Overview of Project
A $900 million retail drug store chain was under-staffed and under-skilled in its financial management area. Therefore, executive management did not have necessary information to understand the economics of its business or to make good decisions, and the performance of the company was suffering. Manchester’s professionals provided interim financial management services that identified the strong and weak financial points of the organization, which led executive management to close under-performing stores. As a result, the chain now has fewer stores, but is operating profitability.

The Challenge
The retail drug store chain had operations throughout the Upper Midwest and Mid-Atlantic area. An entrepreneurial drug store company in Canada owned its U.S. assets, which were financed with a significant amount of debt from recent acquisitions. The client’s Chief Financial Officer was the former Controller who lacked the experience and skills needed to manage a larger organization. In addition, the entire accounting and finance department was under-staffed. Therefore, the company’s executive management was not receiving the financial information it needed to make sound decisions, and the performance of the company was suffering as a result.

The Engagement
Manchester’s professionals were engaged to provide interim Chief Financial Officer services. After our initial analysis, we provided an assessment of the strong and weak financial points of the organization and provided solutions for solving its challenges.

The Solution
Our initial analysis revealed that the company’s sales-to-assets ratio was consistently below the industry group, their cash cycle was too long, their debt level exceeded enterprise value tests, and capital expenditures were 50% below industry average. The company also had excessive accounts payable levels and poor vendor relations. Upon further assessment, we identified the source of these financial problems, which was that one of the divisions was significantly under-performing under most industry measures, but particularly on a sales-per-square-foot basis. We advised the client to close its under-performing stores.

The Impact
Although it was difficult to recognize the store performance issue, ultimately the client accepted what our financial analysis revealed and decided to close its under-performing stores. Today, the drug store chain is smaller in number of stores, but it is profitable and financially more viable than at the time we were engaged.