Nordstrom Financial Statement Analysis

NORDSTROM (JWN) I. Nordstroms oerview Nordstrom is classified as an Upscale Independent Depart manpowert Store Chain and is noted as one of the largest surgical incision memorys of its type. Nordstrom is founded in 1901 by two partners, John W. Nordstrom and Carl F. Wallin. Its headquarter is in Seattle, Washington atomic number 18a. Nordstrom carries a wide variety of merchandise and specialty goods, which includes app bel, shoes, jewelry, cosmetics, fragrances, handbags, accessories, and in some locations, foundation furnishings. Nordstrom is dealing with competition on m each different levels.It is competing with high end stores such(prenominal) as Neiman Marcus and Saks Fifth Avenue. In addition, it is as well as competing with second tier stores such as Macys, Dillards, and Bloomingdales. Dealing with diverse competition, upscale retailer Nordstrom has been famous for superior guest service for over 100 historic period and has been recognized on both 100 Best Companies To Work For list published in Fortune magazine since 1998. Nordstrom operates over 200 retail locations across the country with worldwide tax $10. 9 billion in 2011.It has two reportable segments Retail and Credit. The Retail segment includes 115 Nordstrom full-line stores, 89 off-price Nordstrom shoot stores, two Jeffrey b stunnediques, and one clearance store that operate under the name Last Chance. Nordstrom full-line stores and online store are substantially integrated to provide guests with a seamless shopping experience across channels. The Nordstrom rack stores purchase high-quality name brand merchandise directly from vendors and also serve as outlets for clearance merchandise from Nordstrom stores.The Credit segment includes wholly owned national savings bank, Nordstrom FSB, through which Nordstrom provides a private label credit card, two Nordstrom VISA credit cards and a debit entry entry card for Nordstrom purchases. The credit and debit cards feature a shopping-b ased loyalty program designed to increase customer visits and spending. Although the primary purpose of our Credit business is to foster greater customer loyalty and drive more gross gross, Nordstrom also generate revenues through finance charges and other fees on these cards.In retail department stores, consumers purchases are made within each department because each department is treated separately to achieve economies in promotion, buying, service, and control. Instead of categorizing departments by merchandise, Nordstrom created fashion departments that fit individual lifestyles. The retailers best customers advance from Nordstroms Perpetual list initiative, which provides the right product, at the right place, at the right time. Nordstroms customer service is superior in that they put maintaining a customer relationship their top priority. Its main goal is to provide outstanding service every day, one customer at a time, and support the employees who brook service to those customers. Each Nordstrom employee has a business card, which he or she gives to customers, to encourage them to reach back directly if they need anything. In addition, Nordstrom spends more than less on traditional advertising than its competitors do, and to Nordstrom, satisfied customers are much more persuasive than an ad.Its legendary customer service is a competitive advantage that cant be easily duplicated, and the bon ton spends a lot of time, money, and effort training employees to maintain that distinction. Even in times of economic distress, Nordstrom still maintains an unwavering commitment to fashioning choices that are in the best pursuance of the customer. Therefore, Nordstrom keeps growing and maintains a great pecuniary result in comparison with other department stores. Nordstrom business strategies are 1. Maintaining good relationship with vendors and consumers 2.Maintaining good relationship with employees and providing effective training to them to develop fu ture leaders 3. Expanding into new markets, technological investments, acquisitions and the timely completion of construction associated with fresh planned stores, relocations and remodels. 4. Having effective inventory management efficient and proper allocation of swell resources successful execution of information technology scheme and effective exist control in advertising, marketing, and promotion campaigns. 