Question

With this case, the specialty of several specialty retail stores is reviewed. The companies reviewed, and the year-end dates are as follows:

1. Abercrombie & Fitch Co. (January 31, 2009—52-week; February 2, 2008—52-week; February 3, 2007—53-week) “Abercrombie & Fitch Co…. is a specialty retailer that operates stores and websites selling casual sportswear apparel.” {10-K}

2. Limited Brands, Inc. (January 31, 2009—52-week; February 2, 2008—52-week; February 3, 2007—53-week) “We operate in the highly competitive specialty retail business.” {10-K}

3. GAP, Inc. (January 31, 2009—52-week; February 2, 2008—52-week; February 3, 2007—53-week) “We are a global specialty retailer offering clothing, accessories, and personal care products.” {10-K}

Data reviewed	Abercrombie & Fitch		Limited Brands		GAP
	2009	2008	2009	2008	2009	2008
Net profit margin	7.69	12.69	2.39	6.87	6.66	5.50
Return on assets	10.05	19.76	3.00	9.58	12.56	10.58
Return on total equity	15.72	31.47	10.75	27.75	22.33	18.35

Required

1. Comment on the net profit margin for these companies. Consider absolute amounts and trend.
2. Comment on the return on assets for these companies. Consider absolute amounts and trend.
3. Comment on the return on total equity for these companies. Consider absolute amounts and trend.
4. Comment on the relative profitability of these companies.

Answer 1

(A). As shown in the table given the net profit margin of Abercrombie & Fitch Co. & Limited Brands, Inc. are decreasing as compare to their previous year performance which is not a positive indicator for business and on the same table net profit margins of GAP, Inc. is showing little growth on YOY(year on year) basis . So GAP , Inc is playing better on the parameter of net profit margins.

Net profit margin = Sales Revenue / Net income *100

(B). As provided in question return on assets of  Abercrombie & Fitch Co. & Limited Brands, Inc. are showing a sharp decline in year 2009 as compared to year 2008 which is not considered a healthy sign in a competitive market but on the same measure GAP, Inc is showing a better growth in year 2009 as compared to year 2008.

Return on assets = Net income/ Total assets

(C). As clearly shown in data Abercrombie & Fitch Co. & Limited Brands, Inc are not performing well as return on equity which is one of the most important indicator of company growth is decreasing on YOY basis with ha high margin . This is showing decline in profits of these two companies but on the same GAP, Inc is giving high return on equity as compared to year 2008

Return on equity = Net Income/ Total Equity.

(D). As taken into consideration all the three parameters is has been noticed that both Abercrombie & Fitch Co. & Limited Brands, Inc. are not giving good returns to business as compared to their past performance which is a indicator of slow down in these business but GAP, Inc is giving excellent results in comparison to pervious year which is good for the corporation as well as their share holders ,