getting started as a retail analyst
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Getting Started as a Retail Analyst. Using SEC Filings, Chain Store Age, and Internet Sites. Growth in Sales for Chain Retailers. Increasing the number of stores Adding a new store format Increased sales promotion Changing the merchandise mix. Exam Data III. - PowerPoint PPT PresentationTRANSCRIPT
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Getting Started as a Retail Analyst
Using SEC Filings, Chain Store Age, and Internet Sites
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Growth in Sales for Chain Retailers
• Increasing the number of stores
• Adding a new store format
• Increased sales promotion
• Changing the merchandise mix
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Exam Data III
• Select three publicly traded retailers, which compete within an overlapping merchandise line.
• Prepare an exhibit (table) tracking their performance on 5 components of the Strategic Profit Model and
• Gross Margin (or gross profit if shown), turnover, and GMROI.
• Optional: Accounts payable and selling space (GMROS)
• Select a consecutive span of years including the most recent (2005) and 2002.
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EDGAR
• “Search the EDGAR Database”
• “Companies and other filers”
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5200 6 Retail-Building Materials, Hardware, Garden Supply
5211 6 Retail-Lumber & Other Building Materials Dealers
5271 2 Retail-Mobile Home Dealers
5311 2 Retail-Department Stores
5331 2 Retail-Variety Stores
5399 2 Retail-Misc General Merchandise Stores
5400 2 Retail-Food Stores
5411 2 Retail-Grocery Stores
5412 2 Retail-Convenience Stores
5500 2 Retail-Auto Dealers & Gasoline Stations
5531 2 Retail-Auto & Home Supply Stores
5600 2 Retail-Apparel & Accessory Stores
5621 2 Retail-Women's Clothing Stores
5651 2 Retail-Family Clothing Stores
5661 2 Retail-Shoe Stores
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5700 2 Retail-Home Furniture, Furnishings & Equipment Stores
5712 2 Retail-Furniture Stores
5731 2 Retail-Radio, TV & Consumer Electronics Stores
5734 2 Retail-Computer & Computer Software Stores
5735 2 Retail-Record & Prerecorded Tape Stores
5810 5 Retail-Eating & Drinking Places
5812 5 Retail-Eating Places
5900 2 Retail-Miscellaneous Retail
5912 1 Retail-Drug Stores and Proprietary Stores
5940 2 Retail-Miscellaneous Shopping Goods Stores
5944 2 Retail-Jewelry Stores
5945 2 Retail-Hobby, Toy & Game Shops
5960 2 Retail-Nonstore Retailers
5961 2 Retail-Catalog & Mail-Order Houses
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Gross Margin
• Sales revenue minus cost of goods sold
• Selling price*quantity - cost*quantity
• Percent gross margin=gross margin/revenue
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Turnover
• “True” measures of turnover
@Cost@Retail Inventory
goods ofCost
Inventory
revenue Sales
inventory Units
sold Units
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GMROI
• “Gross margin return on inventory”
@CostInventory
revenue Sales
revenue Sales
margin Gross
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Days Payable
• Indication of how long a firms taking (on average) to pay bills, or comparison of how it’s using suppliers to finance inventory.
