Course Project 2 Assignment Comparing Kohl's and J.C.Penney Essay

Macy’s Inc. ratio was .02 and JC Penny Co. Inc. was .00. To improve this ratio, both companies need to improve on their net income. If JC Penny doesn’t continue to improve its net income, then this ratio will begin to lean negative, signaling the company is losing money for every dollar is sales and may not be good investment. Macy’s Inc. still has room before it hits .00, however, if their net income continues to fall, they soon too may have the same profit margin ratio as JC Penny Co. Inc. Shutting down unsatisfactory stores – as each company is doing – may help improve this ratio as well. With less funding going to these stores, such as salary’s, rent, and wasted inventory, they will be able to improve their net income value.

Kohl’s Corp. was founded in 1962. , and has grown into a company that had revenues of over $19 billion in 2015. Their headquarters are in Menomonee Falls, Wisconsin and is a family-oriented department store that sells national brands and private label merchandise of apparel, shoes, accessories, and housewares. Kohl’s competes with other department stores and discount stores for the middle-income shopping target market. The names brand products that Kohl’s offers are not typically available at the discount stores and Kohl’s focuses on controlling costs so they can offer lower prices than their department store competitors can. Kohl’s low cost and higher margins are the result of lean staffing, state of the art management information systems, and creating operating efficiencies by centralizing advertising, buying and distribution.

Kohl’s Corporation and Dillard’s Inc. are in the retail industry which is a highly competitive industry. There are a high number of retail stores, department stores which compete between each other on local, regional and national level. That competitiveness is highly influencing operating results of the company.

There is a sharp decline in the Total Asset Turnover ratio. From Exhibit 3 we observe that the total assets, gross PP&E, and Net PP&E have increased in the period of 2003 – 2013. But from Exhibit 4 we observe that the Total asset turnover ratio has declined though sales has increased. Kohl's attempt to growth has been unsuccessful due to the increase in assets, decrease in sales, and decrease in Total Asset Turnover

The major players in this industry include stores like Macy’s, Dillard 's, and,on the higher end, Nordstrom’s. JCPenney’s main competitors are Macy’s and Kohl 's. Dillard 's and Nordstrom’s are smaller and more higher retail value stores. The top company, using sales as the indicating measure, is Macy’s with sales in 2015 of 28,105,000,000, which is followed by Kohl’s with sales of 19,023,000,000.

Moreover, the slight increase in Kohl’s average total assets has impacted their Du Pont ROI. Attributing to the decrease is the increased inventory and significant shrinkage in cash. Inventory turnover “measures how many times inventory turns over in a year.” (Berman, 2006) On average Kohl’s turned inventory 3.81 times in 2010, as compared to 3.53 times in 2012. This calculation of inventory turnover is illustrated in exhibit1.2. On average, the higher the ratio the better the company is at managing inventory it also gives them a better cash position. However, the company anticipated higher sales, but due to external factors mentioned above the company was unable to quickly convert inventory into sales as expected. To move inventory Kohl’s offered discount pricing on merchandise in the last six months of 2012.In anticipation of the 2012 holiday season, Kohl’s spent $523 million on inventory. This investment contributed

Macy’s total current liabilities represent a slightly higher percentage of total liabilities and stockholders’ equity at FY 2011 than FY 2010 and 2009. This increase is balanced by a slight decrease in the relative percentages of long-term debt.

Sales from existing stores declined 1.4% in the period. Macy’s total sales declined to $6.2 billion in the three months through Nov. 1, compared to $6.3 billion a year ago. Macy’s revised its estimated earnings to $4.25 to $4.35 per share, a decrease from the previous estimate of $4.40 to $4.50 per share. Additionally, sales predictions were also revised to reflect lower figures of 0.7% to 1%. These figures exclude recently opened and closed stores during the year. Their Gross margin for the current quarter still remains flat at a 39.2%. The company has accomplished savings of $100 million per year by cutting jobs (Kapner,

Part II Estimate the business value using BizStats. –Valuation Rule for Sporting Goods Store at BizStats.

J.C. Penney has its fair share of strengths, weaknesses, opportunities, and threats. J.C. Penney has been struggling these past few years in order to sustain their business. As a result, they hired Ron Johnson as their CEO in 2012 in hopes of turning their business around. However, he caused more damage than good so J.C. Penney has been struggling to recover ever since. In order to fix Ron Johnson’s mistakes, they hired Mike Ullman to improve all aspects of their business through e-commerce and brick-and-mortar. J.C. Penney has a lot of obstacles to endure regarding their weaknesses and threats. However, their strengths and opportunities could possibly turn their business around and could land them success in the future.

One of the five measurements of a financial ratio analysis is asset management, also known as turnover. Dess, et al. (2012) evaluates turnover by calculating the cost of goods sold over inventory (p. 497). Inventory turnover evaluates how a company can flip its product within a given time (Adkins, n.d.). The higher the turnover, the more “light inventory” a company has as Adkins (n.d.) explained. Turning over inventory, especially in the shoe retail industry, is imperative to keeping up with the competition and making a profit. Inventory turnover allows for the best price stability that, in turn, offers a better profit margin from selling at competitive prices. Customers want to see the newest arrivals, not the old products that everyone else has. For Footlocker and Finish Line, turning over the old with the new inventory can be costly and will jeopardize their clientele. Therefore, in comparing Finish Line to Foot Locker (Figure 3), Finish Line turns over inventory faster while it makes more use of its freed cash from its profit margin for other opportunities.

This allows them to be more efficient and cuts costs while adding value to the company and its consumers. Kohl’s has been around for a long time and through that time they have developed an excellent public image. Another major strength is the abundant amount of storefronts throughout North America. They have more stores than any other leading department store in America. As with every high,

Both companies are competing for the customer’s attention with new lines of products, brands, and marketing strategies. The supplier power over JCP is a factor that Mr. Penney has had under control since he first opened the company. As I stated before the strategy that JCP uses is to buy the product for cheaper, so that the customer will be able to pay less at the register. The products are marked up enough to where the company still makes a profit; the buyer power is not jeopardized due to any over pricing. The threat of entry is a factor that has affected the way the company’s market share grows. According to Kohl’s Fact Book, Kohl’s entered the market in 1962, but since then no other company has been able to stay up with the JCP and the other competitors. The other factor that has been hurting JCP’s market share is the access to substitutes in the market. These stores are not retail stores, but they do specialize in apparel, such as Areopostale, American Apparel, American Eagle, Cato’s, J. Crew, H & M, Gap Inc., the list goes on. Each one of these companies brings a different strategy to the apparel industry that JCP has to take

Kohl’s cycle is shorter than Dillard’s; even both of them experienced an increase in cash conversion cycle separately during the 2007. As Kohl’s cycle is shorter, the less time capital of Kohl’s is tied up in the business process, and thus the better for Kohl’s bottom line.

The current sector return on assets ratio is 7.04%. JcPenney ended 2014 with a return on assets ratio of -12.9%. This is 19.5% below the industry ratio and 19.94% below the sector ratios. Target also had a negative return on assets ratio. Target ended 2014 with a -3.82%. This is 10.42% lower than the industry and 10.86% lower than the sector. These low return on asset ratios can be fixed by boosting sales while and managing their assets effectively. Kohl’s end 2014 with a 6.3% return on asset ratio. This is .3% than the industry and .74% less than the sector. Macy’s end 2014 with a 6.99% return on assets ratio. This is .33 greater than the industry ratio and .05% lower than the sector. The return on assets ratio for Kohl’s and Macy’s indicates that they are managing their assets correctly to make earnings.