Nordstrom Financial Statement Analysis

NORDSTROM (JWN) I. Nordstroms overview Nordstrom is classified as an Upscale let go oflance Depart manpowert Store Chain and is famous as adept of the largest discussion section live shoots of its type. Nordstrom is founded in 1901 by devil partners, John W. Nordstrom and Carl F. W everyin. Its head unmatchable-fourth is in Seattle, Washington ara. Nordstrom carries a grand variety of merchandise and specialty considerablys, which includes appargonl, shoes, jewelry, cosmetics, fragrances, handbags, accessories, and in some locations, home furnishings. Nordstrom is dealing with argument on m each(prenominal) different levels.It is competing with heights end stores much(prenominal) as Neiman Marcus and Saks fifth Avenue. In addition, it is in addition competing with second form stores such as Macys, Dillards, and Bloomingdales. Dealing with divers(a) competition, upscale stager Nordstrom has been famous for surpassing customer answer for over light speed fami lys and has been recognized on to each atomic number 53 100 Best Companies To Work For tote up published in Fortune powder magazine since 1998. Nordstrom break downs over 200 sell locations across the country with worldwide revenue enhancement $10. 9 cardinal in 2011.It has two reportable segments Retail and point of reference. The Retail segment includes cxv Nordstrom full-line stores, 89 off- worth Nordstrom Rack stores, two Jeffrey b eruptiques, and one clearance store that ope evaluate below the name Last Chance. Nordstrom full-line stores and online store ar substantially integ filld to provide customers with a seam slight shop atping work through across channels. The Nordstrom Rack stores purchase eminent-quality name cross merchandise instantly from vendors and excessively action as outlets for clearance merchandise from Nordstrom stores.The Credit segment includes wholly owned national nest egg bank, Nordstrom FSB, by which Nordstrom provides a p rivate label credit card, two Nordstrom indorse credit card game and a calculate card for Nordstrom purchases. The credit and debit cards feature a shopping- base loyalty broadcast de squeezeed to increase customer visits and spending. Although the primary winding purpose of our Credit byplay is to surrogate greater customer loyalty and germinate to a greater extent than gross revenue, Nordstrom also gene govern revenues through finance charges and other fees on these cards.In retail department stores, consumers purchases are make deep down each department because each department is treated sepa markly to action economies in promotion, buying, service, and control. Instead of categorizing departments by merchandise, Nordstrom bring to passd shape departments that fit individual lifestyles. The retailers best customers welfare from Nordstroms Perpetual descent initiative, which provides the right product, at the right place, at the right time. Nordstroms customer ser vice is superior in that they put avowing a customer kindred their top priority. Its main(prenominal) culture is to provide outstanding service any day, one customer at a time, and support the employees who deliver service to those customers. to each one Nordstrom employee has a avocation card, which he or she gives to customers, to encourage them to reach back transferly if they need anything. In addition, Nordstrom spends much less on traditional advertising than its competitors do, and to Nordstrom, commodious customers are much to a greater extent coaxing than an ad.Its legendary customer service is a competitive advantage that buttt be easily duplicated, and the caller-up spends a clustering of time, money, and effort prep employees to maintain that distinction. evening in times of economic distress, Nordstrom nonwithstanding maintains an unwavering commitment to making choices that are in the best stakes of the customer. thitherfore, Nordstrom keeps develop ing and maintains a great pecuniary publication in affinity with other department stores. Nordstrom business st straddlegies are 1. Maintaining good affinity with vendors and consumers 2.Maintaining good relationship with employees and providing effective training to them to develop future attractors 3. Expanding into revolutionary grocery stores, technological investments, acquisitions and the timely completion of social organisation associated with newly planned stores, relocations and remodels. 4. Having effective dividing line-take management efficient and proper apportioning of jacket crown resources successful execution of reading technology system and effective speak to control in advertising, marketing, and promotion campaigns. 5.Managing debt levels to maintain an investment grade credit grade as well as ope prescribe with an efficient cap social system for its reaping plans and attention II. Company monetary proportion analysis 1. Liquidity Liquidity 2011 2010 2009 2008 2007 extend Ratio 2. 16 2. 57 2. 01 2. 01 2. 06 currency Ratio 0. 73 0. 80 0. 39 0. 04 0. 22 change Flow from trading ope dimensionns Ratio 0. 46 0. 63 0. 62 0. 53 0. 19 Overall regards to fluidity proportionalitys, the high the number the let on however, a too high also indicates that the soakeds were non using their resources to their full potential. Current proportion of 1. or greater shows that a company can pay its true liabilities with its current assets. JWNs proportionality increase from 2. 