90)or (365Dayssold goods ofCost
payable Accounts
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Gross margin
• Three components:– Reflects the service outputs provided by an institution to its
buyers– Risk
• Perishability• Pre-sold, bespoke• Brand strength
– Competition
• Different from initial markup, closer to maintained markup
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Factors Affecting Gross Margin
• Competition: Higher the competition—the lower gross margins, more intensely distributed brands have low margins.– Differentiated merchandise
• Risk of the merchandise: Higher risk, higher markups… (and greater markdowns)
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In-store allocation of resources among lines
• Ratio analysis:
• GMROI = gross margin/inventory
• GMROS = gross margin/selling space
• GMROL = gross margin/employee unit
• These decisions are set with regard to the design of the format, and modifications to the format must address these criteria
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Inventory Performance
Assets turnover = Net sales / total assets
Inventory turnover =Units sold / units in inventoryCost of goods sold / average inventorySales / inventory @ retail
Return on assets =Net profit / total assetsNet profit margin x assets turnover
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Return on Net Worth =
11.11%
Return on Assets
=5.616%
Profit Margin
1.8%
Asset Turnover=3.12
47,145/15,092 Financial Leverage
15,092/7,625
Gross Margin=10.7%
(47,145M-42,092M) 47,145
Turnover=11.5
(42,092M)
3,644M
COSTCO 2004
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Return on Net Worth =
13.98%
Return on Assets
=8.75%
Profit Margin
5.7%
Asset Turnover=1.54
10,282/6,698 Financial Leverage=1.60
6,698/4,191
Gross Margin=33.0%
(10,282M-6,887M) 10,282M
Turnover=4.28
(6,887M)
1,607M
KOHLS 04
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Profit margin
Asset turnover
Return on assets
Leverage
Return on net worth
258,1424,557,112
258,1422,914,662
258,1421,685,503
4,557,1122,914,662
2,914,6621,685,503
5.66%
8.86%
1.56X
1.73X
15.32%
KOHL’S CORP '99
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Leverage: Total Assets/Net Worth
• Ratio illustrating the use of debt by the retailer.
• Provides a measure of market assessment of the risk of the operation, the higher the proportion of apparel in inventory, the lower ratio of financial leverage.
• ROA x Leverage = Return on Net Worth
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Profit margin
Asset turnover
Return on assets
Leverage
Return on net worth
5,809 542,016
5,809254,116
5,80989,774
542,016254,116
254,11689,774
1.07%
2.28%
2.13X
2.83x
6.45%
Hastings 2005
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Profit margin
Asset turnover
Return on assets
Leverage
Return on net worth
3,056104,859
3,05639,604
3,05617,143
104,85939,604
39,604
17,143
2.91%
7.72%
2.65x
2.31x
17.83%
WAL*MART '97
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Profit margin
Asset turnover
Return on assets
Leverage
Return on net worth
258,1424,557,112
258,1422,914,662
258,1421,685,503
4,557,1122,914,662
2,914,6621,685,503
5.66%
8.86%
1.56X
1.73X
15.32%
KOHL’S CORP '99
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Profit margin
Asset turnover
Return on assets
Leverage
Return on net worth
452,8595,284,381
452,8592,626,927
452,8591,654,470
5,284,3812,626,927
2,626,927
1,654,470
8.57%
17.24%
2.01x
1.59x
27.37%
THE GAP, INC. '97
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Profit margin
Asset turnover
Return on assets
Leverage
Return on net worth
56523,649
56522,088
5655.952
23,64922,088
22,088
5,952
2.39%
2.56%
1.07x
3.71x
9.50%
J.C. PENNEY '96
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Profit margin
Asset turnover
Return on assets
Leverage
Return on net worth
1,27138,236
1,27136,167
1,2714,945
38,23636,167
36,167
4,945
3.32%
3.51%
1.06x
7.31x
25.66%
Sears '96
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Routes to higher financial performance: Increasing the Profit Margin
• Increasing the Gross Margin– Smarter purchasing: fewer discounts and reductions– Differentiating the merchandise reduces price competition– Vendor discounts/concessions
• Reducing Expenses– "Flexible" employee scheduling– Incorporating a commission portion into compensation– Reducing store hours during slack periods– Shifting functions to suppliers
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Routes to higher financial performance: Increasing the Asset Turnover
• Increasing Sales:– "High velocity retailing," lower margins
• Reducing Investments in Assets– Lower investments in inventory, supplier retains title to some goods.– Lease rather than own, such as build the store, sell it, and lease it back
from owners.– Minimize investments in practices not core to operations, such as
distribution.– Distribute retained earnings ("cash") to owners in form of dividends.
• In short, reduce investment in assets that come at the expense of investments in inventory.
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Routes to higher financial performance: Increasing Financial Leverage
• Expand assets through the use of debt rather than equity instruments for inventory:– Increase accounts payable
– Increase use of notes payable
• Use debt financing for investment in real estate.• Utilize debt financing to the point where increased
interest expenses hurt return on net worth.