Nordstrom was established in 1901 and was a retail store for shoes. Among the stores many goals was to offer a wide selection of merchandise with outstanding quality and service. It was twenty two years before they added a second store, and eventually became one of the largest shoe store chains in the United States. They began offering clothing and accessories for the entire family. Right now, they are one of the top luxury retailers with over 320 stores in 29 states in have expanded into Canada.
This paper will explore the financial health of Nordstrom for 2014, as compared to the previous year of 2013, and also compared to one of its top competitors; Macy’s. Its other competitors in the market are Dillards, and Neiman Marcus. Macy’s Inc. , opened in 1858 as a “small, fancy dry goods store” (Sanger & Eby). Macy’s always wanted to break their limits by being the first in many ways. Macy’s always loved to push the limit when it came to their corporation. In 1865, Macy’s went ahead and made the bold choice of making Margaret Getchell the first women to be promoted to an executive position within any retailer.
Getchell had the wonderful “idea to branch out from selling fabrics and start selling clothes, toiletries, hats and jewelry; and eventually groceries, toys and household goods” (Elliott, par. 4). Ms. Getchell had a motto she lived by which was simply, “Be everywhere, do everything and never fail to astonish the customer” (Getchell). Another first for Macy’s was their “[pioneering of] such revolutionary business practices as the one-price system, in which the same item was sold to every customer at one price, and quoting specific prices for goods in newspaper dvertising” (Sanger & Eby).
Customers appreciated this system because everyone felt like they got a great deal. With this system, Macy’s really took their customers into consideration. Retailers can tend to forget that little factor when running their stores, so customers of Macy’s really took notice. Lastly, Macy’s wanted to break the ceiling within their development of products. They were the first to introduce several new products to their department store, one was the tea bag. The next big first for Macy’s was not so much as a product but what products it allowed Macy’s to carry.
Macy’s became the first retailer to “hold a New York City Liquor license” (Sanger & Eby). Today, no retailer sells liquor, including Macy’s. However, it is the fact that Macy’s decided to try something new and different. Thinking outside the box to discover something original and exciting is one way Macy’s has become so popular and long lasting. In order to determine whether a company should be invested in, investors can use financial ratios calculate its profitability, liquidity, and solvency. By using profitability ratios, investors can measure the income or operating success of a company for a given period of time.
Earnings Per Share Ratio Nordstrom Earnings Per Share 2014 = 720/190 = 3. 79 2013 = 734/194. 5 = 3. 77 Macy’s 2014 = 1526/354. 3 = 4. 30 2013 = 1486/384. 8 = The earnings per share ratio computes net income earned on each share of common stock. Nordstrom’s earnings per share was $3. 77 in 2013 and increased to $3. 79 in 2014; while its competitor Macy’s, has an earnings per share ratio of $4. 30 in 2014. This ratio means that for every share of common stock outstanding, Nordstrom has an income of $3. 79 in 2014 and $3. 77 in 2013.
Compared to 2013, Nordstrom had an increase of 2 cents in earnings per share, which depicts an increasing arning in its shares of common stock. Macy’s, on the other hand, had an income of $4. 30 in 2014 for every share of common stock outstanding, which is 51 cents higher than Nordstrom’s ratio in 2014. This indicates that Macys’ is more efficient in terms of generating its net income from their common stock outstanding. Return on Assets Ratio Nordstrom Return on Assets 2014 = 720/(9245+8574/2) = 8% 2013 = 734/(8574+8090/2) = 9% Macy’s 2014 = 1526/(21461-21620/2) = 7% 2013 = 1486 ( Return on assets ratio measures the overall profitability of assets.
In 2013, the return on assets ratio of Nordstrom was 9%, however, it decreased to 8% in 2014. For every dollar of total assets, Nordstrom had 9 cents in net income in 2013 and 8 cents in 2014. The return on assets ratio for Macy’s was 7% in 2014. Compared to Macy’s, Nordstrom is slightly better which signifies that Nordstrom uses its resources more efficiently than Macy’s does. Although Nordstrom returned more net income from its assets than Macy’s did according to the return on assets ratio, Nordstrom’s income from assets decreased from 2013 to 2014.
This decrease is an indicator that Nordstrom is having a decline in demand which is a sign of trouble for growing companies. Gross Profit Margin Nordstrom 2014 = 13110-8406/13110 = 36 % 2013 = 12166-7737/12166 = 36% Macy’s 2014 = 28. 11-16. 86/21. 11 = 40% 2013 = Gross profit rate measures the margin between selling price and costs of goods sold. Nordstrom’s gross profit rates were both 36% in 2013 and 2014, which means for every dollar of net sales, Nordstrom has 36% in gross profit to pay its expenses in those years. Nordstrom therefore can reduce its selling price by 36% of original price without any loss.
On the other hand, Macy’s has a higher gross profit rate in 2014, which is 40%. This means that Macy’s is more sufficient in covering its expenses than Nordstrom. From 2013 to 2014, Nordstrom’s earnings per share ratio increased by 2 cents. Accordingly, Nordstrom has a higher return on assets ratio than Macy’s; however, its earnings per share and gross profit rate are both lower than Macy’s. These results give reasons for Nordstrom to improve its profitability, because it does not have outstanding profitability ratio results.
