Financial Analysis Assignment
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I chose to analyze financial performance of Nordstrom Inc. in this paper, because this is a specialty retailer with a long history, stable financial position, famous brand and loyal customers. It operates in two segments such as Credit and Retail. The Retail segment includes 117 full-line stores, 119 Nordstrom Rack locations, two Jeffrey boutiques, one clearance store and Nordstrom.com that serve customers in 44 countries and 31 states. The Company’s Credit segment comprises its entirely owned federal savings bank, Nordstrom fsb, by means of which provides two Nordstrom VISA credit cards, a private label credit card and a debit card. Therefore, it is reasonable to investigate its operations, financial position, make a 3-year trend analysis and compare it with major competitors and Industry Standards.
Summary of Operations ($000)
According to news release (2013), Nordstrom Inc. achieved net sales of $11,762,000; income before taxes of $1,185,000; net income of $735,000 (all numbers in thousands). Operating margin was 11, 5%. The company’s gross margin was 42.4%. Therefore, Nordstrom Inc. had record net sales, which demonstrated an increase of 12.1 percent compared with 2011. Moreover, the company managed to reduce the percentage of sales devoted to income tax expense from 4.15% to 3.83%. As a result, net income increased from $683,000 to $735,000. Besides, the retailer achieved higher operating margin (11.5%) then its major competitors Saks (4.92%) and Macy’s (9.05%). However, the company’s gross margin is slightly lower (42.4%), comparing with Macy’s (44.51). Nevertheless, Macy’s and Nordstrom have different stated numbers, because Nordstrom accounts the costs of occupancy and buying as part of cost of sold goods and, therefore, has reduced gross profit margin. On the contrary, Macy’s accounts for buying and occupancy’s costs as part of general and administrative expenses and selling (Lin, 2012).
Financial Position ($000)
Company’s new release (2013) demonstrates, that working capital of the company achieved of $2,855,000; net property, plant & equipment of $2,579,000; total assets of $5,081,000; long-term assets of $2,579, 000; and stockholder’s equity of $1,913,000 (all numbers in thousands).
Total current assets and total liabilities were reduced in 2012. Therefore, the company’s working capital decreased as well. The difference, comparing with 2011 was $130 million. Besides, net property, plant & equipment decreased as well (the difference with 2011 - $3.7 billion). Total assets also became lower due to reducing of long-term assets and current assets. The decrease, comparing with 2011 is $402 million. The stockholders’ equity declined from 1,956,000 in 2011 to 1,913,000 in 2012. Therefore, all rates that demonstrate financial position of the company decreased in 2012. On the other hand, Macy’s (one of Nordstrom’s competitors) also had decrease of several financial rates (Macy’s, 2013). Thus, tendencies in retail industry can explain slight decline of Nordstrom Inc.
Current liquidity ratio = 5,081,000/2,226,000=2.3.
Quick ratio - 1.3
Cash ratio - 0.58
LT Debt/Equity – 1.12
Interest Cover – 0.0
Gross Profit Margin – 41.9
Net Profit Margin – 6.1
Total Assets Turnover -1.5
Analysis of liquidity ratios for the last three years shows that Nordstrom’s rates almost did not change. It indicates the financial stability of the company. Moreover, Macy’s (one of the main competitors) has a lower liquidity (Current Ratio – 1.6, Quick Raatio – 0.4, Cash Ratio – 0.36).
However, Nordstrom looks more risky than Macy’s according to LT Debt/Equity (LT Debt/Equity of Macy’s – 1.12). Furthermore, it possibly means that Nordstrom has more debts. Interest coverage of both companies was zero in 2012 according to their financial reports. It can mean that companies have difficulties with paying its interests. Profitability ratios demonstrate the company’s stability during the last three years. For example, 5-year average Gross Profit Margin is 41.3 for Nordstrom and 5-year average Net Profit Margin is 5.8. However, Gross Profit Margin of Macy’s was higher in 2012 – 44.3. On the other hand, Net Margin was lower – 4.8. The reason of these differences is various accounting of expenses. Efficiency Ratios highlight how effective management is at using both short-term and long-term assets. Therefore, efficiency Nordstrom’s management was higher for retail industry and bigger than rates of Macy’s.
Historical View of the Financial Performance
3-year Trend Analysis for Relevant Financial Performance Variables
The major competitors of Nordstrom Inc. are Macy’s and Saks. The charts demonstrate that Nordstrom and its competitors had increase of revenues during last four years. Besides, Macy’s and Nordstrom achieved stable growth of net income during last three years. Nevertheless, net income of Saks decreased last year, comparing with previous years. At the same time, profit margin of Saks and Nordstrom raised and profit margin of Macy’s reduced (Appendixes B, E, F). Overall, all three companies demonstrated stable financial performance and a slight growth.
Financial trends of Nordstrom Inc. coincide with trends of retail industry. For example, “retail sales in the U.S. totaled an estimated $4.920 trillion during 2012, according to Plunkett Research. Total sales were $4.648 trillion in 2011 according to the U.S Census Bureau, and $4.308 trillion in 2010” (Plunkett Research, Ltd.).
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