MBA 503 Team Presentation

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  • 2008 Repurchased 1.8 M shares for $17.4 M 2010 Repurchased 7.2 M shares for $182 M
  • Buyback program decreasing number of common stock (started in 2007)
  • MBA 503 Team Presentation

    1. 1. Team Industry Analysis Retail Department Stores <ul><li>Denise Chittick – JC Penney </li></ul><ul><li>Rick Cicchetti – Macy’s </li></ul><ul><li>Josh Corriveau – Kohl’s </li></ul><ul><li>Todd Weston – Dillard’s </li></ul>
    2. 2. Dillard’s The Style of Your Life.
    3. 3. Dillard’s The Style of Your Life. <ul><li>Founded in 1938 </li></ul><ul><li>Still operated by the Dillard family </li></ul><ul><li>$6.1 Billion in Net Sales </li></ul><ul><li>308 Stores in 29 States </li></ul><ul><li>Employs 38,900 associates </li></ul><ul><li>Key Performance Indicators (KPI’s) </li></ul><ul><ul><li>Net Sales </li></ul></ul><ul><ul><li>Gross Profit </li></ul></ul><ul><ul><li>Gross Profit as a Percent of Net Sales </li></ul></ul><ul><ul><li>Comparable Store Sales Trend </li></ul></ul><ul><ul><li>Sales per Square Foot </li></ul></ul><ul><ul><li>Total Store Count for the Period </li></ul></ul><ul><ul><li>Average Days Supply of Inventory </li></ul></ul><ul><ul><li>Cash Flow from Operations </li></ul></ul>
    4. 4. Dillard’s Net Income
    5. 5. Dillard’s Net Sales & Gross Profit (KPI)
    6. 6. Dillard’s Comparable Store Sales Trend (KPI)
    7. 7. Dillard’s Average Days Supply of Inventory (KPI)
    8. 8. Dillard’s Cash Flow from Operations (KPI)
    9. 9. Dillard’s Earnings Per Share
    10. 10. Dillard’s Stock Price History
    11. 11. Dillard’s P/E Ratio
    12. 12. Dillard’s Component Percentages   2010 2009 2008 2007 2006 Net sales 100% 100% 100% 100% 100% Cost of sales 64.96% 67.32% 70.68% 66.41% 68.35% Gross Profit 35.04% 32.68% 29.32% 33.59% 31.65% Advertising, SG&A expenses 26.56% 26.97% 28.30% 28.66% 28.47% Depreciation & amortization 4.27% 4.31% 4.16% 4.15% 4.09% Rentals 0.83% 0.96% 0.90% 0.83% 0.75% Interest and debt expense, net 1.21% 1.21% 1.30% 1.27% 1.19% Gain on disposal of assets -0.09% -0.05% -0.36% -0.18% -0.22% Asset impairment 0.04% 0.05% 2.90% 0.28% 0.00% Income before taxes and equity 4.39% 1.39% -5.56% 0.84% 3.45% Income taxes 1.38% 0.21% -2.06% 0.18% 0.28% Equity in losses of joint ventures -0.08% -0.05% -0.02% 0.09% 0.17% Net income 2.93% 1.12% -3.51% 0.75% 3.34%
    13. 14. <ul><li>Founded by James Cash Penney in 1902. </li></ul><ul><li>1,106 Stores in all 50 states and Puerto Rico. </li></ul><ul><li>Employs 156,000 associates. </li></ul><ul><li>$17.5 Billion in Net Sales in 2010. </li></ul><ul><li>Numerous private label brands. Exclusivity on some brands including Liz Claiborne and Sephora. </li></ul><ul><li>Website accounts for 8.6% of net sales. </li></ul>
    14. 15. <ul><li>ROE and ROA saw slight improvement in 2010 as a result of improving net income. </li></ul><ul><li>Quality of income dropped from 2009 because of a drop in cash flows from operating activities. This is primarily attributable to a large voluntary contribution to the pension plan and an increase in inventory. </li></ul><ul><li>The drop in cash flows also affected the Cash Coverage Ratio negatively in 2010. </li></ul>Comparison over time Profitability and Financial Analysis 2010 2009 2008 2007 2006 Return on Assets (ROA) 4.2% 3.3% 5.4% 9.8% 9.8% Return on Equity (ROE) 7.6% 5.6% 12.1% 23.1% 27.8% Quality of Income 1.52 6.27 2.02 1.12 1.09 Cash Coverage Ratio 2.3 6.0 4.4 4.4 4.1
    15. 16. <ul><li>EPS suffered over the past few years, but is on the rise in 2010. </li></ul><ul><li>JCPenney has a good P/E ratio indicating that earnings are expected to grow rapidly; however, other factors make this unlikely. </li></ul><ul><li>Company has maintained historic $.80 annual dividend. </li></ul><ul><li>The dividend yield ratio is low, but the payout of dividends is almost certain to continue. </li></ul>Comparison over time Investor and Market Analysis 2010 2009 2008 2007 2006 Earnings Per Share (EPS) $1.65 $1.10 $2.57 $4.92 $4.78 Price Earnings Ratio 19.56 24.12 7.26 8.90 16.17 Dividends Yield Ratio 2.5% 3.0% 4.3% 1.8% 1.0%
    16. 17. <ul><li>Total Net Sales decreased in 2008 and 2009, but increased in 2010. </li></ul><ul><li>Comparable Store Sales followed a similar pattern. </li></ul><ul><li>Profit margin declined from previous highs as result of need to increase promotions on merchandise to drive sales. As the consumer returns to the malls, promotions will decline and the profit margin should recover. </li></ul><ul><li>Sales per square foot are healthy compared to others in category and the turnover is inline with expectations for retailers. </li></ul><ul><li>In 2010, company ceased catalog sales and closed outlet stores which cut some operating costs, but also affected net income. Additionally, they substantially cut back on new store openings. Since growth is not going to be generated by new stores over the next few years, JCP must continue to find ways to positively impact sales per square foot. </li></ul>Comparison over time Operations Analysis 2010 2009 2008 2007 2006 Total net sales (% inc) 1.2% (5.0%) (6.9%) 1.1% 4.6% Comparable store sales 2.5% (6.3%) (8.5%) 0.0% 4.9% Profit Margin 2.2% 1.4% 3.1% 5.6% 5.8% Sales per gross square foot $153 $149 $160 $177 n/a Inventory Turnover 104.3 107.4 107.4 107.4 101.4 New Store Opening 2 17 26 34 28
