Financial Performance and the Strategic Profit Model

Benchmarking Chain Store Age’s Top 100

Percent Gross Margins2009 2008 2007

Chico's 1,713 1,582 1,714Cost of good sold 753 763 745 Gross profit 960 56% 819 52% 969 57%

Kohl's 17,178 16,389 16,474Cost of merchandise 10,680 10,334 10,459 Gross margin 6,498 38% 6,055 37% 6,015 37%

Best Buy 49,694 45,015 40,023Cost of good sold 37,534 34,017 30,477 Gross profit 12,160 24% 10,998 24% 9,546 24%

Bed, Bath & Beyond 7,829 7,208 7,049Cost of sales 4,621 4,335 4,124 Gross profit 3,208 41% 2,873 40% 2,925 41%

Inventory TurnoverChico's 2009 2008 2007 Cost of good sold 753 763 745Inventories |Turnover 139 5.4 132 5.8 144 5.2

Kohl'sCost of merchandise 10,680 10,334 10,459Inventories |Turnover 2,923 3.7 2,799 3.7 2,856 3.7

Best BuyCost of good sold 37,534 34,017 30,477Inventories |Turnover 5,486 6.8 4,753 7.2 4,708 6.5

Bed, Bath & BeyondCost of sales 4,621 4,335 4,124Inventories |Turnover 1,760 2.6 1,642 2.6 1,617 2.6

GMROIChico's 2009 2008 2007 Gross profit` 960 56% 819 52% 969 57%Inventories |GMROI 139 $6.93 132 $6.19 144 $6.72

Kohl'sGross margin 6,498 38% 6,055 37% 6,015 37%Inventories |GMROI 2,923 $2.22 2,799 $2.16 2,856 $2.11

Best BuyGross profit 12,160 24% 10,998 24% 9,546 24%Inventories |GMROI 5,486 $2.22 4,753 $2.31 4,708 $2.03

Bed, Bath & BeyondGross profit 3,208 41% 2,873 40% 2,925 41%Inventories |GMROI 1,760 $1.82 1,642 $1.75 1,617 $1.81

Strategic Profit Model

• Three major routes to success:• Attention to margin: • Attention to assets: Do they lead to sales?• Leverage: Use of equity versus debt

financing?

Return on Net Worth =

Return on Assets

Profit Margin

Asset Turnover Financial Leverage

Strategic Profit Model

Net Income, Profit Margin2009 2008 2007

Chico'sNet income 70 4.1% -19 -1.2% 89 5.2%Net sales 1,713 1,582 1,714

Kohl'sNet income 991 5.8% 885 5.4% 1,084 6.6%Net sales 17,178 16,389 16,474

Best BuyNet earnings 1,317 2.7% 1,003 2.2% 1,407 3.5%Net sales 49,694 45,015 40,023

Bed, Bath & BeyondNet earnings 600 7.7% 425 5.9% 563 8.0%Net sales 7,829 7,208 7,049

Asset Turnover

• Net Sales / Total Assets• Comparable to Inventory Turnover• An indication of how closely the assets of

retailer track with sales• Inventory should be the number one asset of a

retailer• Real estate, fixtures, distribution centers

Asset TurnoverChico's 2009 2008 2007Net sales 1,713 1,582 1,714 Total assets 1,319 1.3 1,226 1.3 1,250 1.4

Kohl'sNet sales 17,178 16,389 16,474 Total assets 13,160 1.3 11,363 1.4 10,560 1.6

Best BuyNet sales 49,694 45,015 40,023 Total assets 18,302 2.7 15,826 2.8 12,758 3.1

Bed, Bath & BeyondNet sales 7,829 7,208 7,049 Total assets 5,152 1.5 4,269 1.7 3,844 1.8

Return on Assets

• Strategic Profit Model “Key Component”

• Net profits / Total Assets

• Key measure for comparisons across retailers

• An indication of how closely the assets of retailer track with net income

Return on Assets2009 2008 2007

Chico's

Net income 70 4.1% -19 -1.2% 89 5.2%Total assets|ROA 1,319 5.3% 1,226 -1.6% 1,250 7.1%

Kohl's

Net income 991 5.8% 885 5.4% 1,084 6.6%Total assets|ROA 13,160 7.5% 11,363 7.8% 10,560 10.3%

Best Buy

Net earnings 1,317 2.7% 1,003 2.2% 1,407 3.5%Total assets|ROA 18,302 7.2% 15,826 6.3% 12,758 11.0%

Bed, Bath & Beyond

Net earnings 600 7.7% 425 5.9% 563 8.0%Total assets|ROA 5,152 11.6% 4,269 10.0% 3,844 14.6%

Leverage: Total Assets/Net Worth• Net worth=Assets minus Liabilities• Net worth=Shareholder Equity

• Ratio illustrating the use of debt by the retailer.

• Provides a measure of market assessment of the risk of the operation.• The higher the ratio of leverage, the less risk in the assets• The higher the proportion of apparel in inventory, the

lower ratio of financial leverage.

Financial Leverage2007 2006 2005

Chico'sTotal assets 1,250 1,061 999 Shareholder equity 913 1.4 804 1.3 806 1.2

Kohl'sTotal assets 10,560   9,034   9,146  Shareholder equity 6,563 1.6 5,480 1.6 5,957 1.5

Best BuyTotal assets 12,758   13,570   11,864  Shareholders' equity 4,484 2.8 6,201 2.2 5,257 2.3

Bed, Bath & BeyondTotal assets 3,844   3,959   3,382  Shareholders' equity 2,562 1.5 2,649 1.5 2,262 1.5

Return on Net Worth

• Return on shareholder equity, or owners’ equity

• Comparison that can be used across public company, as well as across retailers

• RONW = Return on Assets x Leverage• RONW = Net Earnings / Shareholder Equity

Return on Net Worth (RONW)Chico's 2009 2008 2007

Total assets|ROA 1,319 5.3% 1,226 -1.6% 1,250 7.1%Net worth| RONW 982 7.1% 902 -2.1% 913 9.7%

Kohl's

Total assets|ROA 18,302 7.2% 15,826 6.3% 12,758 11.0%Net worth| RONW 7,853 16.8% 6,739 14.9% 6,563 21.4%

Best Buy

Total assets|ROA 18,302 7.2% 15,826 6.3% 12,758 11.0%Net worth| RONW 6,964 18.9% 5,156 19.5% 4,524 31.1%

Bed, Bath & Beyond

Total assets|ROA 5,152 11.6% 4,269 10.0% 3,844 14.6%Net worth| RONW 3,653 16.4% 3,000 14.2% 2,562 22.0%

Days Payable

• Indication of how long a firms taking (on average) to pay bills, or comparison of how it’s using suppliers to finance inventory.

90)or (365Dayssold goods ofCost

payable Accounts