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Kohl’s & Dillards’

FINANCIAL ACCOUNTING Kohl’s Corporation and Dillard’s Inc. – Financial Statement Analysis A. 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. The importance of the retail industry emphasizes the sentence below: “An estimated two-thirds of the U. S. gross domestic product (GDP) comes from retail consumption. Therefore, store closings and openings are an indicator of how well the U.

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S. economy is recovering after the Great Recession in the late 2000’s. ”[1] Regarding the size, Kohl’s Corporation has 929 stores in 47 states and Dillard’s Inc. has 326 stores in 29 states. They offer apparel, footwear and accessories for women, men and children, soft home products and other consumer goods. As we can see they differ in numbers of the stores and also in the approach. Kohl’s Corporation is more like discount store where Dillard’s Inc. offers more sophisticated and upscale approach, although both of the companies offer also on-line shopping on their websites.

For Kohl’s Corporation we can see their expansion below: | | | | | | |Region |   |States |   | |Net Sales |100. 0% |100. 0% |100. 0% | |Cost of merchandise sold |63. 5% |63. 6% |64. 4% | |Gross margin |36. 5% |36. 4% |35. % | |Operating expense: |25. 6% |24. 7% |25. 0% | | Selling, general, administrative |22. 4% |21. 9% |22. 2% | | Depreciation and amortization |2. 7% |2. 5% |2. 5% | | Preopening expenses |0. 4% |0. 3% |0. 3% | |Operating Income |11. 0% |11. 6% |10. 5% | |Other expenses |0. 4% |0. % |0. 5% | | Interest expense |0. 5% |0. 4% |0. 5% | | Interest income |0. 1% |0. 2% |0. 0% | |Income before income taxes |10. 6% |11. 4% |10. 0% | |Provision for income taxes |4. 0% |4. 3% |3. 7% | |Net income |6. 6% |7. 1% |6. 3% | DILLARD’S INC. COMMON – SIZED STATEMENTS OF OPERATIONS |Dillard? Inc | Feb 2, 2008 | Feb 3, 2007 | Jan 28, 2006 | |Net Sales |100. 0% |100. 0% |100. 0% | |Cost of merchandise sold |64. 9% |64. 4% |65. 2% | |Gross margin |35. 1% |35. 6% |34. 8% | |Operating expense: |33. 0% |31. 2% |31. % | | Selling, general, administrative |28. 0% |26. 8% |26. 5% | | Depreciation and amortization |4. 1% |3. 9% |3. 9% | | Rentals |0. 8% |0. 7% |0. 6% | | Loss on disposal on assets |-0. 2% |-0. 2% |0. 0% | | Asset impairment and store closing charges |0. 3% |0. % |0. 8% | |Operating Income |2. 1% |4. 4% |3. 0% | |Other expenses interest |1. 2% |1. 1% |1. 4% | |Income before income taxes |0. 8% |3. 3% |1. 6% | |Provision for income taxes |0. 2% |0. 3% |0. 2% | |Equity of earning in joint ventures |0. % |0. 2% |0. 1% | |Net income |0. 7% |3. 1% |1. 6% | KOHL’S CORPORATION COMMON – SIZED BALANCE SHEET |Current Assets | Feb 2, 2008 | Feb 3, 2007 | Jan 28, 2006 | |  | | | |  | |  |Cash |1. % |2. 1% |1. 4% | |  |Short-term investments |4. 6% |4. 8% |1. 7% | |  |Merchandise inventories |27. 0% |28. 5% |24. 4% | |  |Accounts Receivable |0. 0% |0. 0% |18. 0% | |  |Deferred Income Taxes |0. 7% |0. % |0. 3% | |  |Other |1. 3% |1. 7% |0. 7% | |  |Total Current Assets |35. 3% |37. 6% |46. 6% | |  | | | |  | |  |Property and equipment, net |61. 6% |59. 3% |50. % | |  |Favorable lease rights, net |2. 0% |2. 4% |2. 3% | |  |Goodwill |0. 1% |0. 1% |0. 1% | |  |Other assets |1. 0% |0. 6% |0. 