Using profitability ratios as our point of perspective, Nordstrom is not recommended for investors. Current Ratio Nordstrom 2014 = 5224/2800 = 1. 87 2013 = 5228/2541 = 2. 01 Macy’s 2014 = 8697/5536 = 1. 57 2013 = Current ratio represents a company’s ability to pay back its liabilities with its assets. The higher the current ratio, the more capable the company is of paying back its obligations. Nordstrom’s current ratio in 2014 was about 1. 87 million, which means that for every dollar of current liabilities, the company has 1. 87 dollars of current assets.
The company’s current ratio in 2013 was 2. 6 million; therefore, the decrease in current ratio depicts how Nordstrom is not as capable of paying its obligations in 2014 as it was in 2013. Although its ratio is decreasing, Nordstrom is still doing better that its competitor Macy’s in terms of its capability to repay its debts. Macy’s current ratio in 2014 was 1. 52 million, which is lower that Nordstrom’s ratio. Consequently, because Nordstrom’s current ratio is greater than Macy’s, Nordstrom’s shows that it has been a more efficient operation cycle than Macy’s, Nordstrom’s shows that it has a more efficient operation cycle than Macys; hence,
Nordstrom is shown to be more liquid. Inventory Turnover Ratio Nordstrom 2014 = 8401/1733 + 1360/2=5. 15 2013 = 7737/1531 + 1360/2 = 5. 35 Macy’s 2014 = 16863/(5516+5557/2) = 3. 04 2013 = Inventory turnover ratio measures the number of times average inventory was sold during a period, and it indicates how efficiently a company is turning its inventory into sales. A high inventory turnover ratio is sometimes not a good thing for it reveals that the company may not have enough inventories to sell. People can analyze inventory turnover ratio with days in the inventory ratio.
Nordstrom’s inventory turnover ratio in 2014 is 5. 15 times which means the company turns over its inventory into sales 5 times a year, and the ratio in 2013 is 5. 35 times. By comparing the inventory turnover ratio from 2013 with the ratio form 2014, we can conclude that Nordstrom’s inventory turnover ratio decreased. Nordstrom’s days in inventory are depicted as 70. 87 days which means that Nordstrom takes approximately 70 days to sell its entire inventory in a vear. Macy’s inventory turnover ratio is 2014 is 3. 4 times, and its days in inventory ratio is approximately 120 days which means that Macy’s takes 120 days to complete turnover.
Therefore, this difference shows that Nordstrom has enough inventories to sell and it demonstrates a better inventory control than Macy’s. By comparing current ratio, inventory turnover ratio, and days in inventory ratio of Nordstrom and Macy’s, we can conclude that Nordstrom has a healthier liquidity that Macy’s. Debt to Total Assets Ratio Nordstrom 2014 = 6805/9245 = 73. 6% 2013 = 6494/8574 = 75. 7% Macy’s 2014 = 16083/21461 = 74. 94% 2013 = 15371/21260 = 72. % In debt to total assets ratio, Nordstrom finances every dollar it has in assets with 74 cents in liability while its competitor, Macy’s, finances its assets with 75 cents in liabilities. This ratio shows that Nordstrom is heavily reliant on debt and is only . 01 cents better than its competitor.
However, Nordstrom is improving because the percentage decreased from 75. 7 in 2013 to 73. 6 in 2014. Time Interest Ratio Nordstrom 2014 = 695 + 138 + 465 / 138 = 9. 41 2013 = 742 + 161 + 455 / 161 = 8. 43 Macy’s 2014 = 1119+395+864/395 = 6. 02 2013 = 1752+390+804/390 = 7. 5 Nordstrom also shows greater ability in meeting its interest payable than Macy’s. According to the time interest earned ratio which measures the company’s ability to pay its obligation as they come due, Nordstrom’s ratio is recorded as 9. 41 while Macy’s ratio is only recorded at 6. 02. Furthermore, Nordstrom’s time interest earned ratio is increasing which shows that the company is more able to pay off its debt than Macy’s, whose ratio is decreasing. Nordstrom therefore exhibits an improving time interest earned ratio which shows its stability to creditors from a credit perspective.
Cash Debt Coverage Ratio Nordstrom 2014 = 11320/6494 +6805/ 2 = 19. 85 2013 = 220/6805 + 6485 / 2 = 18. 35 Macy’s 2014 = 2709/(16083+15371/2) = 17. 22 2013 = 2549/(16083+15371/2) = 16. 2 The cash debt coverage ratio reinforces the difference in financing between these two companies. Nordstrom can liquidate $18 from cash by operations while Macy’s can only liquidate $17. As the difference in the ratios demonstrates, Nordstrom seems to be better in sustaining and maintaining its business, as opposed to Macy’s.
Nordstrom does financially average in running its corporation after evaluating its overall performance based on its annual report and a comparison to its competitor Macy’s. However, despite being named a top luxury store, Nordstrom still shares a number of risk factors as indicated from its declining net income and increase in debt. In order to raise funds, I believe that it is in Nordstrom’s best interest to sell new shares of stock, instead of playing in the bond market. There are too many financial risks for them at this point, that the bond market would not be the best solution.
Although Nordstrom is much preferable to investors over Macy’s due to a better liquidity ratio, inventory turnover ratio, effective inventory control, and frequent sales, there is no denying that the debt-reliance of this retail company is still measurable high. Nordstrom does not have the adequate solvency needed to pay off its debt if an unfavorable situation was to occur and net loss was incurred instead. Thus, an investment into Nordstrom is not highly advised do to its declining overall financial well-being.
