With shares of Macy's (NYSE:M) trading at around $48.00, is M an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock's Movement
For those who missed the latest earnings report, EPS came in at 55 cents per diluted share on $6.39 billion in revenue. Earnings increased 28 percent year-over-year, which was impressive. Revenue was in line with expectations. And comp sales growth of 3.8 percent, which was slightly below expectations. All that said, the whole expectations game is a little tiresome. It has become a game of cat and mouse. Looking strictly at the numbers, it was a good quarter on a year-over-year basis. Macy's full-year guidance was reiterated at $3.90-$3.95.
Macy's has continued to increase market share, which has had a lot to do with the failures of J.C. Penney Company (NYSE:JCP). The only department store giving Macy's competition is Nordstrom Inc. (NYSE:JWN). Kohl's Corp. (NYSE:KSS) has been doing okay — it hasn’t been a serious threat.
While J.C. Penney's failures have been a big reason for Macy's gains, online growth has also helped. When many traditional retailers opted to scoff at online retailing, Macy's embraced it. According to Alexa.com, Macy's ranks #625 globally and #135 in the United States. In other words, only 134 sites in the United States are visited more than Macys.com. On the other hand, online stats for the past three months haven't been great, and this could offer a hint at future results. Over the past three months, pageviews-per-user has declined 9.63 percent, time-on-site has declined 7 percent, and the bounce rate (one page per view) has increased 9 percent.
Other headwinds for Macy's include a slowdown from budget-conscious consumers, especially in women's clothing and apparel aimed at teens and young adults. However, handbags and menswear have performed well. It should be noted that there has also been a slowdown from higher-end consumers at Bloomingdale's.
Macy's recently increased its quarterly dividend to 25 cents per share from 20 cents per share, marking the third dividend increase over the past two years. The share repurchase program has also increased by $1.5 billion.
A company's culture can offer valuable information. In at least 80 percent of cases, you will find a strong company culture at a company that’s achieving good results. Macy's company culture is average. Employees have rated their employer a 2.9 of 5, and 47 percent of employees would recommend the company to a friend. A slightly above average 63 percent of employees approve of CEO Terry J. Lundgren.
Let's take a look at some numbers before forming an opinion on the stock. The chart below compares fundamentals for Macy's, J.C. Penney, and Kohl's.
| M | JCP | KSS | |
| Trailing P/E | 14.81 | N/A | 12.46 |
| Forward P/E | 10.83 | N/A | 10.91 |
| Profit Margin | 4.82% | -7.59% | 5.11% |
| ROE | 22.28% | -27.43% | 15.71% |
| Operating Cash Flow | 2.26B | -10.00M | 1.26B |
| Dividend Yield | 1.70% | N/A | 2.90% |
| Short Position | 2.60% | 33.10% | 8.00% |
Let's take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Strong
Macy’s has outperformed its peers for every time frame listed below excluding the past month.
| 1 Month | Year-To-Date | 1 Year | 3 Year | |
| M | 10.53% | 23.58% | 32.35% | 122.7% |
| JCP | 31.06% | -4.31% | -43.40% | -27.81% |
| KSS | 9.53% | 21.81% | 13.93% | 2.68% |
At $48.00, Macy’s is trading above its averages.
| 50-Day SMA | 44.47 |
| 200-Day SMA | 40.82 |
E = Equity to Debt Ratio Is Normal
The debt-to-equity ration for Macy’s is weaker than the industry average of 0.70, but it still qualifies as normal. That said, Macy’s is on the fringe and should improve its debt management.
| Debt-To-Equity | Cash | Long-Term Debt | |
| M | 1.15 | 1.84B | 6.93B |
| JCP | 0.94 | 930.00M | 2.98B |
| KSS | 0.75 | 537.00M | 4.55B |
E = Earnings Have Been Strong
What an improvement in regards to earnings. However, notice the awful performance in 2009. This is important because it shows a lack of resiliency. As far as revenue goes, it has consistently increased for three consecutive years.
| Fiscal Year | 2009 | 2010 | 2011 | 2012 | 2013 |
| Revenue ($) in billions | 24.89 | 23.49 | 25.00 | 26.40 | 27.69 |
| Diluted EPS ($) | -11.40 | 0.78 | 1.98 | 2.92 | 3.24 |
The last quarter (Q1) isn’t included in the chart below. As stated earlier, diluted EPS came in at 55 cents per share, and revenue came in at $6.39 billion. These are both year-over-year improvements.
| Quarter | Jan. 31, 2012 | Apr. 30, 2012 | Jul. 31, 2012 | Oct. 31, 2012 | Jan. 31, 2013 |
| Revenue ($) in billions | 8.72 | 6.14 | 6.12 | 6.08 | 9.35 |
| Diluted EPS ($) | 1.753 | 0.43 | 0.67 | 0.36 | 1.828 |
Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
T = Trends Might Support the Industry
The consumer is somewhat healthy at the moment, and that's likely to continue as long as the real estate and stock market continue to perform well. However, the endgame isn't a pleasant one.
Conclusion
Macy's has increased cash flow, annual revenue and earnings have consistently increased, valuation is fair, and it offers a 1.70 percent yield. On the other hand, Macy's is extremely sensitive to market corrections.
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