Cabela’s has three sources of revenue: merchandise sales, financial services revenue and other, which accounts for revenue that cannot be classified in the first two categories. The percentage of total revenue generated by these sources remained relatively unchanged year over year. Additionally the major expense accounts associated with generating revenue are cost of goods sold and selling, general and administrative expenses. The Company was able to reduce it COGS from 59.1% to 58.4% while maintaining its general and administrative expenses at 34%.
The Company’s net sales increased by 14.7%, while gross profit margin increased by 16.8% for the same period from 2005 to 2006. The accounts receivable turnover ratio change was negligible with a 48.3 versus 47.1 for the previous year. The company is growing its sales and profit margin at a steady pace without giving any ground to the amount of time required to collect on receivables.
Inventory increased 22% in 2006 and accounted for 28% of total assets; however, this was a decrease from 29% for 2005. The Company is improving their ability to manage inventory levels which can be substantiated not only by the decrease in percentage of total assets but also by the increase in inventory turnover from 2.63 to 2.72. The company will need to continue to focus on inventory management in order to improve turnover and return on assets.
Cabela’s has improved sales by 14.7% and translated that into 3.2% growth in net profit. The aggressive growth of the brick and mortar retail business has led to an increase in assets primarily in inventories and buildings which has led to degradation in all ratios relating to assets. The company has been able to use this leverage to improve profitability by delivering higher gross, operating and net profit margins and increasing return on equity from 11.34% to 11.69%.
Ratio Analysis
Income Statement Horizontal Analysis
Income Statement Vertical Analysis
Balanace Sheet Horizontal Analysis
Balance Sheet Vertical Analysis
Tuesday, December 11, 2007
Monday, December 10, 2007
Analysis of Operating Activities: Dick's Sporting Goods, Inc.
Dick’s has three sources of revenue: hardlines, apparel and footwear. These sources accounted for 57%, 26% and 17% of total revenue in 2006, respectively. These figures showed relatively no change from 2005 numbers. Revenue is recognized from the point of sale, net of sales tax. A provision for anticipated returns is provided through a reduction in sales and cost of sales. Cost of goods sold includes the cost of merchandise, inventory shrinkage, freight, distribution and store occupancy costs. Selling, general and administrative expenses include payroll, advertising, information systems, legal, etc. There were no major changes in these expense accounts as they remained at 71% and 28% of sales, respectively.
The Company’s net sales increased 19% from 2005 to 2006 while accounts receivable remained at 2% of total assets. The accounts receivable turnover ratio weakened during 2006, falling to 78.47 from 89.39 the previous year. Though the Company is collecting at a slower rate, its turnover ratio still remains well above industry average.
Inventories improved to 42% of total assets from 45% the previous year. The Company’s inventories are stated at the lower of weighted average cost or market. Inventories are net of shrinkage and obsolescence and costs consist of the direct cost of merchandise including freight. Inventory turnover weakened to 4.85 during 2006 from 4.90 the previous year.
The Company is a specialty retailer which offers both premium and private brand label. The margins improved to 28.79% and 6.35% from 28.10% and 5.06% during 2005. The company improved its return on assets and net profit margin to 7.39% and 3.62%, respectively from 6.14% and 2.14% the previous year. Return on assets weakened to 2.04 from 2.21 the previous year. The Company is centered between a product differentiation strategy and a cost leadership strategy.
For complete vertical and horizontal analysis please click on the links below:
Income statement vertical analysis
Income statement horizontal analysis
Balance sheet vertical analysis
Balance sheet horizontal analysis
Ratios
The Company’s net sales increased 19% from 2005 to 2006 while accounts receivable remained at 2% of total assets. The accounts receivable turnover ratio weakened during 2006, falling to 78.47 from 89.39 the previous year. Though the Company is collecting at a slower rate, its turnover ratio still remains well above industry average.
Inventories improved to 42% of total assets from 45% the previous year. The Company’s inventories are stated at the lower of weighted average cost or market. Inventories are net of shrinkage and obsolescence and costs consist of the direct cost of merchandise including freight. Inventory turnover weakened to 4.85 during 2006 from 4.90 the previous year.
The Company is a specialty retailer which offers both premium and private brand label. The margins improved to 28.79% and 6.35% from 28.10% and 5.06% during 2005. The company improved its return on assets and net profit margin to 7.39% and 3.62%, respectively from 6.14% and 2.14% the previous year. Return on assets weakened to 2.04 from 2.21 the previous year. The Company is centered between a product differentiation strategy and a cost leadership strategy.
For complete vertical and horizontal analysis please click on the links below:
Income statement vertical analysis
Income statement horizontal analysis
Balance sheet vertical analysis
Balance sheet horizontal analysis
Ratios
Saturday, December 8, 2007
Analysis of Operating Activities Costco
Costco has five sources of revenue. Four traditional discount store categories: Sundries, Hardlines, Softlines, Food, and Fresh Food; as well as a category for all other sources of revenue, Ancillary.
Ancillary includes pharmacies, gas station, optical, and other services not normally found in the business model of a discount store. From 2004 to 2006 Costco has increased its percentage of overall sales in the ancillary category from 11% to 14%. It remains to be seen if this divergence from the traditional model will benefit the company. However it is clear that ancillary operations are becoming more integral to Costco’s Business model. Possible reasons for the increased concentrations may include more demand for the services or the market for the other categories is seeing decreasing growth of profits.
Although gross profit increased by 12% from 2005 to 2006, total revenue increased by 13.6%. Indicating a disproportionably greater increase in the costs of merchandise relative to the amount of revenue earned, as shown by the 1.30% decrease in gross profit as a percentage of total revenue. This decrease may be indicative of rising merchandise costs, or it may indicate diseconomies of scale created by the continued growth of the corporation. If the latter is true, investors should be weary of purchasing Costco stock, as diseconomies of scale may indicate the peak of the growth phase in a corporation.
Friday, December 7, 2007
TP3: Analysis and Comparision of Companies Based on Financing Activities
Each of the three companies analyzed improved its liquidity during 2006 with each posting a current ratio of 1.5. The improved ratios can be attributed to increased sales and tremendous growth of the companies. Cabela’s experienced the greatest growth in working capital at 130%, while Costco experienced the worst with a 72% decline.
The three companies approach financing of long-term debt in different ways. Costco’s old debt is becoming current as evident by a 69.70% decrease in long-term debt and a 9466% increase in the current portion of long-term debt. Cabela’s increased its long-term debt by 214% from the issuance of a large note. Dick’s long-term debt increased 12.26%, primarily due to increases in non-cash obligations and deferred revenue. The ratios of assets-to-long-term debt for Costco, Cabela’s and Dick’s were 38.22, 4.40 and 3.93, respectively.
Costco has the lowest ratio of assets-to-equity of 1.91 revealing the company’s ability to fund asset expenditures internally, while Dick’s had the highest at 2.46 revealing its use of debt and other instruments for financing. Costco had the highest earnings per share at $2.37, while Cabela’s had the lowest of $1.32. Costco, Dick’s and Cabela’s all trade on the New York Stock Exchange and the current price per share of each company’s stock is $71.84, $31.98 and $15.94, respectively.
Dick’s had the highest return on equity at 18.14%, but the company also had the highest debt to assets ratio which could be boosting return on equity inflating debt figures. But, overall Dick’s could arguably be the most attractive company because of its maturity and internal growth. Costco’s weakening operating capital and Cabela’s large note that increased its long-term debt all warrant red flags in the financing section of the cash flow statements. Dick’s has stayed away from high-risk financing activities and has grown from funds generated internally while, for the most part, still posting numbers at or better than the competition.
Review company specific analysis:
Cabela's
Dick's Sporting Goods
Costco
The three companies approach financing of long-term debt in different ways. Costco’s old debt is becoming current as evident by a 69.70% decrease in long-term debt and a 9466% increase in the current portion of long-term debt. Cabela’s increased its long-term debt by 214% from the issuance of a large note. Dick’s long-term debt increased 12.26%, primarily due to increases in non-cash obligations and deferred revenue. The ratios of assets-to-long-term debt for Costco, Cabela’s and Dick’s were 38.22, 4.40 and 3.93, respectively.
Costco has the lowest ratio of assets-to-equity of 1.91 revealing the company’s ability to fund asset expenditures internally, while Dick’s had the highest at 2.46 revealing its use of debt and other instruments for financing. Costco had the highest earnings per share at $2.37, while Cabela’s had the lowest of $1.32. Costco, Dick’s and Cabela’s all trade on the New York Stock Exchange and the current price per share of each company’s stock is $71.84, $31.98 and $15.94, respectively.
