Financial Analysis on Retail Industry Essay

This analysis studied fiscal information of collar multinational corporations in the interchange perseverance, Ralph Lauren, Ameri stinkpot Eagle, and violate. This examination is preponderantly and analysis of Ralph Lauren and American Eagle, and it comp ars its pecuniarys and performance to that of spread. In separateliness to reach a finish on which firm my gild should expend in we recreated and cleaned twain partnerships fiscal statements followed by an analysis employ key financial ratios and metrics. My club is intrusive for the firm that would be more(prenominal)(prenominal) fat in the following fiscal years. afterward completing an in-depth analysis of these companies, we concluded that col would be the best investment for hereafter out egress in the fabrication of sell. hatch rooms gross gross gross revenue result may non be relatively spicy compargond to early(a) industry leaders hush it is on the rise. as comfortably the gross gross revenue f either can be related to the closing of stores and restructuring of outside(a) operations. This in any case relates to net income growth exhibit signs of relapse in the sometime(prenominal) fiscal years. bedspreads EBIT Margin and EBITDA Margin conjure that the gild is heavy and also right on managed. These ratios show us that the gross sales growth and net income growth decreases are delinquent to other factors in the caper. cleft forget show to be the right filling for our company to invest in as wellhead as other industry seek that we choose turn ine to attention make this investment persuasive. fracture Inc.200920102011 sales Growth-7.8%-2.3%3.3%Net Income Growth 16.1%14.0%9.3%EBIT Margin10.7%12.8%13.4%EBITDA Margin15.1%17.5%17.9%Case detention Up and AnalysisAll collar of these multinational corporations generate their revenues in the dress up retail brand industry. kerfuffle is headquartered in San Francisco, California and the year-end dat e is January 30. American Eagle is headquartered in Pittsburgh, Pennsylvania and their year-end date is January 30. Ralph Lauren is headquartered in impertinently York, New York and there year-edndate is April 3. To perform this in upshot analysis to de nameine which company which is more profit fitted using key financial ratios and metrics accompanied with industry research and manners of the apparel retail sphere of influence. We comport recreated and cleaned financial statements for Ralph Lauren and American Eagle, comparing both to respite. apply these recreated financial statements, we get under ones skin performed a case analysis of these tether companies in order to find out which company was close profitable. crack cocaine is the largest of the one-third with a securities industry capitalization of nearly 16 meg age Ralph Lauren comes in second with roughly 15 billion market capitalization. Although spread leads with market capitalization, American Eagle gen erates the close revenue that leads to highest net income as well, compared to both Gap and Ralph Lauren. Ralph Lauren does non lead these companies with its revenues and income precisely rather with its gross profits. They are consistently higher(prenominal) up the industry average and are also much higher relative to the other companies we analyzed. Ralph Lauren also shows the best percentage of sales growth in the past fiscal years. Sales Growth3 Yr dis setPolo14.3%21.8%American Eagle0.9%6.5%Gap-2.3%3.3%For apparel retailers, new fashion trends and veritable(a) period of time of promotions entrust serve up a low single digits enlarge in sales in 2012. This is what you see with Gap and American Eagle they do non show major attachs in sales growth except on steadily rising at roughly 5% in the three year trend. Ralph Lauren shows a jump of 7% which could be due to the sumptuousness brand section of retail section because of the opportunities in emergent markets mu ch(prenominal) as Asia and Latin America check to industry reports. American Eagle plans on accelerating growth through internet sales. This generates higher margins for the company, last year it accounted for 12% of company revenues. This trend is also appa postulate in the other two companies because nearly retailers ask to offer the convenience of online shopping to customers. The online furrow provides a cost effective way for retailers to widen their reachacross animated and new markets. Gap intensified its world-wide strategy as well, opening stores in Europe and China, and outlets accompanied by an e-commerce platform in Canada, Europe, and China.The company has 22% of sales from regions outside the US, up 7.6% from the year-ago period. This industry shows a thrust of penetration in the supranational markets looking to append in the future(a) few years. Teenagers also play an historic role in the industry trends. With 7.1% of US population they pitch been a fra nkly force in retail with the trail beneficiaries being Gap, Abercrombie, American Eagle, and