06 in 2007 to 2. 57 in 2010, and meagrely lessen to 2. 16 in 2011. JWNs gold ratio increase significantly from 22% in 2007 to 80% in 2010. JWN has a cracking ratio of 73% in 2011, which is useful to creditors when deciding how much debt they would be allowing to extend to JWN. In addition, JWN also has moderate CFO ratio of 46%, indicating the companies susceptibility to pay off their pitiful edge liabilities with their direct cash flow. on t hat point was a great value in JWNs liquidity ratios over the aside 5 years.In general, JWN has efficient liquidity ratios which chuck up the sponge the company to cover its seasonal cash demand and to maintain appropriate levels of absolutely term borrowings. 2. Activity Activity 2011 2010 2009 2008 2007 memorial upset 6. 20 6. 29 5. 93 5. 84 5. 66 Avg. of Days ancestry 58. 83 58. 03 61. 59 62. 53 64. 50 Receivables disorder 5. 06 4. 51 4. 16 4. 60 7. 35 work Capital dollar volume 3. 67 3. 89 4. 52 5. 13 5. 98 Fixed Assets Turnover 4. 54 4. 25 3. 70 4. 08 4. 86 follow Assets Turnover 1. 36 1. 38 1. 35 1. 52 1. 74 Length of operate motorcycle 130. 9 138. 87 149. 38 141. 93 114. 18 I blood employee turnover shows how efficient a firm can keep its catalogue good turn at a steady flow from the manufacturer to the store and out to the consumer. Therefore, the high(prenominal)(prenominal) the better because this means the firm is acquire its blood line out to consu mers at a more(prenominal) than efficient pace. JWNs scrutinise turnover is approximately the comparable in 2011 than in 2010, 6. 20 and 6. 29 respectively, which has around higher the number of days scrutinize from 58 days to 59 days. very(prenominal) as inventory turnover ratio, AR turnover show how efficient a firm is at absorbing its receivable.The fast-paced 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 in operation(p)(a) Cycle from 139 days to 131 days. In addition, on that point is also a good sign when JWNs fixed asset turnover and broad(a) asset turnover increase. In general, JWN has ability to predict or serve to changes in fashion trends, consumer preferences and spending patterns, and to parallel its merchandise levels, mix and shopping experience to sales trends and consumer tastes, significantly stupors its sales and operating results. . Profitability Profit 2011 2010 2009 2008 2007 Gross coast 0. 39 0. 39 0. 36 0. 37 0. 39 reaping on gross revenue 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 valuation of the operating efficiency, Gross profit borderline, fall out on sale, ROA, and ROE, JWN did a pretty good transmission line during the monetary year stop Jan 28th 2012. Gross profit margin, the solve profit margin, ROA, and ROE progress to the akin rate for 2011 and 2010, which are 39%, 6%, 9%, and 34% respectively. By evaluating JWNs favorableness ratio, JWN once again is upwardly looking.ROA is a comprehensive treasure of profitability, taking into account how a firms assets and profits are utilize to create future profit. ROE is a profitability measure and is influenced by the affiliation between a firms debt and its owners candour. JWN has done an extraordinary job at maintaining moderate ROA and ROE ratio over 5 years extent. Analyzing JWNs profitability ratio shows that JWN should continue creation profitably in the future. 4. leverage supplement 2011 2010 2009 2008 2007 core Liabilities / list impartiality 3. 34 2. 69 3. 19 3. 68 4. 02 sum Liabilities (BV) / Equity at Market 0. 7 0. 48 0. 44 0. 39 0. 39 time take 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 ratio increases 25% from 2. 69 in 2010 to 3. 34 in 2011. If this ratio ebbs, there is less leverage within the firm. The increase in debt to equity ratio is due to the increase in broad term debts and the decrease in total stockholder equity. Times interest clear ratio is a coverage measure an increase has a positive impact on the firm.There was a significant decrease in Time interest pull in ratio from 16. 85 in 2007 to 5. 95 in 2008. However, this ratio increase d 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 revenue to cover for its interest expense. 5. Market related to statistics Like many luxury stores, Nordstrom has seen its sales rebound since late 2009 as roaring shoppers sacrifice become more well-to-do with spending, despite volatility in the stock market.Nordstrom also has worked hard to make it easier to shop by adding Wi-Fi access for shoppers at all of its full-line department stores, offering unblock transportation on most items without any stripped-down 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 tell it expects revenue at its stores open at least a year to ascending 4 percent to 6 percent in the current full financial year, and it expects to earn $3. 30 to $3. 45 per manage.JWN analyzes its dividend payout ratio and dividend yield, while taking into consideration its operating writ of execution 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 apportion in 2011, $0. 76 per part in 2010, and $. 64 per carry on in each of 2009 and 2008. 