Dick’s had the highest return on equity at 18.14%, but the company also had the highest debt to assets ratio which could be boosting return on equity inflating debt figures. But, overall Dick’s could arguably be the most attractive company because of its maturity and internal growth. Costco’s weakening operating capital and Cabela’s large note that increased its long-term debt all warrant red flags in the financing section of the cash flow statements. Dick’s has stayed away from high-risk financing activities and has grown from funds generated internally while, for the most part, still posting numbers at or better than the competition.
Review company specific analysis:
Cabela's
Dick's Sporting Goods
Costco
Analysis of Financing Activities: Cabela's
Current Liabilities
The working capital of Cabela’s increased year over year from 2005 to 2006 by 130% providing for more available funds for operations. The company was able to achieve this increase in working capital by increasing its current assets by 37%, primarily in the increase of cash and cash equivalents, while only increasing current liabilities by 13% over the same period. The company increased its deferred income taxes, gift certificates and credit card reward points and accounts payable by 350%, 19% and 47% respectively which were responsible for the year over year increase in current liabilities. The increase in deferred income taxes and accounts payable can be attributed to the growth in inventory levels as a result of the growth in its destination retail locations. The increase in rewards liabilities can also be attributed to the growth of its retail destination stores which provide for additional customer traffic and increased sales. The ability of the company to improve its working capital position provided for an increase in its current ratio from 1.3 to 1.5 while maintaining its quick ratio of .5 over the same period. The company has improved its ability to fund operational activities and its ability to pay its short-term debt commitments.
Long-Term Liabilities
The company increased its long-term liabilities by 124% from the previous year. This increase is due to the issuance of a 5.99% 10 year note in the amount of 215,000,000 which was responsible for the majority of the 214% increase in long-term debt over the previous year. The company currently has four unsecured notes payable in the amount of $297,434,000 due between the current year and 2016 with an average rate of 5.8%. Additionally, the company has capital leases for its Boise, Idaho retail store and its Wheeling, West Virginia distribution facility. The current obligation for these capital leases is $13,948,000 through 2036. The significant increase in long-term liabilities resulted in the ratio assets-to-long-term-liabilities to decrease from 7.7 to 4.4 year over year. The decrease in this ratio due to the increase in long-term debt brings the company more in line with its competition in does not expose it to an unacceptable level of risk.
Stockholders’ Equity
At fiscal year end 2006, the Company has 59,556,431 and 56,691,249 shares of Class A Voting issued and outstanding. It also has 5,807,305 and 8,073,205 shares of Class B Non-voting issued and outstanding. During 2006, the Company sold an additional 2.8 million shares of Class A and bought back 2.2 million shares of Class B resulting in a net increase in paid-in capital of 3.3%. The Company trades on the NYSE under ticker symbol CAB currently trading at $16.15 and with a 52 week price range of $15.41 to $28.80. Earning per share of $1.32 was reported for 2006, up $0.20, or 17.8% from 2005. The company improved its assets-to-equity position over this period as evidenced by the ratio improving from 2.14 in 2005 to 2.39 in 2006.
Capital Structure Issues
The Company has improved its performance in profitability for stockholders by improving its return on equity from 11.3% to 11.7% for 2006. The Company was able to achieve this result by increasing its financial leverage. The percentage of assets financed by debt increased from 53.2% to 58.1% in 2006 and the amount of liabilities per dollar of stockholders’ equity increased by 0.25. The Company is funding its expansion by taking on additional long-term debt.
The working capital of Cabela’s increased year over year from 2005 to 2006 by 130% providing for more available funds for operations. The company was able to achieve this increase in working capital by increasing its current assets by 37%, primarily in the increase of cash and cash equivalents, while only increasing current liabilities by 13% over the same period. The company increased its deferred income taxes, gift certificates and credit card reward points and accounts payable by 350%, 19% and 47% respectively which were responsible for the year over year increase in current liabilities. The increase in deferred income taxes and accounts payable can be attributed to the growth in inventory levels as a result of the growth in its destination retail locations. The increase in rewards liabilities can also be attributed to the growth of its retail destination stores which provide for additional customer traffic and increased sales. The ability of the company to improve its working capital position provided for an increase in its current ratio from 1.3 to 1.5 while maintaining its quick ratio of .5 over the same period. The company has improved its ability to fund operational activities and its ability to pay its short-term debt commitments.
Long-Term Liabilities
The company increased its long-term liabilities by 124% from the previous year. This increase is due to the issuance of a 5.99% 10 year note in the amount of 215,000,000 which was responsible for the majority of the 214% increase in long-term debt over the previous year. The company currently has four unsecured notes payable in the amount of $297,434,000 due between the current year and 2016 with an average rate of 5.8%. Additionally, the company has capital leases for its Boise, Idaho retail store and its Wheeling, West Virginia distribution facility. The current obligation for these capital leases is $13,948,000 through 2036. The significant increase in long-term liabilities resulted in the ratio assets-to-long-term-liabilities to decrease from 7.7 to 4.4 year over year. The decrease in this ratio due to the increase in long-term debt brings the company more in line with its competition in does not expose it to an unacceptable level of risk.
Stockholders’ Equity
At fiscal year end 2006, the Company has 59,556,431 and 56,691,249 shares of Class A Voting issued and outstanding. It also has 5,807,305 and 8,073,205 shares of Class B Non-voting issued and outstanding. During 2006, the Company sold an additional 2.8 million shares of Class A and bought back 2.2 million shares of Class B resulting in a net increase in paid-in capital of 3.3%. The Company trades on the NYSE under ticker symbol CAB currently trading at $16.15 and with a 52 week price range of $15.41 to $28.80. Earning per share of $1.32 was reported for 2006, up $0.20, or 17.8% from 2005. The company improved its assets-to-equity position over this period as evidenced by the ratio improving from 2.14 in 2005 to 2.39 in 2006.
Capital Structure Issues
The Company has improved its performance in profitability for stockholders by improving its return on equity from 11.3% to 11.7% for 2006. The Company was able to achieve this result by increasing its financial leverage. The percentage of assets financed by debt increased from 53.2% to 58.1% in 2006 and the amount of liabilities per dollar of stockholders’ equity increased by 0.25. The Company is funding its expansion by taking on additional long-term debt.
Thursday, December 6, 2007
Analysis and Comparison of Financing Activities: Dick's Sporting Goods
Please click for complete balance sheet vertical and horizontal analysis.
Current Liabilities
Accounts payable increased 13.13% from 2005 to 2006 which can be expected from a sales increase of 18.64%. Accounts payable actually decreased 2.52% as a percentage of total liabilities and equity which shows the company is paying its bills quicker than it did the previous year. Accrued expenses and deferred revenue both increased by approximately 39% in 2006 which was much higher than the sales increase. Accrued expenses consist of accrued payroll, accrued property and equipment and other accrued expenses which increased 43.76%, 49.76% and 34.26%, respectively, from 2005 to 2006. These increases can be attributed to the opening of 39 new stores during 2006. Construction allowances and capitalized rent increased 36.56% during 2006, from $73.3 million to $100.1 million. Deferred revenue related to gift cards increased 24.44%, from $58.1 million in 2005 to $72.3 million in 2006. These accounts account for 74.13% of the total deferred expense accounts. Increases can be attributed to expansion and increases in sales revenue. The Company’s current ratio was 1.30 and 1.54 for years 2005 and 2006, respectively, which reveals improved liquidity during 2006.
Long-term Liabilities
The only account that showed significant change from 2005 to 2006 was non-cash obligations for construction in progress – leased facilities which can also be attributed to the Company’s expansion. All long-term liability accounts remained relatively identical as a percent of total liabilities and equity. Senior convertible notes account for 50.93% of the Company’s total long-term liabilities. On February 18, 2004, the Company completed a private offering of $172.5 million issue price of senior unsecured convertible notes due February 18, 2024. The notes were sold at an $82.6 million discount and have a total face amount of $255.1 million. The Company’s other debt includes a note payable in the amount of $708,000, including $46,000 of the current portion. The terms of this note are monthly installment of $4,000, including interest at 4%, through 2020. Two buildings are leased under a capital lease that was entered into May 1, 1986 and expires April 2021. The Company also has a capital lease for a store location with a fixed interest rate of 10.6% which matures ion 2024. The Company’s commitment and contingencies include licensing agreements for the exclusive rights to use certain trademarks which the company will pay a minimum annual royalty fee of $1 million. The Company’s ratio of assets-to-long-term liabilities was 3.93 and 4.50 for years 2005 and 2006, respectively. The company improved its liquidity position in 2006 as long-term accounted for 22.22% of assets, as compared to 25.40% in 2005.
