Free Annual Reports
Macy's Rides A Sales Recovery
Department-store titan Macy's (NYSE:M) continues to fire on all cylinders as customers rediscover their love for shopping, and management has returned to stocking its stores based on local consumer tastes and preferences. Growth over the long haul will need to rely on the latter, but for now both are combining to revitalize sales and profits, which management is currently using to pay down debt from a major acquisition a few years ago.
IN PICTURES: 7 Ways To Position Yourself For Recovery
Third Quarter Review
Sales improved a very respectable 6.6% to $5.6 billion as same-store sales grew 3.9% and online sales for the Macy's and Bloomingdales stores jumped 24%. The company also opened three new stores in California as well as three outlet locations that are a new concept for Macy's and meant to compete at lower price points in similar fashion to TJX Companies' (NYSE:TJX) TJ Maxx and Marshalls concepts, Stein Mart (Nasdaq:SMRT), and even the discount divisions of Saks (NYSE:SKS) (Saks Off 5th) and Nordstrom (NYSE:JWN) (Nordstrom Rack).
This could add a new growth avenue. Sales trends are already currently healthy as consumers open up their wallets following the credit debacle and the company benefits from "creating a leading nationwide brand with a local focus in each market." The local focus appears to be paying off in spades while Bloomingdales is seeing a return of a more upscale clientele.
Operating income more than tripled to $177 million, or 3.1% of sales as gross margins improved slightly and SG&A costs fell as a percent of sales. Last year's quarter also contained a $33 million charge to pursue a more localized store focus. Interest expense increased slightly and was hefty at $164 million. This resulted in net income of $10 million, or 2 cents per share. This came in ahead of analyst projections.
Outlook
For the full year, analysts expect total sales growth nearly 6% to just under $25 billion. Macy's management is currently calling for earnings between $1.94 and $1.99 per share, which excludes costs to pay down debt.
A hefty debt load taken on to fund the 2005 purchase of May Department Stores is being paid down in rather aggressive fashion, though the company is using cash on hand to do so. This will lower interest expense and should add another avenue with which to grow reported earnings.
The Bottom Line
Shares of Macy's have rallied strongly in the past couple of months and have risen from under $20 to about $25 per share currently. However, the forward P/E ratio is still quite reasonable at below 13. As long as a sales recovery continues and full-year cash flow trends come in strong, there is probably further room for the stock to run.
Longer-term, it remains to be seen if the current top-line strength is due to the economic recovery or Macy's success with a local merchandise approach. Currently, it is likely due to both factors but success over the long haul will need to come from continued savvy on the product selection front. (For more, see Analyzing Retail Stocks.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 7 Ways To Position Yourself For Recovery
Third Quarter Review
Sales improved a very respectable 6.6% to $5.6 billion as same-store sales grew 3.9% and online sales for the Macy's and Bloomingdales stores jumped 24%. The company also opened three new stores in California as well as three outlet locations that are a new concept for Macy's and meant to compete at lower price points in similar fashion to TJX Companies' (NYSE:TJX) TJ Maxx and Marshalls concepts, Stein Mart (Nasdaq:SMRT), and even the discount divisions of Saks (NYSE:SKS) (Saks Off 5th) and Nordstrom (NYSE:JWN) (Nordstrom Rack).
This could add a new growth avenue. Sales trends are already currently healthy as consumers open up their wallets following the credit debacle and the company benefits from "creating a leading nationwide brand with a local focus in each market." The local focus appears to be paying off in spades while Bloomingdales is seeing a return of a more upscale clientele.
Operating income more than tripled to $177 million, or 3.1% of sales as gross margins improved slightly and SG&A costs fell as a percent of sales. Last year's quarter also contained a $33 million charge to pursue a more localized store focus. Interest expense increased slightly and was hefty at $164 million. This resulted in net income of $10 million, or 2 cents per share. This came in ahead of analyst projections.
For the full year, analysts expect total sales growth nearly 6% to just under $25 billion. Macy's management is currently calling for earnings between $1.94 and $1.99 per share, which excludes costs to pay down debt.
A hefty debt load taken on to fund the 2005 purchase of May Department Stores is being paid down in rather aggressive fashion, though the company is using cash on hand to do so. This will lower interest expense and should add another avenue with which to grow reported earnings.
The Bottom Line
Shares of Macy's have rallied strongly in the past couple of months and have risen from under $20 to about $25 per share currently. However, the forward P/E ratio is still quite reasonable at below 13. As long as a sales recovery continues and full-year cash flow trends come in strong, there is probably further room for the stock to run.
Longer-term, it remains to be seen if the current top-line strength is due to the economic recovery or Macy's success with a local merchandise approach. Currently, it is likely due to both factors but success over the long haul will need to come from continued savvy on the product selection front. (For more, see Analyzing Retail Stocks.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Ryan C. Fuhrmann
Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing assets for high-net-worth individuals and covering a broad array of industries from a generalist perspective. An active student of investing, he focuses on communicating his ideas as an investment writer and learning from the financial community. Ryan is also actively involved with the CFA Institute. Feel free to visit his website at www.rationalanalyst.com.
Free Annual Reports