5% | |  |Total Assets |100. 0% |100. 0% |100. % | |  | | | |  | |Total Liabilities & Shareholders’ Equity | | |  | | | | | |  | |Current Liabilities | | |  | |  |Accounts payable |7. 9% |10. 3% |9. 1% | |  |Accrued liabilities |7. 6% |8. 0% |7. % | |  |Income taxes payable |1. 2% |2. 6% |1. 8% | |  |Current portion of long-term debt and capital leases |0. 1% |0. 2% |1. 2% | |  |Total Current Liabilities |16. 8% |21. 2% |19. 1% | |  | | | |  | |  |Long-term debt and capital leases |19. 4% |11. 5% |11. % | |  |Deferred income taxes |2. 5% |2. 7% |2. 4% | |  |Other long-term liabilities |3. 5% |2. 6% |2. 0% | |  | | | |  | |  |Total Liabilities |42. 2% |38. 0% |34. 9% | |  | | | |  | |  |Common stock – $. 1 par value,800,000 shares authorized, 350,753 ; 348,502; and|0. 0% |0. 0% |0. 0% | | |345,088 shares issue | | | | |  |Paid in Capital |18. 1% |19. 4% |17. 3% | |  |Treasury stock at cost, 40,285; 27,516; and 0 shares |-22. 5% |-18. 0% |0. 0% | |  |Retained Earnings |62. 2% |60. % |47. 8% | |  | | | |  | |  |Total Shareholders’ Equity |57. 8% |62. 0% |65. 1% | |  | | | |  | |  |Total Liabilities and Shareholders’ equities |100. 0% |100. 0% |100. 0% | DILLARD’S INC. COMMON – SIZED BALANCE SHEET Current Assets | Feb 2, 2008 | Feb 3, 2007 | Jan 28, 2006 | |  |Cash and cash equivalent |1. 7% |3. 6% |5. 4% | |  |Accounts Receivable |0. 2% |0. 2% |0. 2% | |  |Merchandise inventories |33. 3% |32. 8% |32. 7% | |  |Other Current Assets |1. 2% |1. 3% |0. % | |  |Total Current Assets |36. 4% |37. 9% |39. 0% | |  |Property and Equipment: | | |  | |  |Land and land improvements |1. 6% |1. 7% |1. 6% | |  |Buildings and leasehold improvements |58. 4% |54. 3% |50. 7% | |  |Furniture, fixtures and equipment |36. 9% |40. 0% |38. % | |  |Buildings under construction |1. 8% |1. 1% |1. 7% | |  |Buildings and equipment under capital lease |0. 9% |0. 9% |1. 5% | |  |Less accumulated depreciation and amortization |-39. 8% |-39. 7% |-37. 3% | |  |Total property and equipment |59. 8% |58. 3% |57. 1% | |  |Goodwill |0. 6% |0. 6% |0. % | |  |Other Assets |3. 2% |3. 1% |3. 2% | |  |Total Assets |100. 0% |100. 0% |100. 0% | |Total Liabilities & Shareholders’ Equity | | |  | |Current Liabilities | | |  | |  |Trade accounts payable and accrued expenses |14. 1% |14. 8% |15. % | |  |Current portion of long-term debt |3. 7% |1. 9% |3. 6% | |  |Current portion of capital lease obligations |0. 0% |0. 1% |0. 1% | |  |Other short-term borrowings |3. 7% |0. 0% |0. 0% | |  |Federal and state income taxes including deferred taxes |0. 7% |1. 4% |1. 5% | |  |Total Current Liabilities |22. 2% |18. 1% |20. % | |  |Long-term debt |14. 2% |17. 7% |19. 2% | |  |Capital lease obligations |0. 5% |0. 5% |0. 6% | |  |Other liabilities |4. 1% |3. 8% |4. 7% | |  |deferred income taxes |8. 2% |8. 3% |8. 7% | |  |Guaranteed preferred beneficial interests in the company’s subordinated |3. 7% |3. 7% |3. % | | |debentures | | | | |  |Total Liabilities |52. 9% |52. 2% |57. 7% | |  |Common stock Class A |0. 0% |0. 0% |0. 0% | |  |Common Stock Class B (convertible) |0. 0% |0. 0% |0. 0% | |  |Additional paid in capital |14. 6% |14. 3% |13. 6% | |  |Accumulated other comprehensive loss |-0. 4% |-0. 4% |-0. % | |  |Retained Earnings |50. 2% |48. 9% |43. 7% | |  |Less Treasury stock at cost Class A |-17. 3% |-15. 1% |-14. 