Stockholders’ Equity
At fiscal year end 2006, the Company has 39,691,277 shares of common stock issued and outstanding, 13,393,840 of Class B common stock and no shares of preferred. The Company’s shares trade on the New York Stock Exchange with the ticker symbol DKS. The average trade volume is 1,974,200 and the 52 week stock price range is $24.00 to $36.78. Earning per share of $2.03 were reported for 2006, up $0.68, or 50.37%, from 2005. The Company financed more of its assets with equity during 2006 as witnessed by a assets-to-equity ratio of 2.46, as compared to 2.86 during 2005.
Capital Structure Issues
The Company’s overall capital structure improved during 2006. Return on equity improved from 11.76% in 2005 to 18.14% in 2006. The debt-to-equity ratio improved from 2.86 in 2005 to 1.46 in 2006 and the debt-to-assets ratio improved from 65.08% to 59.29%. The Company is growing its asset base using heavier amounts of equity and less debt than in the recent past.
Current Liabilities
Accounts payable increased 13.13% from 2005 to 2006 which can be expected from a sales increase of 18.64%. Accounts payable actually decreased 2.52% as a percentage of total liabilities and equity which shows the company is paying its bills quicker than it did the previous year. Accrued expenses and deferred revenue both increased by approximately 39% in 2006 which was much higher than the sales increase. Accrued expenses consist of accrued payroll, accrued property and equipment and other accrued expenses which increased 43.76%, 49.76% and 34.26%, respectively, from 2005 to 2006. These increases can be attributed to the opening of 39 new stores during 2006. Construction allowances and capitalized rent increased 36.56% during 2006, from $73.3 million to $100.1 million. Deferred revenue related to gift cards increased 24.44%, from $58.1 million in 2005 to $72.3 million in 2006. These accounts account for 74.13% of the total deferred expense accounts. Increases can be attributed to expansion and increases in sales revenue. The Company’s current ratio was 1.30 and 1.54 for years 2005 and 2006, respectively, which reveals improved liquidity during 2006.
Long-term Liabilities
The only account that showed significant change from 2005 to 2006 was non-cash obligations for construction in progress – leased facilities which can also be attributed to the Company’s expansion. All long-term liability accounts remained relatively identical as a percent of total liabilities and equity. Senior convertible notes account for 50.93% of the Company’s total long-term liabilities. On February 18, 2004, the Company completed a private offering of $172.5 million issue price of senior unsecured convertible notes due February 18, 2024. The notes were sold at an $82.6 million discount and have a total face amount of $255.1 million. The Company’s other debt includes a note payable in the amount of $708,000, including $46,000 of the current portion. The terms of this note are monthly installment of $4,000, including interest at 4%, through 2020. Two buildings are leased under a capital lease that was entered into May 1, 1986 and expires April 2021. The Company also has a capital lease for a store location with a fixed interest rate of 10.6% which matures ion 2024. The Company’s commitment and contingencies include licensing agreements for the exclusive rights to use certain trademarks which the company will pay a minimum annual royalty fee of $1 million. The Company’s ratio of assets-to-long-term liabilities was 3.93 and 4.50 for years 2005 and 2006, respectively. The company improved its liquidity position in 2006 as long-term accounted for 22.22% of assets, as compared to 25.40% in 2005.
Stockholders’ Equity
At fiscal year end 2006, the Company has 39,691,277 shares of common stock issued and outstanding, 13,393,840 of Class B common stock and no shares of preferred. The Company’s shares trade on the New York Stock Exchange with the ticker symbol DKS. The average trade volume is 1,974,200 and the 52 week stock price range is $24.00 to $36.78. Earning per share of $2.03 were reported for 2006, up $0.68, or 50.37%, from 2005. The Company financed more of its assets with equity during 2006 as witnessed by a assets-to-equity ratio of 2.46, as compared to 2.86 during 2005.
Capital Structure Issues
The Company’s overall capital structure improved during 2006. Return on equity improved from 11.76% in 2005 to 18.14% in 2006. The debt-to-equity ratio improved from 2.86 in 2005 to 1.46 in 2006 and the debt-to-assets ratio improved from 65.08% to 59.29%. The Company is growing its asset base using heavier amounts of equity and less debt than in the recent past.
Analysis of Financing Activities: Costco
For a full overview of Costco’s balance sheet with vertical and horizontal analysis as well as pertinent financial ratios click here.
Costco saw a large decrease in several of its short term assets. Cash decreased by 26.7% from 2005 to 2006 and short term investments decreased by 5.37%. This substantial decrease in short term assets probably reflects the massive 9466.6% increase in current portion of long-term debt.
Such an increase in current long-term debt would normally be cause for concern, except long term debt decreased by $495,306,000 while current portion of long-term debt increased by “only” $305,298,000. This is indicative of old debt becoming due. Also, the fact that long term debt decreased by more than the amount due this year indicates that Costco is paying down its debt earlier than it is due, which is always a good sign.
The financial effects of Costco’s decreased Debt may be seen on the income statement as a 63.5% decrease in interest expense and an associated increase in the “times interest earned” ratio of 205%. This indicates that Costco is in a position where it can easily repay its lenders, showing that the corporation presents little chance of bankruptcy.
A wholly owned Canadian subsidiary of Costco has a $181 million commercial paper program. The corporation may be able to use the increasing strength of the Canadian dollar relative to the U.S. dollar to their advantage by borrowing from Canadians to purchase U.S. goods.
The corporation also owns a Japanese subsidiary with two $13 million lines of credit with applicable interest rates of 0.95% and 0.84%. Once again, Costco may use the strength of the Japanese Yen to purchase U.S. goods. Coupled with the remarkably low interest rate, Costco is in an excellent position to take advantage of the growing Japanese market. However, in April 2003, the Japanese subsidiary issued $34 million in promissory notes bearing interest payable semiannually at 0.92% with principle due in April 2010. If the Japanese subsidiary were not able to cover the cost of the principle, Costco would lose more money by having to pay with the relatively weaker (compared to the yen/dollar relationship of 2003) U.S. dollar.
Costco does not hold treasury stock. Any shares repurchased are retired. The Corporation's board has authorized the repurchase of $3 billion worth of common stock over the next three years beginning in January 2006. Although the repurchase is contingent on the economic status of the corporation, given the current growth exceeding the acquirement of assets, there exists a high probability of the buy-backs occurring. If the buy-back does occur, the market price of the stock may increase due to higher earnings per share value and a resulting lower PE and PEG.
Costco saw a large decrease in several of its short term assets. Cash decreased by 26.7% from 2005 to 2006 and short term investments decreased by 5.37%. This substantial decrease in short term assets probably reflects the massive 9466.6% increase in current portion of long-term debt.
Such an increase in current long-term debt would normally be cause for concern, except long term debt decreased by $495,306,000 while current portion of long-term debt increased by “only” $305,298,000. This is indicative of old debt becoming due. Also, the fact that long term debt decreased by more than the amount due this year indicates that Costco is paying down its debt earlier than it is due, which is always a good sign.
The financial effects of Costco’s decreased Debt may be seen on the income statement as a 63.5% decrease in interest expense and an associated increase in the “times interest earned” ratio of 205%. This indicates that Costco is in a position where it can easily repay its lenders, showing that the corporation presents little chance of bankruptcy.
A wholly owned Canadian subsidiary of Costco has a $181 million commercial paper program. The corporation may be able to use the increasing strength of the Canadian dollar relative to the U.S. dollar to their advantage by borrowing from Canadians to purchase U.S. goods.
The corporation also owns a Japanese subsidiary with two $13 million lines of credit with applicable interest rates of 0.95% and 0.84%. Once again, Costco may use the strength of the Japanese Yen to purchase U.S. goods. Coupled with the remarkably low interest rate, Costco is in an excellent position to take advantage of the growing Japanese market. However, in April 2003, the Japanese subsidiary issued $34 million in promissory notes bearing interest payable semiannually at 0.92% with principle due in April 2010. If the Japanese subsidiary were not able to cover the cost of the principle, Costco would lose more money by having to pay with the relatively weaker (compared to the yen/dollar relationship of 2003) U.S. dollar.
Costco does not hold treasury stock. Any shares repurchased are retired. The Corporation's board has authorized the repurchase of $3 billion worth of common stock over the next three years beginning in January 2006. Although the repurchase is contingent on the economic status of the corporation, given the current growth exceeding the acquirement of assets, there exists a high probability of the buy-backs occurring. If the buy-back does occur, the market price of the stock may increase due to higher earnings per share value and a resulting lower PE and PEG.
