NEXT AND DEBENHAMS ANALYSIS

Topics: Revenue, Generally Accepted Accounting Principles, Financial ratios Pages: 5 (850 words) Published: July 19, 2014
CONTEXT
Next plc and Debenhams are UK based competitors in the retail industry offering a wide range of fashion clothing, footwear, accessories , cosmetics and home products. Next PLC distributes its products through different channels that NEXT retail, NEXT directory and NEXT international, NEXT sourcing and Lipsy and its NEXT primary financial objective is to deliver sustainable long term growth in earnings per share, Underlying EPS value increased by 16.6% from 2012 and EPS share price has increased by more than 300% in the last ten years. On the other hand ,Debenhams distributes its products under various international brands it is currently available in 92 countries online and in store Debenhams monitors all aspects its working capital in order to achieve its financial objective of deleveraging the balance sheet and it does this by effectively managing the key performance indicators. In the External context, the retail industry is flooded with a large number of competitors producing similar products and serving the same markets. The bargaining power of Popular brands like Next and Debenhams is low as they are now competing with E-retailers who are willing to offer similar goods at relatively low prices. In addition to this the increased level of globalization has opened up new markets (China)that were once inaccessible to customers this has further intensified the level of competition in the retail industry. On the other hand the bargaining power of the buyers is high as they face low switching costs from one retailer to another and a high variety of retailers to choose from. OVERVIEW

The report reviews and compares the financial performance of two key players (Next and Debenhams) in the retail industry using their financial statements and computed financial ratios. OVERVIEW
NEXT 2013
NEXT 2012
%CHANGE
DEBENHAMS 2012
DEBENHAMS 2011
% CHANGE
SALES REVENUE (£M)
3548
3441
3.1%
2230
2210
0.90%
PBIT (£M)
687
606
13.40%
175
184
-4.90%
PROFIT FOR THE YEAR (£M)
509
435
17%
125
118
5.90%
DIVIDEND FOR THE YEAR (£M)
105
90
16.7%
3.3
3
10.0%
OPERATING CASHFLOW (£M)
695
670
3.7%
260
268
-3.0%
CAPITAL INVESTMENT (£M)
82
126
-34.9%
101
94
7.4%
TOTAL DEBT (£M)
747
752
-0.7%
412
413
-0.2%
EMPLOYEE (£M)
28301
28685
-1.3%
30117
30624
-1.7%

Both companies have a financial strength of increasing sales while reducing total Debt .Next??? Debenham’s total sales revenue also made a slight increase of 0.9% due to an improvement in its like to like sales by 1.6% in 2012 and this was the first time like to like sales have increased in the past five years. This therefore implied a good sales performance for Debenhams. Debenham’s profit for the 2012 increased by 5.9% as compared to 2011 following a growth in sales and a lower interest charge due to reduced net debt and lower funding costs as a result of refinancing the bank facilities in 2011 . NEXT profit for the year increased substantially by 17% a much better performance compared to Debenhams. PERFORMANCE RATIOS

PERFORMANCE RATIOS
NEXT 2013
NEXT 2012
%CHANGE
DEBENHAMS 2012
DEBENHAMS 2011
% CHANGE
ROE
178%
195%
17%
19%
18%
1%
ROCE
63.30%
54.50%
9.20%
12.83%
14.12%
-1.29%
GROSS PROFIT MARGIN
32.30%
30.40%
1.90%
13.40%
13.50%
-0.10%
NET PROFIT MARGIN
14.70%
12.60%
2.10%
5.60%
5.30%
0.30%
iAs part of Nexts strategy for delivering sustainable long term growth in earnings per share, the Group has been returning capital to shareholders by way of share buybacks in addition to dividends. Share buybacks are transacted through both on-market purchases and contingent contracts for off-market share purchases. Next’s performance in terms of ROE and ROCE has made a tremendous improvement from 2012 as compared to that of Debenhams whose ROCE declined in 2012, Debenhams basic and diluted earnings per share for 2012 were 9.8 pence which was an improvement compared to 2011 8.6 pence. This...
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