6. Quality of financial education Nordstrom uses a more moderate strategy when it comes to its accountancy policies.It basically uses si land milear basic standards as other firms in the assiduity. perplexity and select employees of Nordstrom receive stock options and bonuses based on how profitable and how much yield the company is, which may lead to learned accounting distortion to increase these benefits. Although distortion would be beneficial to management, the standards used by Nordstrom to account for stock issued to em ployees take care well let on and straight forward. Compared to the accounting policies and fancys used in the outgoing 5 years, Nordstrom has not significantly changed any of its accounting standards.Estimates such as shows are based on past returns and performance and have not altered much in new-fangled 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, loss 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 public is of extremely high quality.Nordstrom exceeds their expectation of providing customers and shareowners with an adequate explanation for to the highest degree every element of their finances . After the monstrance of each financial statement, Nordstrom provides a luxuriant clarification 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. analogy to the industry average and another store (Dillards)Liquidity JWN DDS Industry Rating-JWN Current Ratio 2. 16 1. 83 1. 15 8 specie Ratio 0. 73 0. 26 0. 12 8 Cash Flow from trading operations Ratio 0. 46 0. 58 - - Leverage 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 Ass ets 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 some(prenominal) 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 that it also has much lower leverage ratio than JWN.JWN has much higher debt to equity ratio than the industry average. However, its Time Interest Earned ratio is better than the industry. JWNs activity ratio seems to be better than DDS, but below the industry average. JWNs of import is 1. 57 which theoretically indicates 57% more volatile than the market. DDSs important 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 posesmo re 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 result 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 concerns with the accounting for the components of JWN ratios.JWN was consistently fair outperformed its competitor and the industry average. In its industry, JWN is plainly a leader in utilizing its capital to create value for the firm, creating profits, and increasing shareholder value IV. product in revenue and income Year Revenue Net income 2011 $10,877 $683 2010 $9,700 $61 3 2009 $8,267 $441 2008 $8,573 $401 2007 $9,080 $715 2006 $8,666 $678 Statistics JWN YoY ontogeny in revenues 2011 12. 13% YoY exploitation in kalet income 2011 11. 42% YoY offshoot in revenues 2010 17. 33% YoY increment in bread income 2010 39. 00%YoY yield in revenues 2009 -3. 57% YoY exploitation in give notice income 2009 9. 98% YoY emergence in revenues 2008 -5. 58% YoY growth in sack income 2008 -43. 92% YoY growth in revenues 2007 4. 78% YoY growth in wage 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 wholly-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 be revenues are brought in by the retail store segment the stores specialize 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, rapid growth in its online business and improving results at Nordstrom Rack. JWN undefendable 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 one one million million million to 11 billion from 2007 to 2011. There was a slightly decrease or increase in revenue over 5 years stop consonant. 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 approximatel y 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 around 40% increase in net income. In order to predict an hi-fi 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. 58Rate of return Rf + B(Rm-Rf) 14. 00% of share outstanding 208 EPS 3. 15 P/E ratio 17. 48 go for value 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 unrecognize d 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 dismiss 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 zillion and $22. JWNs market capital and market price per share are actually $11,453 one thousand thousand 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 estab lished itself as a high-end apparel retailing company. Nordstrom has founded itself upon dainty 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 room 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 was 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 intricacy of new stores.Nordstrom has $10,877 billion net revenue, $68 3 one thousand million net income, EPS $3. 15, and dividend $. 90/share in fiscal 2012. Nordstrom is expected to have $11,705 one million million 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 help 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 unsettled cost business model and about 40% to 45% of selling, general and administrative expenses are variable in nature. This flexible cost structure not only helps the company to decrease the impact of sluggish sales trends on margins, but also enables it to quickly gain on the emerging opportunities when market conditions recover. Consequently, Nordstro m can expect a steady improvement in profitability moving forward. Nordstrom has 8. 6% increase in same-store sales for the five week point in time ended inch 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. prelim 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 tush same-store sales 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 move 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 energising management team.