7% | |  |Total Shareholders’ Equity |47. 1% |47. 8% |42. 3% | |  |Total Liabilities and Shareholders’ equities |100. 0% |100. 0% |100. 0% | D. ROE = NI / Average stockholders’ equity KOHL’S CORPORATION ROE2007= 18. 5 % ROE2006=19. 18% DuPont Model |2007 |2006 | |Cost of Taxes |37. 78% |37. 52% | |Cost of Debt |3. 46% |2. 22% | |Operating Profit |10. 95% |11. 64% | |Asset Turnover |1. 68 |1. 72 | |Capital Structure Leverage |1. 67 |1. 57 | |Return on Equity (ROE) |18. 52% |19. 18% | ROE = NI / Average stockholders’ equity DILLARD’S INC. ROE2007 = 2. 11% ROE2006 = 10. 00 % |DuPont Model |2007 |2006 | |Cost of Taxes |11. 17% |3. 3% | |Cost of Debt |60. 20% |25. 67% | |Operating Profit |2. 06% |4. 37% | |Asset Turnover |1. 37 |1. 43 | |Capital Structure Leverage |2. 11 |2. 22 | |Return on Equity (ROE) |2. 11% |10. 00% | E. Trends in Subcomponents of ROE Trends for Cost of Taxes Kohl has a pretty stable tax rate around 37. 5% while Dillard has a highly unstable one, growing from 3. 42% and 3. 23% in 2005 and 2006 to 11. 17% in 2007. Trends for Costs of Debt While Kohl has fair costs of debt of 3. 6% in 2006 (which is below the industry average of 4%), Willard’s cost of debt worsened to 60. 2% in 2006 (from 25. 7% in 2005). Trends for Operating Profit Kohl’s profit slightly dropped by 5. 9% to 10. 95% from 2006 to 2007, Dillard worsened by 58. 2% to an EBIT of 2. 06% from 2006 to 2007. Trends for Asset Turnover Kohl’s asset turnover rate stayed relatively stable, slightly declining from 1. 72 to 1. 68. Dillard declined from 1. 43 in 2006 to 1. 37 in 2007. Trends on Capital Structure Leverage Kohl nearly doubled their long-term debt and increased their capital structure leverage from 1. 57 in 2006 to 1. 67 in 2007. Dillard reduced their leverage from 2. 22 in 2006 to 2. 1 in 2007. Profitability With 18. 5% ROE in 2007 (19. 2% in 2006), Kohl is by far more profitable than Dillard, whose ROE dropped to 2. 1% in 2007 (from 10% in 2006). While both firms have a similar gross profit (Kohl 36. 5%/2007; Dillard 35. 1%/2007), Kohl achieves an EBIT of 10% against 2. 1% for Dillard. Looking at both companies’ RNOA, it confirms that Dillard is struggling with a very low NOPM of only 1. 75% in 2007 against 6. 8% in the same year for Kohl, while Dillard is making better use of their net operating assets. F. Kohl’s Corporation asset efficency Dillard’s Inc. asset efficency G. Liquidity and solvency for Kohl’s Corporation Liquidity & Solvency |2007 |2006 |2005 | |Current ratio |2. 10 |1. 78 |2. 44 | |Quick ratio |0. 49 |0. 43 |1. 16 | |Debt-equity ratio |0. 73 |0. 61 |0. 54 | |Interest cost |5. 76% |3. 64% |8. 36% | Liquidity and solvency for Dillard’s Inc. |Liquidity & Solvency |2007 |2006 |2005 | |Current ratio |1. 64 |2. 10 |1. 7 | |Quick ratio |0. 14 |0. 28 |0. 30 | |Debt-equity ratio |1. 12 |1. 09 |1. 36 | |Interest cost |170. 30% |35. 68% |86. 90% | COMPARISON OF CURRENT RATIO‘S FOR KOHL’S CORPORATION AND DILLARD’S INC. [pic] COMPARISON OF QUICK RATIO [pic] COMPARISON OF DEBT TO EQUITY RATIO [pic] COMPARISON OF INTEREST COST [pic] ———————– [1] Farfan, Barbara “Retail Industry Information: Overview of Facts, Research, Data & Trivia 2011”. About. com June 2011 http://retailindustry. about. com/od/statisticsresearch/p/retailindustry. htm

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