5.Managing debt levels to maintain an investment grade credit rating as well as operate with an efficient bully twist for its fruit plans and manufacturing II. Company financial proportionality analysis 1. Liquidity Liquidity 2011 2010 2009 2008 2007 Current Ratio 2. 16 2. 57 2. 01 2. 01 2. 06 Cash Ratio 0. 73 0. 80 0. 39 0. 04 0. 22 Cash F first base from Operations Ratio 0. 46 0. 63 0. 62 0. 53 0. 19 Overall regards to liquidity ratios, the higher(prenominal) the number the better however, a too high also indicates that the firms were not using their resources to their full potential. Current ratio of 1. or greater shows that a company can pay its current liabilities with its current assets. JWNs ratio increase from 2. 06 in 2007 to 2. 57 in 2010, and slightly decreased to 2. 16 in 2011. JWNs cash ratio increased significantly from 22% in 2007 to 80% in 2010. JWN has a cash ratio of 73% in 2011, which is useful to creditors when decision making how much debt they would be willing to extend to JWN. In addition, JWN also has moderate CFO ratio of 46%, indicating the companies ability to pay off their short shape liabilities with their operating cash flow. There was a great improvement in JWNs liquidity ratios over the past 5 years.In general, JWN has efficient liquidity ratios which seize the company to cover its seasonal cash necessarily and to maintain appropriate levels of short term borrowings. 2. Activity Activity 2011 2010 2009 2008 2007 Inventory derangement 6. 20 6. 29 5. 93 5. 84 5. 66 Avg. of Days Inventory 58. 83 58. 03 61. 59 62. 53 64. 50 Receivables Turnover 5. 06 4. 51 4. 16 4. 60 7. 35 on the job(p) Capital Turnover 3. 67 3. 89 4. 52 5. 13 5. 98 ameliorate Assets Turnover 4. 54 4. 25 3. 70 4. 08 4. 86 get along Assets Turnover 1. 36 1. 38 1. 35 1. 52 1. 74 duration of Operating Cycle 130. 9 138. 87 149. 38 141. 93 114. 18 I Inventory turnover shows how efficient a firm can keep its inventory turning at a steady flow from the manufacturer to the store and out to the consumer. Therefore, the higher the better because this means the firm is getting its inventory out to consumers at a more efficient pace. JWNs inventory turnover is well-nigh the same in 2011 than in 2010, 6. 20 and 6. 29 respectively, which has slightly higher the number of days inventory from 58 days to 59 days. Same as inventory turnover ratio, AR turnover show how efficient a firm is at asking its receivable.The faster a firm can collect its receivables, the better. JWNs AR turnover has increased from 4. 78 in 2010 to 5. 36 in 2011. An increase in both inventory and AR turnover reduces the Length of Operating Cycle from 139 days to 131 days. In addition, there is also a good sign when JWNs fixed asset turnover and total asset turnover increase. In general, JWN has ability to predict or respond to changes in fashion trends, consumer preferences and spending patterns, and to match its merchandise levels, mix and shopping experience to gross gross revenue trends and consumer tastes, significantly impacts its sales and operating results. . Profitability Profit 2011 2010 2009 2008 2007 Gross Margin 0. 39 0. 39 0. 36 0. 37 0. 39 Return on gross sales 0. 06 0. 06 0. 05 0. 05 0. 08 ROA 0. 09 0. 09 0. 07 0. 07 0. 14 ROE 0. 34 0. 34 0. 32 0. 34 0. 44 Upon evaluation of the operating efficiency, Gross profit margin, Return on sale, ROA, and ROE, JWN did a somewhat good job during the monetary year cease Jan 28th 2012. Gross profit margin, the acquit profit margin, ROA, and ROE take over the same rate for 2011 and 2010, which are 39%, 6%, 9%, and 34% respectively. By evaluating JWNs positiveness ratio, JWN once again is upward looking.ROA is a comprehensive measure of profitability, taking into paper how a firms assets and profits are used to create future profit. ROE is a profitability measure and is influenced by the affiliation between a firms debt and its owners equity. JWN has done an extraordinary job at maintaining moderate ROA and ROE ratio over 5 years period. Analyzing JWNs profitability ratio shows that JWN should continue being profitably in the future. 4. Leverage Leverage 2011 2010 2009 2008 2007 Total Liabilities / Total Equity 3. 34 2. 69 3. 19 3. 68 4. 02 Total Liabilities (BV) / Equity at grocery store 0. 7 0. 48 0. 44 0. 39 0. 39 propagation engagement Earned 9. 61 8. 80 6. 04 5. 95 16. 85 As firms debt grows larger, debt to equity ratio in turn increases. Debt to equity ratio is an important factor in considering a firms credit risk. JWNs debt to equity rati o increases 25% from 2. 69 in 2010 to 3. 