Financial Pros Think This Retailer Is Cheap Enough - InvestingChannel

Financial Pros Think This Retailer Is Cheap Enough

Proprietary Data Insights

Financial Pros’ Top Clothing Store Stock Searches in the Last Month

#1‘Lululemon Athletica28
#2‘Ross Stores Inc16
#3‘Macy’s Inc15
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Financial Pros Think This Retailer Is Cheap Enough

Many wonder whether department stores are long for this world.
Once a staple of American culture, online sales and the pandemic changed how we shop.

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 (60% of total revenues) – Home to a variety of clothing, footwear, accessories, and home goods aimed at middle-income consumers.
  • Bloomingdale’s (25% of total revenues) – Focusing on the higher-end of retail, offering premium brands and products for those looking to splurge.
  • Bluemercury (5% of total revenues) – A luxury beauty retailer that sells high-end cosmetics and skincare products.
  • Digital (10% of total revenues) – E-commerce and mobile shopping platforms have seen substantial growth, especially during the pandemic.

Macy’s has been making headlines with its transformation initiatives aimed at enhancing the shopping experience both in-store and online. 

Growth vectors

Source: Macy’s Q2 ‘23 Earnings Presentation

However, its success is debatable.

Online sales have continued to slide since the pandemic.

Total sales

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.



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.



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.



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.



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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