Sample Syllabi & Assignments: Earnings Forecast Assignment
University of Iowa Henry B. Tippie College of Business
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Earnings Forecasts
Quarterly Earnings Predictions for Younkers and Carson Pirie Scott
Forecasts of earnings and other accounting variables are included in almost all reports by security analysts. These forecasts range from short-term (e.g., one quarter or one year ahead) to long-term (e.g., five-year earnings or sales growth rates). Both types of forecasts can prove useful in a variety of decision contexts. Illustrative contexts include:
- An investment context where the aim is to detect misgauged securities or to maintain a well-diversified portfolio with a specific risk level.
- A credit lending context where the aim is to balance higher interest payments against the likelihood of bankruptcy.
- A divestiture context where the aim is to forecast the future earnings to be derived from a division of a company.
Security analysts forecasts of earnings can be obtained from both primary sources -- the reports issued by individual analysts themselves -- and secondary sources -- the reports of services that collect and distribute earnings forecasts made by analysts at many institutions. This case requires you to generate short-term earnings forecasts for two retailers: Younkers and Carson Pirie Scott.
Company Background
Younkers is a leading fashion department store chain with 1994 sales of about $599 million. The company was incorporated in 1856 and became a publicly traded company in April 1992. The company operates 53 stores in Iowa, Nebraska, Wisconsin, Michigan, Minnesota, South Dakota, and Illinois. Younkers' stores are generally located in mid-sized to smaller cities where Younkers is one of the primary department stores and competition is more limited than in major metropolitan areas.
Carson Pirie Scott is the nation's tenth largest department store chain, with over $1.1 billion in sales in 1994. The company was founded in 1889 and currently employs 14,000 people servicing 59 department stores in four Midwest States. The company emerged from Chapter 11 reorganization in the fourth quarter of fiscal 1993. The company operates under the names Carson Pirie Scott (36 stores), Bergner's (13 stores) and Boston Store (10 stores), with headquarters located in Milwaukee, Wisconsin. As a full-line department store, Carson's offers complete merchandise selections of apparel, cosmetics, accessories and jewelry, shoes, housewares and home furnishings.
Quarterly Earnings Data
Reproduced below is an excerpt from the 1994 annual report of Younkers that reports information about quarterly sales, cost of sales, and earnings. Also reproduced below is an excerpt from the 1994 Form 10-K of Carson Pirie Scott that reports information about quarterly sales, cost of sales, and earnings. Because both companies use a January 31st year-end, the first quarter of 1994 ends on April 30, 1994 whereas the fourth quarter of 1994 ends on January 28, 1995. Further details about quarterly earnings are contained in the annual reports of each company.
Younkers Quarterly Financial Data (Unaudited) Quarters ended April 30, 1994 July 30, 1994 October 29, 1994 January 28, 1995 Fiscal 1994 (in thousands except per share data) Net sales $125,596 $125,297 $146,347 $210,895 Gross margin 43,634 46,511 51,612 71,587 Net earnings (loss) 199 901 2,588 9,829 Earnings per share $.02 $.10 $.28 $1.07 Quarters ended May 1, 1993 July 30, 1993 October 30, 1993 January 29, 1994 Fiscal 1993 (in thousands except per share data) Net sales $132,740 $126,815 $152,419 $185,921 Gross margin 50,026 45,833 55,869 66,256 Net earnings (loss) 1,062 (1,449) 4,640 8,009 Earnings per share $.15 ($.16) $.50 $.86
Carson Pirie Scott Quarterly Financial Data (Unaudited) Quarters ended April 30, 1994 July 30, 1994 October 29, 1994 January 28, 1995 Fiscal 1994 (in thousands except per share data) Net sales $255,975 $235,406 $277,326 $392,905 Gross margin 90,636 87,155 99,756 138,705 Net earnings (loss) 2,818 2,936 4,593 39,905 Earnings per share $.14 $.14 $.23 $1.97 Quarters ended January 29, 1994 Fiscal 1993 (in thousands except per share data) Net sales $387,700 Gross margin 142,233 Net earnings (loss) 27,172 Earnings per share $1.34 Required:
[1] Due October 20: Locate information about each company's quarterly earnings performance for the first and second quarters of 1995. Use that information to complete the "actual" columns of the table below. Attach copies of the source documents that were used to identify actual earnings for each quarter and company.
[2] Due October 27: Prepare third-quarter and fourth-quarter forecasts of sales, net operating income, and net income per share for each company. Enter those forecasts in the table below. Be prepared to describe and defend each of your forecasts and document the information sources used.
Fiscal 1995 Quarterly Sales and Earnings Forecasts Quarters ended April 29, 1995 (1: Actual)
July 29, 1995 (2: Actual)
October 28, 1995 (3: Forecast)
January 27, 1996 (4: Forecast)
Younkers (in thousands except per share data) Net sales Net operating income Net income per share Carson Pirie Scott (in thousands except per share data) Net sales Net operating income Net income per share