Friday, November 30, 2007
TP2 - Analysis and Comparison Based on Investing Activities
The horizontal and vertical analysis of all three companies’ long term assets identified the fact that all three companies are currently engaged in a tremendous period of physical growth. The greatest growth rate of long term assets was experienced by Cabela’s with a 30.6% increase from the previous year. Dick’s Sporting Goods increased its long term assets by 16.96% and Costco achieved a more sustainable rate of 10.3%. We feel that even though all three companies were growing in size the rate of increase experienced by Cabela’s could be unsustainable and cause degradation in operating efficiency.
The investing cash flows and accounting policies were consistent from company to company. The investing cash flows did not reveal any information that would cause us to feel more negative or positive about any of the companies. Additionally, the accounting policies implemented by each company were very consistent. Each company records property and equipment at cost and uses the straight line depreciation method.
The examination of property and equipment confirmed our conclusion from our analysis of long term assets that each company is continuing to grow. The most mature of the three companies is Dick’s Sporting Goods with the depreciation of 41.3% of its property and equipment. Costco and Cabela’s are currently at rates of 26% and 21% respectively. This information once again indicates that Cabela’s is expanding its operations the fastest and this may increase the risk associated with this company.
We examined return on assets and return on fixed assets in order to determine the level of efficiency for each company. Dick’s Sporting Goods was the top performer in both categories. Additionally, Dick’s has been able to achieve a relatively high net profit margin of 3.62% while increasing its margin year over year. Conversely, Cabela’s has also increased its net profit margin year over year and achieved a rate of 4.16% but it has become a more inefficient operation over the same period. We also examined asset turnover in order to analyze the investment policies of each company. The top performing company in this category was Costco but Dick’s once again performed very well in this category. The analysis of the investing ratios further strengthens our conclusion that Dick’s Sporting Goods is a very stable and efficient company that employs sound investment strategy.
Review Company Specific Analysis:
Analysis of Investing Activities: Dick's Sporting Goods Inc.
Analysis of Investing Activities: Costco
Analysis of Investing Activities: Cabela's Inc. and Subsidiaries
The investing cash flows and accounting policies were consistent from company to company. The investing cash flows did not reveal any information that would cause us to feel more negative or positive about any of the companies. Additionally, the accounting policies implemented by each company were very consistent. Each company records property and equipment at cost and uses the straight line depreciation method.
The examination of property and equipment confirmed our conclusion from our analysis of long term assets that each company is continuing to grow. The most mature of the three companies is Dick’s Sporting Goods with the depreciation of 41.3% of its property and equipment. Costco and Cabela’s are currently at rates of 26% and 21% respectively. This information once again indicates that Cabela’s is expanding its operations the fastest and this may increase the risk associated with this company.
We examined return on assets and return on fixed assets in order to determine the level of efficiency for each company. Dick’s Sporting Goods was the top performer in both categories. Additionally, Dick’s has been able to achieve a relatively high net profit margin of 3.62% while increasing its margin year over year. Conversely, Cabela’s has also increased its net profit margin year over year and achieved a rate of 4.16% but it has become a more inefficient operation over the same period. We also examined asset turnover in order to analyze the investment policies of each company. The top performing company in this category was Costco but Dick’s once again performed very well in this category. The analysis of the investing ratios further strengthens our conclusion that Dick’s Sporting Goods is a very stable and efficient company that employs sound investment strategy.
Review Company Specific Analysis:
Analysis of Investing Activities: Dick's Sporting Goods Inc.
Analysis of Investing Activities: Costco
Analysis of Investing Activities: Cabela's Inc. and Subsidiaries
Thursday, November 29, 2007
Analysis of Investing Activities: Cabela's Inc. and Subsidiaries
Long Term Assets
The long term assets section of Cabela’s Inc.’s (the Company) balance sheet is comprised of net property and equipment. The details of these assets are contained within note 3 of the annual report and consist of land and improvements, buildings and improvements, assets held under capital lease, leasehold improvements, furniture, fixtures and equipment, capitalized software, monuments and animal displays and construction in progress.
Horizontal Analysis
Net property and equipment increased $140,443,000 or 30.6% from 2005 to 2006. The Company’s strategy of expanding its retail destination locations by opening four additional locations in 2006 accounts for the majority of the increase in long term assets. Building and improvements increased 34.2%, furniture, fixtures and equipment increased 29.1% and monuments and animal displays increased 42.8% as a result of this expansion. The opening of the Boise, Idaho location, which is a leased property, increased leasehold improvements by 279.4%. Additionally, the construction of stores scheduled to open in 2007 provided for the increase of 29.8% in construction in progress.
Vertical Analysis
Net property and equipment decreased from 43.9% to 34.3% from 2005 to 2006. While every category of long term assets increased over the same period the growth strategy of the Company increased cash and cash equivalents, credit card loans held for sale and inventories, which outpaced the growth in long term assets. Current assets increased from 50.8% to 54.5% from 2005 to 2006.
Investing Cash Flows
Net cash used in investing activities increased $64,079,000 or 79.5% from 2005 to 2006. The Company maintained the same pace that it set for expansion in 2005 by opening the same number of stores, which provided similar investing cash flows year over year in most categories. The Company accelerated its investment strategy by purchasing $131,225,000 in short-term investments. This investment was a 524.9% increase from 2005 and a net increase in cash outflow of $124,250,000 for short-term investing activities.
Accounting Policies
The Company’s property and equipment are stated at cost and depreciated using the straight-line method over its useful life. Leasehold improvements are amortized over the lives of the leases or the service lives of the improvements whichever is shorter. Major improvements that extend the useful life of an asset are charged to the property and equipment accounts. The Company also held $1,065,000 in marketable securities which are recorded at amortized cost.
Property and Equipment
As of 2006, the original cost of the Company’s property and equipment was $790,777,000, which is an increase of $180,808,000 or 29.6%. The write off of $190,912,000 in depreciation and amortization represents 21.4% of the Company’s total property and equipment. The Company currently operates 18 retail destination locations of which 4 were opened in 2006, 4 were opened in 2005 and the oldest location is 9 years old. This expansion information juxtaposed with the increase in property and equipment and the low level of depreciation expense indicates that Cabela’s is currently expanding its sales capacity and assets are relatively new.
Segment Information
Cebela’s divides its operations into the four separate business segments of direct, retail, financial services and other. Direct, this consists of catalogs and its website, increased revenue 4.2% to $1.09 billion. Retail, this consists of its destination retail stores, increased revenue 32.3% to $820.3 million with a comparable store sales increase of 1.3%. Financial services, this consists of its credit card business, increased revenue 29.9% to $137.4 million. Other, this consists of aggregated non-merchandising outfitter services, real estate land sales and corporate and other expenses, decreased revenue 43% to $17 million. The Company is focusing on expanding its retail segment by opening new retail destination locations. The revenue growth experienced by opening four additional stores in 2006 makes a very strong case for the continued expansion of this segment.
Ratio Analysis
The efficiency and effectiveness of the Company has diminished year over year as evidenced in the analysis of its return and turnover of assets. The Company has increased its net profit margin which in turn decreases the rate of sales growth and has a negative impact on the effectiveness and efficiency of a retail organization. The Company has embarked on an aggressive expansion program and increased both its fixed and current assets through the acquisition of land, buildings and inventory; however, it has not effectively grown efficiency with its new sales capacity.
The long term assets section of Cabela’s Inc.’s (the Company) balance sheet is comprised of net property and equipment. The details of these assets are contained within note 3 of the annual report and consist of land and improvements, buildings and improvements, assets held under capital lease, leasehold improvements, furniture, fixtures and equipment, capitalized software, monuments and animal displays and construction in progress.
Horizontal Analysis
Net property and equipment increased $140,443,000 or 30.6% from 2005 to 2006. The Company’s strategy of expanding its retail destination locations by opening four additional locations in 2006 accounts for the majority of the increase in long term assets. Building and improvements increased 34.2%, furniture, fixtures and equipment increased 29.1% and monuments and animal displays increased 42.8% as a result of this expansion. The opening of the Boise, Idaho location, which is a leased property, increased leasehold improvements by 279.4%. Additionally, the construction of stores scheduled to open in 2007 provided for the increase of 29.8% in construction in progress.
Vertical Analysis
Net property and equipment decreased from 43.9% to 34.3% from 2005 to 2006. While every category of long term assets increased over the same period the growth strategy of the Company increased cash and cash equivalents, credit card loans held for sale and inventories, which outpaced the growth in long term assets. Current assets increased from 50.8% to 54.5% from 2005 to 2006.
