Question

It appears that the company suddenly become barely profitable during fiscal ended Feb. 3, 2018? What are the reasons for the dramatic change in net income for the fiscal year ended Feb. 3, 2018 in comparison to the net income reported for the preceding fiscal year ended Jan. 28, 2017?

Consolidated Income Statement (in millions)	Feb. 03, 2018	Jan. 28, 2017	Jan. 30, 2016
Net sales	$ 9,224.6	$ 8,607.9	$ 9,363.8
Cost of sales	$ 6,184.5	$ 5,598.6	$ 6,445.5
Gross Margin	$ 3,040.1	$ 3,009.3	$ 2,918.3
Expenses:
Selling, general and administrative expenses	$ 2,363.0	$ 2,252.6	$ 2,108.9
Depreciation and amortization	$ 150.7	$ 165.2	$ 156.6
Goodwill impairments	$ 32.8	$ 0.0	$ 0.0
Asset impairments	$ 358.0	$ 33.8	$ 4.6
Total Expenses	$ 2,904.5	$ 2,451.6	$ 2,270.1
Operating Income	$ 135.6	$ 557.7	$ 648.2
Interest income	$ 1.5	$ 0.8	$ 0.4
Interest expense	$ 56.8	$ 53.8	$ 23.4
Income before income tax expense	$ 80.3	$ 504.7	$ 625.2
Income tax expense	$ 45.6	$ 151.5	$ 222.4
Net income	$ 34.7	$ 353.2	$ 402.8

Answer 1

Answer-

Calculation of changes in income and expense as compare to Previous Year-
Consolidated Income Statement (in millions)	Feb. 03, 2018	Jan. 28, 2017	Changes(In Amount)	Changes (in%)	% of Change in Net Profit as compare to Previous Year	Reasons for change in income of Feb 03 2018
Net sales	$    9,224.60	$    8,607.90	$      616.70	7.16%		The net sales of the company has been increase by only 7.16% while the cost of sales has been increased by 10.47%, resulting in overall increase in the Gross profit by $ 30.80, that is around 10% increase in profit as compare to previous year
Cost of sales	$    6,184.50	$    5,598.60	$      585.90	10.47%
Gross Margin	$    3,040.10	$    3,009.30	$        30.80	1.02%	-9.67%
Selling, general and administrative expenses	$    2,363.00	$    2,252.60	$      110.40	4.90%		With the 7.16% increase in sales, these Selling, general and administrative expenses are increased by only 4.90%, hence these are acceptable
Depreciation and amortization	$        150.70	$       165.20	$      (14.50)	-8.78%		As the Depriciation decreases by $14.50, helps in pushing the Net income as compared to previous year
Goodwill impairments	$          32.80	$                -	$        32.80	100.00%	-10.30%	In previous year, no Goodwill impairment was there in books, however $32.80M goodwill impairment charged this year, which had resulted in decrease in our current year net income by $32.80M, hence decreasing Net income by around 10.30%
Asset impairments	$        358.00	$         33.80	$      324.20	959.17%	-101.79%	In previous year, only $33.80M Asset impairment was there in books, however $358.0M Asset impairment charged this year, ie around 10 times as compare to previous year, which had resulted in DRASTIC decrease in our current year net income by $324.20M, hence decreasing Net income by around 101.79%
Total Expenses	$    2,904.50	$    2,451.60	$      452.90	18.47%
Operating Income	$        135.60	$       557.70	$    (422.10)	-75.69%
Interest income	$            1.50	$            0.80	$          0.70	87.50%
Interest expense	$          56.80	$         53.80	$          3.00	5.58%
Income before income tax expense	$          80.30	$       504.70	$    (424.40)	-84.09%
Income tax expense	$          45.60	$       151.50	$    (105.90)	-69.90%	33.25%	Income Tax has been decreased due to decreased in earnings
Net income	$          34.70	$       353.20	$    (318.50)	-90.18%
% of Decrease in Net Profit as compare to Previous Year= Changes(in Amount) / 318.50
Conclusion-
The Main reason for decrease in Net income of Year 03 Feb 2018 is due to drastic increase in Assets impairment by $324.20, which had decrease the current year profits by around 100%