By Siyuan Du<\/p>\n
Macy\u2019s Inc. struggled with falling sales and slim profits in the first quarter, but analysts see opportunity in the shares.<\/p>\n
Since reporting quarterly earnings that fell short of Wall Street estimates and an unexpected 0.7 percent drop in sales last week, shares of the department store retailer have climbed 7 percent to $68.11 at Friday\u2019s close.<\/p>\n
Over the past year, Macy\u2019s stock has risen 20.7 percent, compared with a 13.5 percent increase for the Standard & Poor\u2019s 500 index.<\/p>\n
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Analysts think Macy’s is a good value for investors because of its more than $10 billion real estate portfolio, off-price growth strategy and low price-to-earnings ratio.<\/p>\n
Investors are poised to benefit from the recently announced hike in the dividend from 31.25 cents per share to 36 cents per share. Macy’s also boosted its share repurchase program by $1.5 billion.<\/p>\n
The company reported first quarter earnings of 56 cents per share, 6 cents below the Wall Street expectation of 62 cents per share. Sales dropped 0.7 percent, which also missed the Street expectation of a 1.2 percent increase.<\/p>\n
It blamed unfavorable weather, West Coast port delays and tourism impact. But\u00a0Terry J. Lundgren, chairman and CEO, told analysts on the earnings conference call last week that most of the issues were largely behind the company.<\/p>\n
One of the key questions in the company\u2019s first quarter conference call is about its attitude towards the real estate portfolio. Michael Binetti, analyst with UBS, wrote in a research that \u201cthe stock could be weak if Macy\u2019s doesn\u2019t boost confidence in a (same-store sales) acceleration ahead.” Otherwise, he said the retailer would need to find a way to monetize its real estate assets.<\/p>\n
According to Matthew R. Boss, analyst with J.P. Morgan, the company\u2019s current real estate value most likely exceeds its retail worth, which allows Macy\u2019s to maintain control of its \u201ctrophy assets\u201d such as Herald Square in New York City. He said the company could sell some of its $10 billion real estate portfolio and use the proceeds to buy back more shares.<\/p>\n
Macy\u2019s chief financial officer, Karen Hoguet, told analysts last week that the retailer is looking at \u201call the possible strategies, and the pros and cons\u201d but that \u201cup until now we haven\u2019t seen an opportunity that makes sense.\u201d<\/p>\n
Instead, Macy\u2019s is investing in an off-price strategy, called Macy\u2019s Backstage, similar to those that have worked for other mainstream retailers, such as Nordstrom Inc. The company plans to open four pilot stores in the fall in metro New York City.<\/p>\n
\u201cBackstage is a new retail concept that the Macy\u2019s team has built from scratch over the past six months,\u201d said Peter Saches, Macy\u2019s chief innovation and business development officer. \u201cAs with all of Macy\u2019s innovations, we will test and learn to see what resonates most with customers so we can adjust before rolling out additional locations.\u201d<\/p>\n
The off-price competition between the \u201cBig Three\u201d \u2013 TJX Companies, Ross Stores and Burlington Stores \u2013 and the department store peers including Macy\u2019s and Nordstrom is heating up. Analysts with J.P. Morgan estimate that because of the competition, it will take less time – 10 years – for the market to get saturated.<\/p>\n
\u201cOff-price is a competitive space where there are some strong competitors with very well-built services,\u201d said Paul Swinand, analyst with Morningstar Investment Services. \u201cSo I don\u2019t know if in the long run it\u2019s really going to dramatically move a needle on Macy\u2019s sales and earnings. \u201d<\/p>\n
The company\u2019s trailing price-to-earnings ratio is 15.4, below the industry\u2019s level, which is 22.72.<\/p>\n
\u201cRight now we\u2019ve gotten it in the range that we see as fairly valued, but it\u2019s trading a little bit over my fair value,\u201d Swinand said.<\/p>\n
By Siyuan Du Macy\u2019s Inc. struggled with falling sales and slim profits in the first quarter, but analysts see opportunity in the shares. Since reporting quarterly earnings that fell short of Wall Street estimates and an unexpected 0.7 percent drop in sales last week, shares of the department store retailer have climbed 7 percent to […]<\/p>\n","protected":false},"author":31,"featured_media":15562,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[27,436],"tags":[],"class_list":["post-15302","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-spring-2015"],"yoast_head":"\n