Nordstrom Financial Statement Analysis

NORDSTROM (JWN) I. Nordstroms everywhereview Nordstrom is classified as an Upscale Indep devastati mavinnt section Store Chain and is noned as one of the largest segment keeps of its type. Nordstrom is founded in 1901 by both partners, John W. Nordstrom and Carl F. Wallin. Its head posterior is in Seattle, Washington argona. Nordstrom carries a wide variety of merchandise and specialty goods, which includes app arl, shoes, jewelry, cosmetics, fragrances, handbags, accessories, and in some locations, billet furnishings. Nordstrom is dealing with competition on many different levels.It is competing with high end stores such as Neiman Marcus and Saks Fifth Avenue. In addition, it is as well as competing with second grad stores such as Macys, Dillards, and Bloomingdales. Dealing with diverse competition, upscale seller Nordstrom has been historied for quality customer service for over 100 forms and has been recognised on every 100 Best Companies To Work For list publish i n Fortune magazine since 1998. Nordstrom ope respects over 200 sell locations crosswise the country with worldwide revenue $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 thrust stores, two Jeffrey boutiques, and one headroom store that operate under the take in Last Chance. Nordstrom full-line stores and online store are substantially integrated to provide customers with a seamless shop experience across channels. The Nordstrom Rack stores purchase high-quality quote brand merchandise assumely from vendors and besides serve as outlets for clearance merchandise from Nordstrom stores.The Credit segment includes wholly owned federal savings bank, Nordstrom FSB, by means of which Nordstrom provides a private label belief card, two Nordstrom indorse credit cards and a account card for Nordstrom purchases. The credit and debit cards feature a shopping- ground loyalty pr ogram designed to sum up customer visits and spending. Although the primary purpose of our Credit line of descent is to foster great customer loyalty and drive more(prenominal)(prenominal)(prenominal) gross gross gross revenue, Nordstrom also generate revenues through with(predicate) finance charges and another(prenominal) fees on these cards.In retail plane section stores, consumers purchases are made within each department because each department is tough separately to achieve economies in publicity, buying, service, and control. Instead of categorizing departments by merchandise, Nordstrom created fashion departments that break individual lifestyles. The retailers best customers benefit from Nordstroms Perpetual Inventory initiative, which provides the right product, at the right place, at the right time. Nordstroms customer service is superior in that they put envisioning a customer relationship their top priority. Its main goal is to provide outstanding service e very day, one customer at a time, and support the employees who deliver service to those customers. separately Nordstrom employee has a business card, which he or she gives to customers, to encourage them to reach hazard directly if they need anything. In addition, Nordstrom spends often less on conventional 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 stopt be easily duplicated, and the company 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 shipment to making choices that are in the best care of the customer. thitherfore, Nordstrom keeps growing and maintains a great financial 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 useful training to them to develop prox haulers 3. Expanding into new trades, technological investments, acquisitions and the healthful timed(p) completion of construction associated with newly planned stores, relocations and remodels. 4. Having effective armory focussing high-octane and proper allocation of keen resources successful execution of randomness technology strategy and effective cost 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 capital structure for its produce plans and persistence II. Company financial dimension analysis 1. Liquidity Liquidity 2011 2010 2009 2008 2007 current dimension 2. 16 2. 57 2. 01 2. 01 2. 06 Cash dimension 0. 73 0. 80 0. 39 0. 04 0. 22 Cash Flow from Ope symmetryns Ratio 0. 46 0. 63 0. 62 0. 53 0. 19 Overall regards to liquidity proportions, the higher the numbe r the better however, a too high also indicates that the squiffys were not using their resources to their full potential. Current symmetry of 1. or greater shows that a company can pay its current liabilities with its current assets. JWNs ratio accessiond from 2. 06 in 2007 to 2. 57 in 2010, and slightly decreased to 2. 16 in 2011. JWNs cash ratio addition significantly from 22% in 2007 to 80% in 2010. JWN has a cash ratio of 73% in 2011, which is useful to creditors when deciding how much debt they would be willing to stay on to JWN. In addition, JWN also has moderate CFO ratio of 46%, indicating the companies top executive to pay off their minuscule depot liabilities with their operating cash rate of flow. There was a great improvement in JWNs liquidity ratios over the previous(prenominal) 5 years.In general, JWN has efficient liquidity ratios which allow the company to dressing its seasonal cash needs and to maintain appropriate levels of short term borrowings. 2. Acti vity Activity 2011 2010 2009 2008 2007 Inventory swage 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 upset 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 Fixed Assets Turnover 4. 54 4. 25 3. 70 4. 08 4. 86 tally Assets Turnover 1. 36 1. 38 1. 35 1. 52 1. 74 distance of Operating hertz 130. 9 138. 87 149. 38 141. 93 114. 18 I Inventory disturbance shows how efficient a blotto 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 pie-eyed is getting its inventory out to consumers at a more efficient pace. JWNs inventory turnover is approximately 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 collectin g 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 distance of Operating Cycle from 139 days to 131 days. In addition, there is also a good sign when JWNs fixed asset turnover and fundamental asset turnover increase. In general, JWN has ability to predict or do to changes in fashion trends, consumer preferences and spending patterns, and to match its merchandise levels, mix and shopping experience to sales trends and consumer tastes, significantly impacts its sales and operating results. . advantageability Profit 2011 2010 2009 2008 2007 Gross b format 0. 39 0. 39 0. 36 0. 37 0. 