J. C. Penney Company, Inc. Equity Valuation and Analysis As of ...

the number of dollars of fixed assets the company possesses to every one dollarof variable costs the company expends.Excess CapacityComparable Same-Store Sales Growth2002 2003 2004 2005 2006JCPenney 2.8% 0.8% 4.9% 2.9% 3.7%Kohl’s 5.3% (1.6%) 0.3% 3.4% 5.9%Dillard’s (3.0%) (4.0%) (1.0%) 0.0% 1.0%Stage Stores, Inc. 1.6% (4.1%) 2.5% 5.4% 3.5%Stein Mart, Inc. (0.8%) (4.7%) 9.1% 0.2% (1.2%)*Percentages from the financial statements of JCPenney, Kohl’s, Dillard’s, Stage Stores, Inc., andStein Mart, Inc.Excess Capacity occurs when supply exceeds demand. In this instance,firms are forced to cut prices in an effort to increase sales volume and reduceinventory. Excess capacity is at a relatively controllable level for larger firms likeJ. C. Penney and Kohl’s in the department and discount segment of the retailindustry; however, smaller firms have a more difficult time competing in this areabecause of less pricing power. Nonetheless, firms are able to monitor andcontrol inventory, as well as same-store sales, shown above. If a store is notprofitable, firms in the industry can transfer or sell the stores inventory and closeits doors.Exit BarriersExit Barriers are any obstacles that might prevent a company from leavinga particular industry. A high fixed assets to variable costs ratio or legalramifications are examples of exit barriers. Firms within the department anddiscount segment of the retail industry do not face any significant exit barriers.17