34 in 2011. If this ratio decreases, there is less leverage within the firm. The increase in debt to equity ratio is due to the increase in long term debts and the decrease in total investment companyholder equity. Times interest earned ratio is a coverage measure an increase has a positive impact on the firm.There was a significant decrease in Time interest earned ratio from 16. 85 in 2007 to 5. 95 in 2008. However, this ratio increased slightly over years. JWNs Times interest earned has increased from 8. 80 in 2010 to 9. 61 in 2011. Ultimately, JWN generate more than enough income before interest and tax to cover for its interest expense. 5. Market related statistics Like many luxury stores, Nordstrom has seen its sales rebound since late 2009 as well-heeled shoppers have become more comfortable with spending, despite irritability in the stock market.Nordstrom also has worked hard to make it easier to shop by adding Wi-Fi access for shopp ers at all of its full-line department stores, offering expel shipping on or so items without any minimum purchase in September 2010, and fusing its online and in-store inventory systems so shoppers can find out online whats in stock at any given store in the chain. Nordstrom said it expects revenue at its stores open at least a year to rise 4 percent to 6 percent in the current full fiscal year, and it expects to earn $3. 30 to $3. 45 per dispense.JWN analyzes its dividend payout ratio and dividend yield, while taking into consideration its operating performance and capital resources, and plans to target a 25% to 30% dividend payout ratio in 2011. JWN has increased its dividend payout ratio and its dividend yield in 2011, 29% and 1. 9 % respectively. JWN paid dividends of $0. 92 per part in 2011, $0. 76 per share in 2010, and $. 64 per share in each of 2009 and 2008. 6. Quality of financial information Nordstrom uses a more moderate strategy when it comes to its accounting pol icies.It basically uses si milar basic standards as other firms in the industry. Management and select employees of Nordstrom receive stock options and bonuses based on how profitable and how much harvesting the company is, which may lead to intentional accounting distorted shape to increase these benefits. Although distortion would be beneficial to management, the standards used by Nordstrom to account for stock issued to employees seem well disclosed and straight forward. Compared to the accounting policies and thoughts used in the past five years, Nordstrom has not significantly changed any of its accounting standards.Estimates such as returns are based on past returns and performance and have not altered much in recent years. Nordstroms uses its historical data to estimate future performance for the use of the inventory account. Nordstroms accounting policies and estimates seem to have no significant distortions. The changes in policies are well recorded and explained in the footnotes, leaving no concern about their accounting policies. The changes in policies accounting standards and estimates all seem to be legitimate. The manner in which Nordstrom discloses their financial information to the humankind is of extremely high quality.Nordstrom exceeds their expectation of providing customers and shareholders with an adequate explanation for nearly every element of their finances. subsequently the presentation of each financial statement, Nordstrom provides a detailed clearing concerning each component listed in a manner that could be easily interpreted by the common inquirer. In general, Nordstrom effectively communicates their activities with their investors and are relatively free of unpredictable or unexplainable transactions. III. Comparison to the industry average and another store (Dillards)Liquidity JWN DDS Industry Rating-JWN Current Ratio 2. 16 1. 83 1. 15 8 Cash Ratio 0. 73 0. 26 0. 12 8 Cash Flow from Operations Ratio 0. 46 0. 58 - - Lev erage Total Liabilities / Total Equity 3. 34 1. 10 1. 33 4 Total Liabilities (BV) / Equity at Market 0. 57 0. 72 0. 17 4 Times Interest Earned 9. 61 5. 83 7. 41 7 Activity Inventory Turnover 6. 20 3. 12 6. 14 6 Avg. of Days Inventory 58. 83 117. 12 59. 45 6 Receivables Turnover 5. 06 232. 73 22. 91 3 Working Capital Turnover 3. 67 8. 88 40. 9 3 Fixed Assets Turnover 4. 54 2. 54 6. 06 4 Total Assets Turnover 1. 36 1. 47 1. 91 4 Length of Operating Cycle 130. 98 118. 69 75. 38 3 Profit Gross Margin 0. 39 0. 37 0. 29 6 Return on Sales 0. 06 0. 07 0. 06 5 ROA 0. 09 0. 11 0. 11 5 ROE 0. 34 0. 22 0. 