Urban Outfitters. This ties sales growth for both Gap and American Eagle due to a legal age of the teen population shopping at these two companies. Helping increase sales growth and stool for revenues for the firm. The biggest window for chance in the retail sector seems to be the oerseas markets but especially China, agree to the S&P industry reports. Gaps favourableness has grown over the past three years present bigger EBIT and EBITDA margins which shows strong management and wellnessy meshwork. Ralph Lauren is also growing profitably as well as their margins confirm increase with time. American Eagle has been on teetering amid being profitable and running expeditiously to stupefy in the game.Net Income Growth3 Yr TrendPolo18.4%20.0%American Eagle-16.8%7.9%Gap14.0%9.3%On the margin side of things Polo seems to be the best company, this is because they are a sumptuousness brand which tends to have higher margins. This makes up for their lack of revenues because stack buy less quantity of the luxury brands and tend to buy more of the measuring stick crossways that are affordable and dumb have above average quality, such as Gap Inc. and American Eagle. The industry research showed that the recent drop in cotton fiber prices allow answer retail companies staggeringly in profit margins. This will help companies such as Gap and American Eagle more than luxury brands interchangeable Ralph Lauren. This is shown in Gaps trends in the past years for EBIT Margins in 2009 they had 10.7% which change magnitude to 12.8% in 2010 this is a 2.1% increase.This change magnitude other .6% to 13.4% in 2011, this can be communicate to grow even more in 2012 with more drops in the cotton prices. Gap reported that two-thirds of their increases were in the drop in cotton prices. Polo has also seen increases in EBIT margins but not in such a drastic change. From 2010 to 2011 they had a .7% increase on EBIT margin and then slowed down to a .2% growth from 2011 to 2012. This is because they were less affected by the change in cotton prices. American Eagle showed a decrease in EBIT margins in 2012 with a change of -3.4%. This termination should not be as bully as reported because in 2012 they had a loss on impairment of assets which is not a recurring expense. EBIT Margin3 Yr TrendPolo14.7%15.4%15.6%American Eagle10.6%10.7%7.3%Gap10.7%12.8%13.4%EBITDA margin adds certify the expenses taken out from depreciation and amortization, two non- capital expenses. Adding gumption those two expenses increases both companies EBIT margins by 4-5% for the three years analyzed. Ralph Laurens EBITDA margins seem to be declining in the three year trend which could raise questions about their assets and property seed and equipment expenses being raised. On the other pile you can see Gap showing strong 1-2% increases in both EBIT and EBITDA. another(prenominal) (prenominal) key metric of financial profitability of a firm is wages per share. Ralph Laurens earning per share is $7.09, as they are a more profitable firm within the industry and do not have a rotary of debt on their symmetry mainsheet, with little supplement, is the reason there earnings per share are consistent and normally higher than the other two firms.Gaps earning per share comes in at $2.05, they do not conduct a lot of debt on their statements which means they dont carry much leverage as well, giving them a worthy earnings per share. They also repurchased stocks from the public which is another reason the earnings per share are moderately low. American Eagle had a earning per share of $0.96, this is due to the fact that they have more shares outstanding than their net income at the end of each year. They also carry no debt on their balance sheet so do not indispensability to leverage themselves. EBITDA Margin3 Yr TrendPolo19.4%19.0%18.3%American Eagle15.2%15.4%11 .8%Gap15.1%17.5%17.9%Return on Equity shows how the company is profitable compared to their uprightness. Ralph Lauren and Gap have shown unanimous growth on this in the past three years. This is due to their growth in sales due to expanding sales into emergent markets such as Asia and Latin America, firearm maintaining take equity in their companies. Gap was also able to buy lynchpin some stock which made them able to increase their return on equity. American Eagle has stayed constant the past three years, this happened because they increased equity connatural to their increase in net sales. Return on assets shows how the company is profitable compared to their assets.Gap increased their return on assets because they closed many shops around the world that were not playing to their standards and also leasing all of their stores. This decreased their assets while maintaining high sales which gave them a break out return on assets. Polo was able to increase return on assets by 1% each year, they were able to do this by having sufficient sales growth. The return on assets is also repaird because many retail companies entered the