39 Return on 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 proceeds margin, Return on sale, ROA, and ROE, JWN did a pretty good job during th e financial year ended Jan 28th 2012. Gross remuneration margin, the terminal gain margin, ROA, and ROE nourish the same rate for 2011 and 2010, which are 39%, 6%, 9%, and 34% respectively. By evaluating JWNs cabbageability ratio, JWN once over again is upward looking.ROA is a comprehensive measure of profitability, taking into account how a firms assets and boodle are used to create proximo profit. ROE is a profitability measure and is influenced by the affiliation surrounded by a firms debt and its owners comeliness. JWN has done an ungodly job at maintaining moderate ROA and ROE ratio over 5 years catamenia. Analyzing JWNs profitability ratio shows that JWN should continue being productively 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 commercialise 0. 7 0. 48 0. 44 0. 39 0. 39 times vex get 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 decreases, there is less leverage within the firm. The increase in debt to equity ratio is due to the increase in capacious term debts and the decrease in total stockholder equity. Times interest earned ratio is a controlage 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. food market related statistics Like many luxury stores, Nordstrom has seen its sales rebound since late 2009 as well-heeled shoppers countenance become more comfo rtable with spending, despite volatility in the stock market.Nordstrom also has worked sturdy to make it easier to shop by adding Wi-Fi access for shoppers at all of its full-line department stores, offering at large(p) shipping on most items without any nominal 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(prenominal) a year to rise 4 percent to 6 percent in the current full monetary year, and it expects to earn $3. 30 to $3. 45 per parcel out.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 share in 2011, $0. 76 per share in 2010, and $. 64 per share in each of 2009 and 2008. 6. Quality of financial breeding Nordstrom uses a more moderate strategy when it comes to its score policies.It basically uses similar basic standards as other firms in the pains. Management and select employees of Nordstrom receive stock options and bonuses establish on how gainful and how much growth the company is, which may lead to intentional accounting distortion to increase these benefits. Although distortion would be full to management, the standards used by Nordstrom to account for stock issued to employees seem well divulge and straight forward. Compared to the accounting policies and estimates used in the past five years, Nordstrom has not significantly changed any of its accounting standards.Estimates such as reapings are base 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 acco unt. 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 or so their accounting policies. The changes in policies accounting standards and estimates all seem to be legitimate. The mood in which Nordstrom discloses their financial information to the public is of extremely high quality.Nordstrom exceeds their expectation of providing customers and shareholders with an adequate explanation for well-nigh every element of their finances. later the presentation of each financial statement, Nordstrom provides a detailed clarification concerning each component listed in a manner that could be easily interpreted by the common inquirer. In general, Nordstrom efficaciously communicates their activities with their investors and are relatively free of unpredictable or unexplainable transactions. III. proportion to the industry average and another store (Dillards)Liq uidity 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 - - 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 occupy 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 ha s 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 beta is 1. 57 which theoretically indicates 57% more volatile 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 i s 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 somewhat outperformed its competitor and the industry average. In its industry, JWN is apparently a leader in utilizing its capital to create repute for the firm, creating profits, and increase shareholder tax IV. Growth in revenue and income yr 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 discharge income 2011 11. 42% YoY growth in revenues 2010 17. 33% YoY growth in dough income 2010 39. 00%YoY growth in revenues 2009 -3. 57% YoY growth in crystalize income 2009 9. 98% YoY growth in revenues 2008 -5. 58% YoY growth in shed light on income 2008 -43. 92% YoY growth in revenues 2007 4. 78% YoY growth in pay i ncome 2007 5. 46% YoY growth in revenues (Average) 12. 13% YoY growth in dinero income (Average) 11. 42% Nordstrom generates revenues from its credit segment, which consists of a wholly-owned federal savings bank that offers Nordstrom endorse 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 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 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 correspond 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 purge of $8 billion to 11 billion from 2007 to 2011. There was a slightly decrease or increase in revenue over 5 years completion. 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 agreement 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. 4 2% 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 Book 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 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 Nord strom. Without the growth rate, discount rate 14% is too low because the capital market and market price per share will be $4679 one million million and $22. JWNs market capital and market price per share are truly $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 retail company. Nordstrom has founded itself upon excellent 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 cast off 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 truth 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 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 one thousand thousand 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 dish up the company in building its multi-channel retail format. The acquisition will relieve Nordstrom to increase its direct business capabilities, implement an enterprise-wide inventory managem ent 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 variable in nature. This flexible cost structure not only helps the company to alleviate the impact of sluggish sales trends on margins, but also enables it to cursorily benefit 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 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 shining decision from a dynamic management team.