leading scented candle manufacturing business in its Industry. Relatively low risk and steady growth. Projected to have positive fourth quarter earnings, and should continue with positive earnings in the future. Strong Financials Promising Intrinsic Value Should work to diversify SMIP portfolio, and increase our weight in the Consumer Staples sector. Company has been around for 32 years and appears to be a good long term investment, despite the potential implications from its small market cap., as well as its recent IPO in 1999.

Recommendation: 

Recommendation Buy 65 Shares Purchase Price should be under $21 Set Floor Price of $14 Set Ceiling Price of $30 Shouldn’t necessarily sell at $30, but should reexamine our position at the very least.

Questions/Comments: 

Questions/Comments