fall season with breed levels in line with sales trends. This means that companies are not over producing product so they are able to sell their product at a maximum price, this maximises their sales in which maximizes their return on assets. This has the equal effect on return on equity. ROE3 Yr TrendPolo15.4%17.2%18.6%American Eagle10.7%10.4%10.7%Gap22.0%22.5%29.5%ROA 3 Yr TrendPolo10.3%11.4%12.6%American Eagle7.9%7.5%7.8%Gap12.8%13.8%17.0% mend analyzing financial leverage Polo has the most debt to equity on its balance sheets ranging in 8-9%. Compared to American Eagle and Gap which has little to no debt ranging from 0-1%. Gap has most analogously give of its debts from previous years and now rent their property and stores eliminating the cost of long term debt. American Eagle is very akin(predicate) with actually 0% debt in the three year trend. Polo is a moderately leveraged company which brings on the additional risk of carrying debt, although can boost earnings per share for profitability. maximising sales by carry oning inventory levels in line with sales trends helped maximize these companies leverage. Companies that over produce products have to sell at discounts to get rid of inventories this is not unattackable because they lose out on profits and do not maximize their leverage. as well as companies that do not produce enough products lose out on sales this also does not maximize leverage. All three of these companies were able to keep their inventories in line with sales trends. Gap was able to decrease their debt to equity by buying back stock and maintaining a normal level of debt. Polo was able to decrease their debt to equity by buying back some stock and maintaining a level amount of debt.Debt to Equity 3 Yr TrendPolo9.0%9.0%8.0%American Eagle0.0%0.0%0.0%Gap1.0%0.0%0.0%All of t hese companies had similar ideas with their cash activities regarding buying back shares in 2011. American Eagle has the best position on cash, this is due to that they have no debt to pay back so all of their cash back into the company or into dividends. American Eagle bought back shares in 2011 to possibly help raise earnings per share. Gap also has a good cash flow they also did the selfsame(prenominal) thing and bought back shares in 2011. Polo was the chastise out of the three but is still in good standing they followed lodge and also bought back shares in 2011. It is all important(p) for Polo to have a good cash flow because they still have long-run debts to pay back. Ending Cash Balance201020112012Polo $ 95.7 $ (123.3) $ 228.0 AmericanEagle $ 2,317.9 $ (63.2) $ 511.5 Gap $ 620.0 $ (812.0) $ 307.0We expect Gap to be the most profitable because they have high revenues, little to no debt, in good standing with creditors, and have good margins. This is better than Ralph Laur en because industry research shows that luxury brands will slow in growth while standard brands will plow to grow. Although Gap does not have the highest sales growth their market capitalization will help them succeed in emerging markets such as Asia and Latin America. Also with the decrease in cotton prices Gap is now able to have larger profit margins while keeping a lower priced product with the same quality. This increase in profit margins Gap will be able to generate the most amount of cash flow. With the trends continuing with their margins have with the growth of new markets their cash flow will increase substantially.Ralph Lauren has been noted so have some corporate fond responsibility problems in Indonesia where they have illogical up unions that have tried to improve working conditions. This issue as well as others should be considered because more and more people now a twenty-four hour period are taking into consideration the companies CSR sooner buying their produ ct. Gap Inc. sets a high standard for their manufactures to up hold health and safety standards. They admit that some places still do not follow these regulations but Gap puts in a lot of resources into fixing them or even terminating the air with them. This is good because they are socially creditworthy and are willing to terminate business to stay responsible. Most companies try to stay socially responsible by implementing current regulations for working conditions in third world countries so they do not faulty mouth their own firm. The International wear upon Organization and United Nations try to keep them in check in order to protect people and the environment.The information that we would like to request from senior management at each firm would be the growth forecasts and document containing information about international expansion. It seems apparent that international markets are future(a) big opportunity for the retail sector to increase revenues and income for most fi rms in this sector. This would help us invest in the company that will grow larger in the years to come as well as forecast numbers for potency growth which would help with our decision make process.