    17. 18. Conclusions <ul><li>JC Penney is a financially healthy company and, as long as consumers return to the malls, investors will likely continue to see moderate gains in the stock price; however, investors are unlikely to see dramatic returns in the next few years. </li></ul><ul><li>No new store openings means that the company must increase net sales through comparable store sales (e.g., sales per gross square foot). </li></ul><ul><li>JC Penney is struggling with differentiating itself from its competitors. Without some way to accomplish this, it is unlikely that their sales will increase dramatically. </li></ul><ul><li>Recommendation = hold </li></ul>
    18. 20. Quick Macy’s Inc Facts <ul><li>Incorporated in Nov 1929 as Federated Department Stores </li></ul><ul><ul><li>Renamed Macy’s Inc in June 2007 </li></ul></ul><ul><li>810 Macy’s department stores in 45 states </li></ul><ul><li>41 Bloomingdale’s stores in 12 states </li></ul><ul><li>161,000 employees </li></ul><ul><li>$25 billion in sales 2010 </li></ul><ul><li>Opened 2 new Macy’s, 1 new Bloomingdale’s store, 4 new Bloomingdale’s Outlet stores in 2010. </li></ul><ul><ul><li>2011 plans are to open 3 new Bloomingdale’s Outlet stores and re-open 1 Macy’s that was closed due to flood damage. (RI) </li></ul></ul>
    19. 21. <ul><li>Net profit margin took a severe hit in 2008 and has been on a steady recovery since. </li></ul><ul><li>Net sales followed the “recession” in 2008 and is trending to follow the “recovery”. </li></ul><ul><li>Days of Inventory on hand held relatively steady, showing slight improvement. </li></ul><ul><li>Same store sales continued to move in the wrong direction in 2009, however showed vast improvement in 2010 and is up 0.9% in the first qtr of 2011. </li></ul>Key Financial Indicators   2010 2009 2008 2007 2006 Net Profit Margin % 3.39% 1.40% -19.18% 3.39% 3.69% Net Sales $25B $23.5B $24.9B $26.3B $26.9B Days Inventory On Hand 115 123 120 121 123 Same Store Sales % (0.70) (5.30) (4.60) (1.30) 4.40
    20. 22. Ouch!
    21. 23. Macy’s ROA Macy’s is improving its effective use of the money it has to invest into net income. Macy’s ROE Macy’s has greatly improved their ability to use investment funds to Generate growth in earnings.
    22. 24. Net vs Comp-Store Sales The graph shows that through the recession Macy’s held off on opening new stores, as comp and net sales losses were closely aligned. 2010 showed improvement in comp-store sales of +4.6% which was over 2% better than projected. It also shows a large growth in net sales % due to opening new stores and re-opening 2 stores that had been closed for 2 years.
    23. 25. Macy’s Current Ratio With a current ratio consistently over 1, we see that Macy’s is adequately capable of paying it’s current liabilities (debt and payable) with it’s current assets (cash, inv, recv)
    24. 27. <ul><li>Founded in 1988 in Wisconsin </li></ul><ul><li>Focuses on quality private brands and exclusive “Only at Kohl’s” brands </li></ul><ul><li>1,089 stores in 49 states </li></ul><ul><li>2 primary goals </li></ul><ul><ul><li>Accelerate sales growth through merchandise variation, store presentation, and catering to regional preferences </li></ul></ul><ul><ul><li>Improve store experience to increase loyalty and develop market share </li></ul></ul>
    25. 31. Operating Expenses vs. Gross Profit Margin
    26. 33. Industry Comparison Dillard’s The Style of Your Life.
    27. 34. Gross Profit Margin
    28. 35. Net Profit Margin
    29. 36. Average Days Supply of Inventory
    30. 37. Current Ratio
    31. 38. Earnings Per Share
    32. 39. Conclusions <ul><li>Kohl’s “weathered” the recession better than the industry as a whole. </li></ul><ul><li>Macy’s is an industry giant that could afford to make a few mistakes and still come back to life. </li></ul><ul><li>JC Penney responded well (albeit slowly) to the economic conditions and is still recovering. </li></ul><ul><li>Dillard’s is the smallest of the four and found it necessary to respond quickly in order to survive. </li></ul>
    33. 40. Conclusions <ul><li>Team Recommendations: </li></ul><ul><ul><li>Kohl’s – Buy </li></ul></ul><ul><ul><li>Macy’s – Hold </li></ul></ul><ul><ul><li>JC Penney – Hold </li></ul></ul><ul><ul><li>Dillard’s – Hold </li></ul></ul><ul><li>Analyst Ratings * </li></ul><ul><ul><li>Kohl’s – 1.7 </li></ul></ul><ul><ul><li>Macy’s – 1.9 </li></ul></ul><ul><ul><li>JC Penney – 2.7 </li></ul></ul><ul><ul><li>Dillard’s – 2.0 </li></ul></ul><ul><ul><li>* Source – Yahoo! Finance [Scale 1.0 (Strong Buy) to 5.0 (Sell)] </li></ul></ul>

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