James Cash Penney opened his first store located in Kemmerer Wyoming in 1902, at the age of 25. The first store was opened in partnership between Penney, T.M Callahan and Guy Johnson as a ‘cash only’ store, refusing to take mining script or extend credit. Investing his entire savings of $500, Penney had to borrow $1,500 and was cautioned against his ‘cash only’ policy, as other stores in mining towns had been failing. The store was a success in spite of bankers warnings earning $28,898 in sales. Within two years Penney bought out Callahan and Johnson, and Penney had taken over their three other stores. Expanding rapidly, by 1915 there were 83 stores and by 1917 there were 175. Currently there are over 1,200 with over 205,000 employees stores ranging from the all 50 states as well as Puerto Rico, Mexico and Chile, the company is currently headquartered in Plano Texas. J.C. Penney sells; clothing and shoes for men, women and children; kitchen goods and household appliances; bathroom and bedroom linens; jewlery and other accessories, they are known widely for their catalog services; and in 2010 they introduced the Sephora, a cosmetic company carrying many major brand names inside their stores.
Kohl’s management purchased 40 stores in Wisconsin and Indiana from the founding company of BATUS (British-American Tobacco Co.) in 1986 and became known as ‘one of the largest discount department store chains in the United States’ (Kohl’s Corporation History). Spending three years developing their Kohl’s concept of moderately priced apparel for middle-income families, Kohl’s began expanding from the mid-west in 1988. With over 33,000 employees Kohl’s is based out of Menomonee Falls, Wisconsin and operates 1,146 stores nationwide. Kohl’s sells jewelry, clothing accessories, cosmetics, shoes, small kitchen appliances and cookware, bedroom and bathroom linens, as well as clothing for men, women, and children. These items include nationally recognized names, and more recently lines designed for Kohl’s by well known designers such as Vera Wang.
($ in millions, except per share data)JC Penney IncKohls CorpInterpretation and comparison Earnings per shareAs given on the income statement=$1.60=$3.67Comparing these numbers is not meaningful since the number of oustanding shares differs.
Current ratio:Current assts$6,370=2.415,645=2.08J.C.Penney has $2.41 in current assets for every $1in current liabilities. Where Kohl’s has only $2.08. Based on this J.C. Penney is more liquid.
Gross profit ratio:Gross profit (net sales- cost of goods sold)6,960=39.19%7,032=38.24%J.C.Penney’s gross profit ratio is better than Kohl’s almost 1% (39.19%-38.24%=0.95%)
Profit margin ratio:Net income389=2.19%1,114=6.06%Kohl’s is more profitable when comparing profit margin ratio. They earn 6 cents for every $1 in sales compared to the 2 cents J.C. Penney earns.
Inventory Turnover:Cost of goods sold10,799=3.3611,359=3.74Kohl’s inventory turnover ratio is better by 0.38 (3.74-3.36=0.38) over J.C. Penney. Possibly indicative that Kohl’s volume of sales in terms of inventory is better than J.C. Penney
Days in inventory:365 days365=108.60365=97.56The results in line with the inventory turnover ratio favor Kohl’s. Kohl’s sells their inventory 11 days faster than J.C. Penney (108-97.56)
Receivable turnover ratio:Net credit sales0=00=0Not applicable. No accounts recievable or credit sales listed on the annual report of either company.
Average net receivables00
Average collection period:365 days365=0365=0Not applicable. No accounts recievable or credit sales listed on the annual report of either company.
Receivable turnover ratio00
Assets turnover ratio:Net sales17,759=1.3918,391=1.38There is a marginal difference between J.C. Penney and Kohl’s of 0.01 (1.39-1.38) in favor of J.C. Penney
Average total assets12,81213,362
Return on assets ratio:Net income389=2.98%1,114=8.21%Kohl’s reflected a return on assets ratio earning $0.08 for every $1 of assets. Comparatively J.C Penney earns not quite $0.03 for every $1 of assets.