25 6 Both JWN and DDS maintained an efficient liquidity ratio which allowed them to cover their seasonal cash needs and to maintain appropriate levels of short term borrowings. DDS do not generate as much profit as JWN but it also has much impose leverage ratio than JWN.JWN has much higher debt to equity ratio than the industry average. However, its Time Interest Earned ratio is bet ter than the industry. JWNs activity ratio seems to be better than DDS, but below the industry average. JWNs Beta is 1. 57 which theoretically indicates 57% more evaporable than the market. DDSs Beta is 2. 53 which is . 96 higher than JWNs Beta and also means more volatile than the market. A beta of greater than1 offers the possibility of a higher rate of return, butalso posesmore risk. In addition, JWN also has much higher dividend payout ratio and dividend yield than DDS.In general, JWN has higher rate of return and less volatile than DDS. JWN has higher dividend yield and lower dividend payout ratio than industry average. The growth and income pick pays an industry-leading dividend yield of 1. 90%. Its ROE and Net profit margin are also higher than the industry average. Nordstrom clearly has a higher return than its competitor and is likely to be more profitable than its competitor and industry. In comparison with DDS and the industry average, it is apparent that there are no co ncerns with the accounting for the components of JWN ratios.JWN was consistently somewhat outperformed its competitor and the industry average. In its industry, JWN is apparently a leader in utilizing its capital to create value for the firm, creating profits, and increasing shareholder value IV. Growth in revenue and income Year Revenue Net income 2011 $10,877 $683 2010 $9,700 $613 2009 $8,267 $441 2008 $8,573 $401 2007 $9,080 $715 2006 $8,666 $678 Statistics JWN YoY growth in revenues 2011 12. 13% YoY growth in net income 2011 11. 42% YoY growth in revenues 2010 17. 33% YoY growth in net income 2010 39. 00%YoY growth in revenues 2009 -3. 57% YoY growth in net income 2009 9. 98% YoY growth in revenues 2008 -5. 58% YoY growth in net income 2008 -43. 92% YoY growth in revenues 2007 4. 78% YoY growth in net income 2007 5. 46% YoY growth in revenues (Average) 12. 13% YoY growth in net income (Average) 11. 42% Nordstrom generates revenues from its credit segment, which consists of a w holly-owned federal savings bank that offers Nordstrom VISA credit and debit cards, and a private label card. Nordstrom also profits from its Faconnable boutiques located in France, Portugal, Belgium and the U.S. The remaining revenues are brought in by the retail store segment the stores speciate in high quality apparel, shoes, cosmetics, and accessories. Nordstrom also sells direct via the internet at www. nordstrom. com. JWNs revenue for 2011 increased 12. 7% compared with 2010 driven by the strength of Nordstrom full-line stores, fast growth in its online business and improving results at Nordstrom Rack. JWN opened three Nordstrom full-line stores, eighteen Nordstrom Rack stores and one Treasure & bond store, relocated two Nordstrom Rack stores, and acquired HauteLook during the year 2011.These additions represented 4. 0% of its total revenue for 2011. Same-store sales increased 7. 2%, with increases of 8. 2% at Nordstrom and 3. 7% at Nordstrom Rack. Nordstroms revenue was in a range of $8 billion to 11 billion from 2007 to 2011. There was a slightly decrease or increase in revenue over 5 years period. Nordstroms net income was in a range of $401 mil to $715 mil. There is a significant decrease in 2007 net income. It went from $715 mil to $401 mil, which is approximately 44% decrease in net income.However, its net income increased dramatically in 2010, from $441 mil in 2009 to $613 mil in 2010, which is nearly 40% increase in net income. In order to predict an accurate forecast for Nordstroms Income Statement, Statement of Cash Flows, and Balance sheet, a sustainable growth rate is needed. After examining Nordstroms past performance and computing past growth rates on Nordstroms financial, Nordstrom has an average growth in revenue and net income 12. 13% and 11. 42% respectively. V. G Growth rate Risk free rate 3. 10% Market rate 10. 00% Beta 1. 58 regulate of return Rf + B(Rm-Rf) 14. 00% of share outstanding 208 EPS 3. 15 P/E ratio 17. 48 have v alue per share 9. 42 Equity Book value/share x of share 1959 Forecasted Net Income EPS x of share 655. 