Investing Cash Flows
Net cash used in investing activities increased $64,079,000 or 79.5% from 2005 to 2006. The Company maintained the same pace that it set for expansion in 2005 by opening the same number of stores, which provided similar investing cash flows year over year in most categories. The Company accelerated its investment strategy by purchasing $131,225,000 in short-term investments. This investment was a 524.9% increase from 2005 and a net increase in cash outflow of $124,250,000 for short-term investing activities.
Accounting Policies
The Company’s property and equipment are stated at cost and depreciated using the straight-line method over its useful life. Leasehold improvements are amortized over the lives of the leases or the service lives of the improvements whichever is shorter. Major improvements that extend the useful life of an asset are charged to the property and equipment accounts. The Company also held $1,065,000 in marketable securities which are recorded at amortized cost.
Property and Equipment
As of 2006, the original cost of the Company’s property and equipment was $790,777,000, which is an increase of $180,808,000 or 29.6%. The write off of $190,912,000 in depreciation and amortization represents 21.4% of the Company’s total property and equipment. The Company currently operates 18 retail destination locations of which 4 were opened in 2006, 4 were opened in 2005 and the oldest location is 9 years old. This expansion information juxtaposed with the increase in property and equipment and the low level of depreciation expense indicates that Cabela’s is currently expanding its sales capacity and assets are relatively new.
Segment Information
Cebela’s divides its operations into the four separate business segments of direct, retail, financial services and other. Direct, this consists of catalogs and its website, increased revenue 4.2% to $1.09 billion. Retail, this consists of its destination retail stores, increased revenue 32.3% to $820.3 million with a comparable store sales increase of 1.3%. Financial services, this consists of its credit card business, increased revenue 29.9% to $137.4 million. Other, this consists of aggregated non-merchandising outfitter services, real estate land sales and corporate and other expenses, decreased revenue 43% to $17 million. The Company is focusing on expanding its retail segment by opening new retail destination locations. The revenue growth experienced by opening four additional stores in 2006 makes a very strong case for the continued expansion of this segment.
Ratio Analysis
The efficiency and effectiveness of the Company has diminished year over year as evidenced in the analysis of its return and turnover of assets. The Company has increased its net profit margin which in turn decreases the rate of sales growth and has a negative impact on the effectiveness and efficiency of a retail organization. The Company has embarked on an aggressive expansion program and increased both its fixed and current assets through the acquisition of land, buildings and inventory; however, it has not effectively grown efficiency with its new sales capacity.
Wednesday, November 28, 2007
Analysis of Investing Activities: Costco
Dan Smith
Long Term Assets
Horizontal Analysis
From 2005 to 2006, the land, buildings, and equipment categories all increased an average of 10.3%; however, construction in progress increased by 37.6%. This large increase in construction may be indicative of expansion. Given that the company has experienced revenue growth of 13.6%, 3.3% greater than the average increase in assets, additional expansion may be prudent.
Vertical Analysis
As of 2006, Costco has 15.7% of total long term assets invested in land and 35.7% invested in buildings, leaseholds and land improvement. This discrepancy may be a result of Costco leasing 99 (21.6%) of the properties their stores are located upon, while owning 57 (57.5%) of the building located on leased property.
Costco has a significantly greater percentage of its assets allocated in long-term fixed assets compared to Dick's Sporting Goods. The higher liquidity afforded by Dick's asset allocation may provide greater flexibility; however, having more current assets also carries risks such as time value of money for cash on hand, and obsolesce for inventory. Both strategies are effective; therefore, in this author's opinion, the preferred asset allocation is a matter of investor preference.
Investing Cash Flows
Costco spent 21.8% more cash on investing in new long term assets in 2006 versus 2005. During the same time frame, the company sold 19.0% fewer of their assets. Once again, this may be indicative of expansionary tactics for the company.
Accounting Policies
Costco's acquired assets are recorded at cost with interest incurred during the construction of the asset capitalized within the recorded cost. The assets are depreciated using the strait-line method.
Costco does not hold treasury stock. Any shares repurchased are retired. The Corporation's board has authorized the repurchase of $3 billion worth of common stock over the next three years begining in January 2006. Although the repurcase is contingent on the economic status of the corporation, given the current growth execeding the acquirment of assets, there exist a high probability of the buy-backs occuring. If the buy-back does occur, the market price of the stock may increase due to a higher earnings per share value and a resulting lower PE and PEG.
The company's most recent acquisition was purchasing the remaining 4% interest of CWC Travel Inc. to bring Costco's ownership to 100%. Based upon the current trend of rising travel costs vis-a-vis the rising fuel cost, ownership of a travel company may not be profitable. However, Costco may feel it is buying the company at a discount using the same logic and will expect returns on the investment in later years.
As of September 3, 2006 the company has $71,848 included under "Goodwill." Costco reviews goodwill for impairment on an annul basis; however, no impairment of goodwill has yet to occur.
Property, Plant & Equipment
Depreciation reduced the book value of long term assets by 26.4%. $1,155,406,000 in new assets were added to the books in 2006 while accumulated depreciation increased by $381,303,000. Overall, only a quarter of the total depreciable assets have been expensed, it can therefor be reasoned that the majority of the companies assets are fairly new, implying that Costco is still steadily growing.
Segment Information
Costco operates in five different retail segmentations: Sundries (candy, alcohol, tobacco), Hardlines (appliances, sporting goods), Food, Softlines (apparel, jewerly), Fresh Food, and Ancillary (gas station, food court). The nature of these segmentation allow for the assets attributed to each segment to be presented in a single balance sheet with no differentiation between segments. The percentage of net sales for each segment is as follows: Sundries-24%, Hardlines-20%, Food-19%, Softlines-12%, Fresh Food-11%, Ancillary-14%.
Costco has increased its position in the ancillary segment by three percent over the last two years, from 11% to 14%, possibly as a result of Costco's discount fuel program for members. If this is the cause, Costco should be vigilent in monitoring the emergence of alternative fuels that may reduce the market for unleaded gasoline.
The Company operates across three continents: North America, Europe, and Asia. The majority of assets are held in the United States and Canada, with 80% and 10.9% respectively. All other geographic segmentations represent 9.1% of assets.
Ratio Analysis
Return on Assets- 6.46%
Return on Fixed Assets- 12.9%
Asset turnover - 3.52 (3.42 excluding membership fees)
Fixed Asset Turnover- 7.02 (5.07 excluding membership fees)
Profit Margin- 1.83%
Long Term Assets
Horizontal Analysis
From 2005 to 2006, the land, buildings, and equipment categories all increased an average of 10.3%; however, construction in progress increased by 37.6%. This large increase in construction may be indicative of expansion. Given that the company has experienced revenue growth of 13.6%, 3.3% greater than the average increase in assets, additional expansion may be prudent.
Vertical Analysis
As of 2006, Costco has 15.7% of total long term assets invested in land and 35.7% invested in buildings, leaseholds and land improvement. This discrepancy may be a result of Costco leasing 99 (21.6%) of the properties their stores are located upon, while owning 57 (57.5%) of the building located on leased property.
Costco has a significantly greater percentage of its assets allocated in long-term fixed assets compared to Dick's Sporting Goods. The higher liquidity afforded by Dick's asset allocation may provide greater flexibility; however, having more current assets also carries risks such as time value of money for cash on hand, and obsolesce for inventory. Both strategies are effective; therefore, in this author's opinion, the preferred asset allocation is a matter of investor preference.
Investing Cash Flows
Costco spent 21.8% more cash on investing in new long term assets in 2006 versus 2005. During the same time frame, the company sold 19.0% fewer of their assets. Once again, this may be indicative of expansionary tactics for the company.
Accounting Policies
Costco's acquired assets are recorded at cost with interest incurred during the construction of the asset capitalized within the recorded cost. The assets are depreciated using the strait-line method.
Costco does not hold treasury stock. Any shares repurchased are retired. The Corporation's board has authorized the repurchase of $3 billion worth of common stock over the next three years begining in January 2006. Although the repurcase is contingent on the economic status of the corporation, given the current growth execeding the acquirment of assets, there exist a high probability of the buy-backs occuring. If the buy-back does occur, the market price of the stock may increase due to a higher earnings per share value and a resulting lower PE and PEG.
The company's most recent acquisition was purchasing the remaining 4% interest of CWC Travel Inc. to bring Costco's ownership to 100%. Based upon the current trend of rising travel costs vis-a-vis the rising fuel cost, ownership of a travel company may not be profitable. However, Costco may feel it is buying the company at a discount using the same logic and will expect returns on the investment in later years.