Average total assets13,04213,564
Debt to total assets ratio:Total liabilities7,582=58.14%5,462=40.27%J.C. Penney must liquidate 58.14% of their assets to satisfy their outstanding liabilities. Kohl’s, however only would have to sell off 40.27% of their assets to satisfy their liabilities.
Times interest earned ratio:Net income+Interest expense + Tax expense389+231+203=3.561,114+132+668=14.5Kohl’s ratio is significantly higher at 14.5 signaling their ability to pay financial obligations.
Payout ratio:Cash dividend declared on common stock189=48.59%0=0.00%Not applicable as a comarison, as Kohl’s did not pay dividends in 2010.
Return on common stockholders’ equity:Net income-Preferred stock dividend389-189=3.66%1,114=13.75%
Average common stockholders’ equity5,4608,102
Free cash flow:Cash provided by operations – capital expenditures-cash dividends paid592-499-189=-$196.001676-761=$915.00J.C Penney has a -$196M cash flow calculated upon the provided formula, however based on their annual report accounting for pension contribution and discretionary cash pension contribution and proceeds from sales J.C. Penney reported $158M in funds. Either number is still far below Kohl’s $915M.
Current cash debt coverage ratio:Cash provided by operations592=0.221,676=0.62Kohl’s $0.62 in cash provided by operation divided by average liabilites is stronger than J.C. Penney’s $0.22 for every dollar of liabilities
Average current liabilities2,6472,710
Cash debt coverage ratio:Cash provided by operations592=0.081,676=0.31Kohl’s $0.31 in cash provided by operating activities for every dollar in average total liabilities is stronger than that of J.C. Penney’s $0.08.
Average total liabilities7,5825,462
Price/Earnings ratio:Market price as of 01/29/201132.29=20.1851.20=13.95J.C. Penney leads the price earnings ratio at 20.18 over Kohl’s 13.95
EPS as of 01/29/20111.63.67
Kohl’s has better liquidity based upon ratios like free cash flow and cash debt coverage. Their free cash flow amount of $915 Million, is
unequivocally preferred to J.C. Penney’s $158M. The result of current cash debt coverage ratio of Kohl’s over J.C. Penney. However, J.C. Penney’s current assets in relation to current liabilities is current liability ratio of $2.41 is much stronger than Kohl’s $2.08, $0.33 is a significant indicator when speaking in millions.
Kohl’s also fares better based upon the results of the debt to total assets ration and the times interest earned ratio. These two ratios project a great margin over those of J.C. Penney. The free cash flow and the cash to debt coverage ratio are both good measurements as well because both results favor Kohl’s. Signaling that Kohl’s has not only the cash on hand to cover debts, but also the availability to pay the debts.
The profit margin ratio, return on assets and return on common stockholders’ equity lean towards recommending Kohl’s profitability over J.C. Penney. Kohl’s profit margin ratio at 6.06% over Penney’s 2.19%. The $0.05 difference of the return on asset ratio is huge when comparing the amount of assets is in the millions. Kohl’s earnings for every dollar invested by common stockholders at 13.75%. Overall, Kohl’s is more profitable than Penney’s, especially since the 2010 annual report mentions that dividend dispursement will begin in 2011. J.C. Penney’s gross profit ratio is slightly higher than Kohl’s but is not sufficient measurement compared to the above mentioned ratios.
Based upon the qualifications of liquidity, solvency and profitability, all factors lead investors to see that Kohl’s is clearly a stronger company to invest their money. The price earnings ratio may suggest that J.C Penney may be indicative that Penney’s is more marketable and that the public is more optimistic in Penney’s future, but compared to the stronger numbers Kohl’s puts forth on many ratios, Penney’s is unable to really compete. Overall, the financial standing of Kohl’s becomes the obvious choice for investment purposes. I would choose to invest my money with Kohl’s at the point in time of the financial evaluations. I would greatly anticipate the first dividends from Kohl’s in the 2011 annual report.