Less is More: Downsizing to Increase Profits

TypeFixing Stuck Companies
Quick Facts$125M multi-location retailer (“SportsCo”) located in the southeastern U.S. Majority owned by two private equity groups. The original, founding management team had been replaced.
ChallengesSportsCo’s private equity investors had decided (based upon an earlier project with McHugh & Company) not to sell the business and attempt to improve the operations. However, after a few months, the management team was not aggressive enough at managing working capital and spending controls. The financial condition continued to deteriorate.
ApproachMcHugh & Company was asked to take a deeper look into the company’s financial situation. We organized a new “out of the box” review of SportsCo by analyzing various combinations of the 12 operating units. After a more thorough view of the profitability (or lack thereof…) of each business unit, we concluded that 7 of the 12 units produced more operating profit than the 12 combined. This conclusion started a long process of restructuring.
ResolutionThis project caused SportsCo to:
  • immediately close two severely underperforming operations
  • sell 3 small locations that did not fit from a geographical and size standpoint
  • completely change the scope and size of the “corporate office”
  • decentralize the IT function so that the key operational systems were under control of the store managers
  • realign the roles and responsibilities of the management team; hire new business unit managers
  • improve customer service and quality
  • restructure the senior debt

The NEW SportsCo is a leaner, simpler and much more profitable enterprise.

Links to the other fixing stuck company cases:
  1. Establishing Focus in a Family Business
  2. It’s Only a Matter of Time Until Sales Take Off

To view a list of all McHugh & Company Case Studies, click here.