As of September 3, 2006 the company has $71,848 included under "Goodwill." Costco reviews goodwill for impairment on an annul basis; however, no impairment of goodwill has yet to occur.
Property, Plant & Equipment
Depreciation reduced the book value of long term assets by 26.4%. $1,155,406,000 in new assets were added to the books in 2006 while accumulated depreciation increased by $381,303,000. Overall, only a quarter of the total depreciable assets have been expensed, it can therefor be reasoned that the majority of the companies assets are fairly new, implying that Costco is still steadily growing.
Segment Information
Costco operates in five different retail segmentations: Sundries (candy, alcohol, tobacco), Hardlines (appliances, sporting goods), Food, Softlines (apparel, jewerly), Fresh Food, and Ancillary (gas station, food court). The nature of these segmentation allow for the assets attributed to each segment to be presented in a single balance sheet with no differentiation between segments. The percentage of net sales for each segment is as follows: Sundries-24%, Hardlines-20%, Food-19%, Softlines-12%, Fresh Food-11%, Ancillary-14%.
Costco has increased its position in the ancillary segment by three percent over the last two years, from 11% to 14%, possibly as a result of Costco's discount fuel program for members. If this is the cause, Costco should be vigilent in monitoring the emergence of alternative fuels that may reduce the market for unleaded gasoline.
The Company operates across three continents: North America, Europe, and Asia. The majority of assets are held in the United States and Canada, with 80% and 10.9% respectively. All other geographic segmentations represent 9.1% of assets.
Ratio Analysis
Return on Assets- 6.46%
Return on Fixed Assets- 12.9%
Asset turnover - 3.52 (3.42 excluding membership fees)
Fixed Asset Turnover- 7.02 (5.07 excluding membership fees)
Profit Margin- 1.83%
Analysis of Investing Activities: Dick's Sporting Goods Inc.
Adam Rabon
Long-Term Assets
The long term assets section of Dick’s Sporting Goods Inc.’s (the Company) balance sheet is comprised of net property and equipment, construction in progress (leased facilities) and goodwill. There is one other long-term assets category which includes: deferred income taxes, investments and ‘other”.
Horizontal Analysis
Net property and equipment increased by $62,794, or 16.96%, from 2005 to 2006. Net property and equipment consists of buildings and land, leasehold improvements and furniture, fixtures and equipment. The Company did not purchase or sell any buildings and land during 2006, but leasehold improvements increased 19.74%, and furniture, fixtures and equipment increased 17.97%. Accumulated depreciation rose $49,391, or 19.37%, from the previous year. Construction in progress increased $5,749, or 78.35%, during 2006, and goodwill remained at the same level during 2006. Deferred income taxes rose 94.66%, from $8,959 in 2005 to $17,440 in 2006. Investments decreased $189, or 5.91%, from the previous year. The long-term assets category labeled “other” had a 14.17% increase to $31,252. A complete horizontal analysis may be found
Vertical Analysis
Net property and equipment accounted for 28.41% of total assets in 2006, which was slightly lower that the 31.17% mark in 2005. Construction in progress increased to 0.86% of assets in 2006, from 0.62% the previous year. Goodwill remained the same as a dollar figure, but decreased to 10.28%, of total assets from 13.19% the previous year. Deferred income taxes increased as a percent of total assets in 2006, while both investments and “other” decreased. Excluding the investments and goodwill accounts, all other accounts increased in dollar amount. The decrease in the percentage of assets for the long-term accounts can be attributed to a significant increase in current assets, which increased the liquidity position and drove up total assets.
Investing Cash Flows
Net cash used in investing activities increased $75,473 during 2006. The Company’s outflows from the purchase of property and equipment were $190,288 for 2006, up from $112,002 the previous year. The increase in capital expenditures can be attributed to the opening of 39 new stores and the relocation of two existing stores. The Company also had a $3,712 outflow from an increase in recoverable costs from developed properties. The lone cash inflow from investing activities was the proceeds from sale-leaseback transactions in the amount of $24,809. These proceeds consist primarily of the sale of store fixtures.
Accounting Policies
The Company’s property and equipment is recorded at cost and depreciated using the straight-line method over its useful life. Buildings are depreciated over 40 years, leasehold improvements over 10-25 years, vehicles over 5 years and furniture, fixtures and equipment over 3-7 years. For leasehold improvements and property and equipment under capital lease agreement, depreciation and amortization are calculated using straight-line over the shorter of useful lives or lease term. The Company follows SFAS No. 144 to determine periodically if the carrying value of its long-lived assets has been weakened.
The investments portion of long-term assets is comprised of unregistered GSI Commerce Inc. stock. The stock purchase was recorded at the publicly quoted equity price of GSI, less a discount used to offset the unregistered nature of the stock. The stock is carried at fair value and is valuated each year in accordance with SFAS No. 115.
The Company did not undergo any mergers and acquisitions in 2006, but did leave on the books goodwill for the July 29, 2004 purchase of all the common stock of Galyan’s for $16.75 per share. The Company recorded $156,628 of goodwill in excess of the purchase price of $369,572. The Company did not find reason to deem impairment to the amount of goodwill for 2006.
Property and Equipment
As of 2006, the original cost of the Company’s property and equipment was $737,456. Due to depreciation and amortization, $304,385, or 41.28%, of the Company’s property and equipment had been written off. Net property and equipment is valued at $433,071, or 58.73%, of original cost. The Company’s property and equipment can be considered in new to mid-life. The original cost of the asset base increased $112,185 in 2006, but accumulated depreciation and amortization only increased $49,391 which reveals the Company is still in the growth phase.
Segment Information
The Company divides its operations into three separate merchandise categories: hardlines, apparel and footwear. Because of the economic characteristics of the store formats, the similar nature of the products sold, the type of customer, and method of distribution, the operation of the Company are one reportable segment. In 2006, net sales of hardlines, apparel and footwear accounted for 56.77%, 26.04% and 17.18% of total net sales, respectively. chart
Ratio Analysis
The Company improved both its return on total assets and return on fixed assets in 2006, which showed an improvement in its efficiency. The money invested in fixed assets was beneficial to the Company’s returns. Total asset turnover decreased slightly due mainly to an increase in liquid current assets, not long-term assets, as witnessed by the fixed asset turnover which shows improvement from its already strong position in 2005. The net profit margin also increased, revealing the Company’s improved efficiency
Long-Term Assets
The long term assets section of Dick’s Sporting Goods Inc.’s (the Company) balance sheet is comprised of net property and equipment, construction in progress (leased facilities) and goodwill. There is one other long-term assets category which includes: deferred income taxes, investments and ‘other”.
Horizontal Analysis
Net property and equipment increased by $62,794, or 16.96%, from 2005 to 2006. Net property and equipment consists of buildings and land, leasehold improvements and furniture, fixtures and equipment. The Company did not purchase or sell any buildings and land during 2006, but leasehold improvements increased 19.74%, and furniture, fixtures and equipment increased 17.97%. Accumulated depreciation rose $49,391, or 19.37%, from the previous year. Construction in progress increased $5,749, or 78.35%, during 2006, and goodwill remained at the same level during 2006. Deferred income taxes rose 94.66%, from $8,959 in 2005 to $17,440 in 2006. Investments decreased $189, or 5.91%, from the previous year. The long-term assets category labeled “other” had a 14.17% increase to $31,252. A complete horizontal analysis may be found
Vertical Analysis
Net property and equipment accounted for 28.41% of total assets in 2006, which was slightly lower that the 31.17% mark in 2005. Construction in progress increased to 0.86% of assets in 2006, from 0.62% the previous year. Goodwill remained the same as a dollar figure, but decreased to 10.28%, of total assets from 13.19% the previous year. Deferred income taxes increased as a percent of total assets in 2006, while both investments and “other” decreased. Excluding the investments and goodwill accounts, all other accounts increased in dollar amount. The decrease in the percentage of assets for the long-term accounts can be attributed to a significant increase in current assets, which increased the liquidity position and drove up total assets.
Investing Cash Flows
Net cash used in investing activities increased $75,473 during 2006. The Company’s outflows from the purchase of property and equipment were $190,288 for 2006, up from $112,002 the previous year. The increase in capital expenditures can be attributed to the opening of 39 new stores and the relocation of two existing stores. The Company also had a $3,712 outflow from an increase in recoverable costs from developed properties. The lone cash inflow from investing activities was the proceeds from sale-leaseback transactions in the amount of $24,809. These proceeds consist primarily of the sale of store fixtures.
