(Cost management and profitability) After graduating last year from an Ivy League university, Jill Young was hired as a stock analyst. Wanting to make her mark on the industry, Young issued a scathing report on a major dis¬ count department store retailer, Smart-Mart. The basis of her attack was a comparative analysis between Smart-Mart and Tracy’s Department Store, an upscale, full-service department store. Some of the information cited in Young’s report follows.

Based on the comparative analysis, Young issued to the firm’s clients a “sell” recommendation for Smart-Mart and a “buy” recommendation for Tracy’s. The gist of Young’s rationale for the recommendations was that Tracy’s Department Store was outperforming Smart-Mart in the crucial area of cost management as evidenced by both a higher profit as a percent of sales and a higher gross margin as a percent of sales.

a. Evaluate Young’s recommendations given the limited evidence available.

b. Because the two firms contrasted by Young have different strategies, what performance criteria would you use to evaluate their competitive¬ ness in the industry?LO.1  

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Items as Percent of Sales Smart-Mart Tracy's Cost of goods sold 65% 55% Gross margin 35 45 Selling and administration Profit 27 33 8 12