Saks Fifth Avenue Vs. Neiman Marcus A Detailed Company Analysis Using Balance Sheets And Income Statements

1230 words - 5 pages

I am writing to analyse the company's current balance sheet and income statement. Particularly, I will critique on the company's results, compare it to past years, compare it to competitors, and make recommendations on how to improve its financial position.Neiman Marcus department stores offer luxurious and high-quality men's and women's apparel and accessories. The Neiman Marcus Group operates 35 stores in nearly 20 states. The 2004 net income was an impressive $204 million and revenue was $3.5 billion. More importantly, their gross profit was $1.2 billion. Their net income is approximately 5.8% (compared to total revenue) and 1.7% (compared to their gross profit). This may seem little, but when a company revenues such a large amount, a small percentage net income is a very large amount, as exemplified. Comparing it with their largest competition - Off Fifth Saks Avenue (Saks) - Neiman Marcus earns 5 times their competition's income. The profit figure is very adequate.Neiman Marcus' income statement shows their fiscal period ends in July. The total revenue was $3.5 billion but their cost of revenue was $2.3 billion. This is 66% of their revenue. This is significantly high, but again, to increase revenue comes with expenses. After calculations, the total expenses were approximately $1 billion. On the given income statement (attached) they show mostly taxation and interest expenses. These expenses cannot be commented on because they are standard, as directed by the government. However, we are given the "selling general and administrative expense", which was $875 million. These are associated with payrolls and running the company. These expenses are 71.5% of the company's gross profit. These expenses are high and should be lowered; but in comparison to their competition, it is 10% lower.There is always room for improvement and by lowering expenses, one can increase net income. One suggestion are to reduce staff, as in such a large company, some locations must have poor salary control. Remember to keep employees with high seniority. Another suggestion is to reduce the lines of apparel that are not selling as well so there is not a surplus of inventory. Lastly, create a new service, such as child-care because many shoppers prefer to shop without children. This will increase the number of buyers and logically increase revenue. For best results, conduct a survey of all stores. Shut down or make improvements to stores that are not producing as well. Remember to consider location; Neiman Marcus is an upscale department store.By comparing Neiman Marcus' income statement to Saks' income statement, one can see that Neiman Marcus is doing an exceptional job at maintenance. For one, Neiman Marcus' net income is $204 million meanwhile Saks' is $82 million. This is almost 1.5 times! Another noticeable difference is that Saks revenues $6 billion which is almost doubled Neiman Marcus; but their expenses consume 95% of that revenue. Neiman Marcus controls their...

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