Accounting Policies
The Company’s property and equipment is recorded at cost and depreciated using the straight-line method over its useful life. Buildings are depreciated over 40 years, leasehold improvements over 10-25 years, vehicles over 5 years and furniture, fixtures and equipment over 3-7 years. For leasehold improvements and property and equipment under capital lease agreement, depreciation and amortization are calculated using straight-line over the shorter of useful lives or lease term. The Company follows SFAS No. 144 to determine periodically if the carrying value of its long-lived assets has been weakened.
The investments portion of long-term assets is comprised of unregistered GSI Commerce Inc. stock. The stock purchase was recorded at the publicly quoted equity price of GSI, less a discount used to offset the unregistered nature of the stock. The stock is carried at fair value and is valuated each year in accordance with SFAS No. 115.
The Company did not undergo any mergers and acquisitions in 2006, but did leave on the books goodwill for the July 29, 2004 purchase of all the common stock of Galyan’s for $16.75 per share. The Company recorded $156,628 of goodwill in excess of the purchase price of $369,572. The Company did not find reason to deem impairment to the amount of goodwill for 2006.
Property and Equipment
As of 2006, the original cost of the Company’s property and equipment was $737,456. Due to depreciation and amortization, $304,385, or 41.28%, of the Company’s property and equipment had been written off. Net property and equipment is valued at $433,071, or 58.73%, of original cost. The Company’s property and equipment can be considered in new to mid-life. The original cost of the asset base increased $112,185 in 2006, but accumulated depreciation and amortization only increased $49,391 which reveals the Company is still in the growth phase.
Segment Information
The Company divides its operations into three separate merchandise categories: hardlines, apparel and footwear. Because of the economic characteristics of the store formats, the similar nature of the products sold, the type of customer, and method of distribution, the operation of the Company are one reportable segment. In 2006, net sales of hardlines, apparel and footwear accounted for 56.77%, 26.04% and 17.18% of total net sales, respectively. chart
Ratio Analysis
The Company improved both its return on total assets and return on fixed assets in 2006, which showed an improvement in its efficiency. The money invested in fixed assets was beneficial to the Company’s returns. Total asset turnover decreased slightly due mainly to an increase in liquid current assets, not long-term assets, as witnessed by the fixed asset turnover which shows improvement from its already strong position in 2005. The net profit margin also increased, revealing the Company’s improved efficiency
Thursday, November 15, 2007
Introduction
The research team of Adam Rabon, Mike Hough, and Daniel Smith will be analyzing the financial performance of three corporations within the retail sector. The three businesses are Costco, Dicks Sporting Goods, and Cabella’s.
The following members will be charged with leading the review and analysis of the following aspects of the industry and the three corporations:
Introduction and Industry/Company Overview – Dan
Company Investing Activities – Mike
Company Financing Activities – Adam
Company Operating Activities – Team
Conclusion and Best Company – Team
Final Presentation – Team
Overview of Industry
The retail industry is primarily engaged in the marketing and sale of goods directly to consumers or businesses. The type of goods sold can vary from tackle boxes to sofas.
The industry is highly competitive. With few barriers to entry and narrow profit margins, the retail sector tends to be one of monopolistic competition leading to perfect competition. Therefore, the social impact of a company (i.e. philanthropy, charity, etc.) has little influence on profits. The consumer tends to go to the store with the lowest prices, regardless of the means in which the prices are obtained.
The retail sector is being analyzed in this report because historically, this industry has been a safe haven for investors during uncertain times in the stock market (Kramer). Conversely, during the current tumultuous market, retail stocks have been falling (Street.com, turn tail retail). There may be many causes for this apparent contradiction, including inflation, poor investments by the companies, consumer trepidation, and many more.
Company description:
Costco
Costco provides wholesale quantities of products at wholesale prices. Headquartered in Issaquah Washington, Costco has almost 490 warehouse stores serving over 47 million cardholders. The company has stores in thirty seven U.S. states as well as Canada, Japan, Mexico, South Korea, Puerto Rico, Taiwan, and the United Kingdom.
The company’s emphasis on low cost, limited selection products with required membership to limit shrink is what separates Costco from many other companies in the retail sector; including Cabella’s and Dicks Sporting Goods. The lower cost of goods relative to competitor may provide a strategic advantage for Costco if America’s economy continues towards recession. A copy of Costco’s annual statement for 2006 and other investor information may be found here.
Dick’s Sporting Goods, Inc.
Dick’s Sporting Goods, Inc. is a chain of sporting goods superstores offering equipment for nearly every kind of team and individual sport. The store also offers equipment for outdoor activities such as hunting, fishing and hiking. A wide variety of fitness equipment and name-brand apparel is also offered by the store. As of August 4, 2007, the company operated 315 stores in 34 states, primarily throughout the eastern half of the United States. The company also owns Golf Galaxy, a multi-channel golf specialty retailer, with 77 stores in 29 states, ecommerce websites and catalog operations (Dick's Sporting Goods). The company currently employs 8,359 (Yahoo Finance) persons and has annual sales of approximately $3.1 billion. A copy of the company's annual report may be found here.
The company’s emphasis is on offering a diverse line-up of premium sports apparel and products at a competitive price. Dick’s is a “one-stop shop” for individual involved in multiple sports.
Cabela's
The company initially operated from the kitchen table of Dick and Mary Cabela of Chappell, Nebraska began its direct business in 1961 by offering fishing flies through advertisements in national outdoor publications. In 1963 they published their first catalog and subsequently incorporated as a Nebraska corporation in 1965. 1987 brought about the opening of their first destination retail location in Kearney, Nebraska. The company further expanded their market with the launch of their online store in 1998. The company was reincorporated as a Delaware corporation in January, 2004 and made its debut on the New York Stock Exchange on June 25, 2004 under the symbol CAB.
Cabela’s is the worlds largest direct marketer and a leading specialty retailer of hunting, fishing, camping, and related outdoor merchandise at 26 locations in 18 states and Canada with an additional 7 planned openings for 2008. Headquartered in Sidney, Nebraska, Cabela’s Incorporated operates a family of 9 subsidiary companies and employs 11,700 people.
1. Cabela's Retail, Inc. was formed in 1996 to consolidate the management and operation of their growing number of retail store destinations. Cabela's Retail, Inc. is a Nebraska corporation.
2. Cabela's Catalog, Inc. was formed in 1999 to consolidate the management and operation of Cabela's extensive mail-order catalog business. It is a Nebraska corporation.
3. Cabelas.com, Inc. was formed in 1999 to consolidate the management and operation of their rapidly expanding Internet sales business. Cabelas.com, Inc. is a Nebraska corporation.
4. Cabela's Outdoor Adventures, Inc. was created in 1999 to serve as a travel agency specializing in big-game hunting, wing shooting, fishing and trekking trips. It is a Nebraska corporation.
5. Cabela's Ventures, Inc. was formed in 1996 to own, manage, develop and broker real estate adjacent to their destination retail stores. Cabela's Ventures, Inc. is a Nebraska corporation.
6. Cabela's Wholesale, Inc. was formed in 1999 to consolidate the management and operation of Cabela's wholesale purchasing activities. Cabela's Wholesale Inc. is a Nebraska corporation.
7. Van Dyke Supply Company, Inc. is a wholly owned subsidiary of Cabela's Incorporated. Based in Woonsocket, South Dakota, Van Dyke Supply Company offers home restoration products though catalog marketing. It is a South Dakota corporation. Cabela's Marketing and Brand Management, Inc. was formed in 1999 to consolidate the management of Cabela's brand enhancement activities.
8. Cabela's Marketing and Brand Management, Inc. is a Nebraska corporation.
9. World's Foremost Bank is a wholly owned banking subsidiary of Cabela's Incorporated. It was formed in 2001 to manage and administer a stand-alone credit card business. World's Foremost Bank is a limited purpose, state-chartered bank.
Cabela’s operates in a number of large and highly fragmented and intensely competitive markets. They compete directly or indirectly with other broad-line merchants, large-format sporting goods stores and chains, mass merchandisers, warehouse clubs, discount stores and department stores, small specialty retailers and catalog and Internet-based retailers. They believe that their competitive advantages are their wide and distinctive merchandise selection and the superior customer service associated with their brand. Additionally, their multi-channel model provides them with an unparalleled ability to allow customers to choose the most convenient sales channel. With its growing brick and mortar business it has become more difficult dealing with the growing inventory management of 250,000 sku’s and 5,000 vendors. In a highly competitive specialty retailing market, it is imperative to sales success that its retail locations maintain high in-stock standards while increasing operational efficiencies in the supply-chain model, which will provide for the ability to leverage greater profitability through increased sales revenue. In a market with multiple mature retailers, they are at a disadvantage in this area and if they wish to continue to exploit their wide and distinctive merchandise selection, they will need to improve in this area. An additional unique challenge facing Cabela’s is the risk associated with World’s Foremost Bank and the management of its branded Visa cards.
