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Proprietary Data Insights Financial Pros’ Top Clothing Store Stock Searches in the Last Month
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Financial Pros Think This Retailer Is Cheap Enough |
Many wonder whether department stores are long for this world. No other company illustrates this downfall better than Macy’s (M). Sales continue to decline, year after year. And so far, management’s transformation initiatives haven’t yielded any improvements. Yet, the company holds real estate worth 3x the share price, and it still generates more than $1.6 billion in cash from operations, paying a 5.8% dividend yield. That could be why financial pros have kept steady searches for the stock ever since it reported earnings. And you know what, they might be onto something… Macy’s Business Famous for its Thanksgiving Day Parade in downtown Manhattan, Macy’s is a department store embedded into the fabric of America. As one of the largest department stores in the nation, Macy’s offers everything from clothing to furniture through its well-known brands. These brands also make up the revenue reporting segments:
Macy’s has been making headlines with its transformation initiatives aimed at enhancing the shopping experience both in-store and online.
Source: Macy’s Q2 ‘23 Earnings Presentation However, its success is debatable. Online sales have continued to slide since the pandemic.
With roughly $300-$600 million in Capital Expenditures per year tied to these initiatives, or $1-$2 per share, we question the wisdom of chasing growth through a strategy that isn’t yielding results. One common refrain from Macy’s bulls – their real estate holdings are immense. Several analysts say the land and buildings are worth close to $10 billion, or $36.4 billion per share. We’ll discuss in the next section whether that’s true and what it ultimately means. Financials
Source: Stock Analysis Revenues declined yearly for the last 10 except for 2018 and 2021, with 2021 being an anomaly. Margins whipped around as greater online sales helped offset by lower sales overall. Despite all the problems, Macy’s generates $1.6 billion in operating cash flow per year, more than enough to cover its $900 million Capex and $176 billion for a nearly 5.8% dividend yield. Now, Macy’s holds $5.3 billion in current assets and $8.6 billion in land, equipment, etc., or $13.9 billion in total. Total liabilities come to $12.1 billion. Net that comes out to $1.8 billion or $6.55 per share. That places a pretty heavy discount on the cash generated by the company to make up the remainder of the stock price. Valuation
Source: Seeking Alpha Like every other department store, Macy’s is priced like it’s going out of business. Nordstrom’s (JWN) and Dillard’s (DDS) trade at 2x or more the P/E ratio and price-to-cash flow of Macy’s. Discount retailers like Ross Stores (ROST) trade at significantly higher multiples overall, while Lululemon Athletica (LULU), which still grows revenues, isn’t even the same ballpark. Growth
Source: Seeking Alpha Again, this all comes down to revenue growth. Macy’s isn’t growing revenues while its peers are. That translates directly into its lack of bottom-line growth. Profitability
Source: Seeking Alpha Interestingly, Macy’s margins aren’t too shabby. Essentially, that means Macy’s just isn’t doing a good job of marketing and getting people to its stores. Our Opinion 8/10 Here’s why we rated this an 8/10. The risk/reward here is very attractive. Macy’s may never affect a turnaround. But, we think better management could improve the company’s vision. And any lift in the general economy would help Macy’s. This isn’t one to bet the farm. But it’s got the potential to double over the next 2-5 years. |
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