2 Required Income Equity x rate of return 274 Residual Income Forecasted NI Required income 381 Market price per share P/E ratio x EPS 55 Market capital market price x of share 11453 Unrecognized intangible value (UIV) market capital equity 9494 Growth rate (UIV *rate of return)-residual income/UIV 10% With a risk free rate of 3. 0%, market rate of 10%, and JWNs Beta 1. 58, Nordstrom has a rate of return of 14% and growth rate of 10%. The growth rate 10% is slightly lower than the forecasted growth rate 11. 42% in net income and 12. 13% in revenue, based on the its past 5 years financial information. With the growth rate of 10%, the discount rate 14% from CAPM model is high enough for Nordstrom. Without the growth rate, discount rate 14% is too low because the capital market and market price per share will be $4679 million and $22. JWNs market capital and market price per sh are are actually $11,453 million and $55/ respectively.With growth rate of 10%, JWN will have 14% in rate of return. VI. Recommendation about stock After evaluating Nordstroms past performance and forecasted its future growth, there should be a BUY in Nordstrom stock. Nordstrom has established itself as a high-end apparel retailing company. Nordstrom has founded itself upon subtle customer service and an unmatched reputation. Its main competitors are Saks, Dillards, and Neiman Marcus. Nordstroms accounting policies are moderate and very well disclosed they leave no dwell for any potential red flags to be raised. Nordstroms transparent accounting olicies show that the managers have confidence in the firm and its ability to perform. No distortion is used in their statements proving the firms high integrity standards. Upon completion of Nordstroms ratio analysis it is apparent that there should be no concerns as to how Nordstrom compares to its competition. In most cases Nordstrom wa s either average or stood above the competition. There were very few cases where Nordstrom fell behind in its market. Nordstrom would grow at an average 10% percent per year. This is shown through increasing sales and expansion of new stores.Nordstrom has $10,877 million net revenue, $683 million net income, EPS $3. 15, and dividend $. 90/share in fiscal 2012. Nordstrom is expected to have $11,705 Million net revenue, $735 million net income, EPS $3. 48 and dividend $. 90 per share during fiscal year 2013. JWN recently acquired online private sale leader HauteLook Inc, which will abet the company in building its multi-channel retail format. The acquisition will facilitate Nordstrom to increase its direct business capabilities, implement an enterprise-wide inventory management system, direct sales to online customers and enhance customer service.JWNs operations are based on a variable cost business model and about 40% to 45% of selling, general and administrative expenses are variab le in nature. This flexible cost structure not only helps the company to mitigate the impact of sluggish sales trends on margins, but also enables it to quickly capitalize on the emerging opportunities when market conditions recover. Consequently, Nordstrom can expect a steady improvement in profitability moving forward. Nordstrom has 8. 6% increase in same-store sales for the five week period ended March 31st 2012 compared with the five week period ended April 2nd 2012.Total retail sales of $1. 03 billion for March 2012 increased 14. 7% compared with total retail sales of $897 million for the same period in fiscal year 2011. In addition, Nordstrom has a 7. 1% increase in same-store sales for the four-week period ended April 28th, 2012 compared with the four-week period ended April 30th, 2011. Preliminary total retail sales of $802 million for April 2012 increased 10. 5% compared with total retail sales of $726 million for the same period in fiscal 2011. First quarter same-store sal es increased 8. 5% compared with the same period in fiscal 2011.First quarter total retail sales of $2. 53 billion increased 13. 7% compared with total retail sales of $2. 23 billion for the same period in fiscal 2011. In addition, JWN also invests 16. 4 million USD in Bonobos, an exclusive brand of men? s clothes that sells pants and other clothes online. Nordstrom will also sell Bonobos products through its online store and through more than 100 brick and mortar stores. This conk out is one of Nordstrom? s efforts to capitalize on the growth opportunities and innovation potential that the web provides, which reflects a smart decision from a dynamic management team.