Annual Report
Works Cited
Cabela's Masters Inventory Management. By: Kusterbeck, Stacey, Apparel Magazine, 15432009, Apr2007, Vol. 48, Issue 8 Mctague, Jim.
“Cabela’s Targets Growth with Plans to Add Stores.” The Wall Street Journal Online 26 Aug. 2007.
Cabelas. Home page. 18 Nov. 2007. 2007
"Costco Wholesale Company." Hoovers.Com. 10 Nov. 2007.
Dick's Sporting Goods Inc. Home Page. "Investor Relations." 20 Nov. 2007.
"Don’t Turn Tail on Retail." Thestreet.Com. 6 Nov. 2007. 10 Nov. 2007.
Kramer, Jim J. Jim Kramer's Real Money. New York: Simon & Schuster, 2005.
Yahoo Finance. Dick's Sporting Goods Inc. Profile. 20 Nov. 2007.
The following members will be charged with leading the review and analysis of the following aspects of the industry and the three corporations:
Introduction and Industry/Company Overview – Dan
Company Investing Activities – Mike
Company Financing Activities – Adam
Company Operating Activities – Team
Conclusion and Best Company – Team
Final Presentation – Team
Overview of Industry
The retail industry is primarily engaged in the marketing and sale of goods directly to consumers or businesses. The type of goods sold can vary from tackle boxes to sofas.
The industry is highly competitive. With few barriers to entry and narrow profit margins, the retail sector tends to be one of monopolistic competition leading to perfect competition. Therefore, the social impact of a company (i.e. philanthropy, charity, etc.) has little influence on profits. The consumer tends to go to the store with the lowest prices, regardless of the means in which the prices are obtained.
The retail sector is being analyzed in this report because historically, this industry has been a safe haven for investors during uncertain times in the stock market (Kramer). Conversely, during the current tumultuous market, retail stocks have been falling (Street.com, turn tail retail). There may be many causes for this apparent contradiction, including inflation, poor investments by the companies, consumer trepidation, and many more.
Company description:
Costco
Costco provides wholesale quantities of products at wholesale prices. Headquartered in Issaquah Washington, Costco has almost 490 warehouse stores serving over 47 million cardholders. The company has stores in thirty seven U.S. states as well as Canada, Japan, Mexico, South Korea, Puerto Rico, Taiwan, and the United Kingdom.
The company’s emphasis on low cost, limited selection products with required membership to limit shrink is what separates Costco from many other companies in the retail sector; including Cabella’s and Dicks Sporting Goods. The lower cost of goods relative to competitor may provide a strategic advantage for Costco if America’s economy continues towards recession. A copy of Costco’s annual statement for 2006 and other investor information may be found here.
Dick’s Sporting Goods, Inc.
Dick’s Sporting Goods, Inc. is a chain of sporting goods superstores offering equipment for nearly every kind of team and individual sport. The store also offers equipment for outdoor activities such as hunting, fishing and hiking. A wide variety of fitness equipment and name-brand apparel is also offered by the store. As of August 4, 2007, the company operated 315 stores in 34 states, primarily throughout the eastern half of the United States. The company also owns Golf Galaxy, a multi-channel golf specialty retailer, with 77 stores in 29 states, ecommerce websites and catalog operations (Dick's Sporting Goods). The company currently employs 8,359 (Yahoo Finance) persons and has annual sales of approximately $3.1 billion. A copy of the company's annual report may be found here.
The company’s emphasis is on offering a diverse line-up of premium sports apparel and products at a competitive price. Dick’s is a “one-stop shop” for individual involved in multiple sports.
Cabela's
The company initially operated from the kitchen table of Dick and Mary Cabela of Chappell, Nebraska began its direct business in 1961 by offering fishing flies through advertisements in national outdoor publications. In 1963 they published their first catalog and subsequently incorporated as a Nebraska corporation in 1965. 1987 brought about the opening of their first destination retail location in Kearney, Nebraska. The company further expanded their market with the launch of their online store in 1998. The company was reincorporated as a Delaware corporation in January, 2004 and made its debut on the New York Stock Exchange on June 25, 2004 under the symbol CAB.
Cabela’s is the worlds largest direct marketer and a leading specialty retailer of hunting, fishing, camping, and related outdoor merchandise at 26 locations in 18 states and Canada with an additional 7 planned openings for 2008. Headquartered in Sidney, Nebraska, Cabela’s Incorporated operates a family of 9 subsidiary companies and employs 11,700 people.
1. Cabela's Retail, Inc. was formed in 1996 to consolidate the management and operation of their growing number of retail store destinations. Cabela's Retail, Inc. is a Nebraska corporation.
2. Cabela's Catalog, Inc. was formed in 1999 to consolidate the management and operation of Cabela's extensive mail-order catalog business. It is a Nebraska corporation.
3. Cabelas.com, Inc. was formed in 1999 to consolidate the management and operation of their rapidly expanding Internet sales business. Cabelas.com, Inc. is a Nebraska corporation.
4. Cabela's Outdoor Adventures, Inc. was created in 1999 to serve as a travel agency specializing in big-game hunting, wing shooting, fishing and trekking trips. It is a Nebraska corporation.
5. Cabela's Ventures, Inc. was formed in 1996 to own, manage, develop and broker real estate adjacent to their destination retail stores. Cabela's Ventures, Inc. is a Nebraska corporation.
6. Cabela's Wholesale, Inc. was formed in 1999 to consolidate the management and operation of Cabela's wholesale purchasing activities. Cabela's Wholesale Inc. is a Nebraska corporation.
7. Van Dyke Supply Company, Inc. is a wholly owned subsidiary of Cabela's Incorporated. Based in Woonsocket, South Dakota, Van Dyke Supply Company offers home restoration products though catalog marketing. It is a South Dakota corporation. Cabela's Marketing and Brand Management, Inc. was formed in 1999 to consolidate the management of Cabela's brand enhancement activities.
8. Cabela's Marketing and Brand Management, Inc. is a Nebraska corporation.
9. World's Foremost Bank is a wholly owned banking subsidiary of Cabela's Incorporated. It was formed in 2001 to manage and administer a stand-alone credit card business. World's Foremost Bank is a limited purpose, state-chartered bank.
Cabela’s operates in a number of large and highly fragmented and intensely competitive markets. They compete directly or indirectly with other broad-line merchants, large-format sporting goods stores and chains, mass merchandisers, warehouse clubs, discount stores and department stores, small specialty retailers and catalog and Internet-based retailers. They believe that their competitive advantages are their wide and distinctive merchandise selection and the superior customer service associated with their brand. Additionally, their multi-channel model provides them with an unparalleled ability to allow customers to choose the most convenient sales channel. With its growing brick and mortar business it has become more difficult dealing with the growing inventory management of 250,000 sku’s and 5,000 vendors. In a highly competitive specialty retailing market, it is imperative to sales success that its retail locations maintain high in-stock standards while increasing operational efficiencies in the supply-chain model, which will provide for the ability to leverage greater profitability through increased sales revenue. In a market with multiple mature retailers, they are at a disadvantage in this area and if they wish to continue to exploit their wide and distinctive merchandise selection, they will need to improve in this area. An additional unique challenge facing Cabela’s is the risk associated with World’s Foremost Bank and the management of its branded Visa cards.
Annual Report
Works Cited
Cabela's Masters Inventory Management. By: Kusterbeck, Stacey, Apparel Magazine, 15432009, Apr2007, Vol. 48, Issue 8 Mctague, Jim.
“Cabela’s Targets Growth with Plans to Add Stores.” The Wall Street Journal Online 26 Aug. 2007.
Cabelas. Home page. 18 Nov. 2007. 2007
"Costco Wholesale Company." Hoovers.Com. 10 Nov. 2007
Dick's Sporting Goods Inc. Home Page. "Investor Relations." 20 Nov. 2007.
"Don’t Turn Tail on Retail." Thestreet.Com. 6 Nov. 2007. 10 Nov. 2007
Kramer, Jim J. Jim Kramer's Real Money. New York: Simon & Schuster, 2005.
Yahoo Finance. Dick's Sporting Goods Inc. Profile. 20 Nov. 2007.
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