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This Company Should Strengthen Your Portfolio

July 08, 2014 | About:
Suravi Thacker

Suravi Thacker

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According to the recent numbers from the Commerce Department, retail and food services spending inched up by 0.1% only in the month of April. However, as the spring season is setting in, the numbers should show an upward trend. Retail numbers were affected due to cold winter conditions accompanied by snowstorms which kept shoppers away.

Therefore, Macy’s (M) is not an exception. The retailer too faced the unfavorable effects which resulted in lower sales during the most important holiday season. Not only did its revenue declined, in its latest quarter, but also same store sales fell 1.6%. However, there is more than what meets the eye. The company is making efforts which paid off in terms of earnings growth to $0.60 per share from $0.55 per share last year. Further, it witnessed growing sales in the month of April and margins also expanded.

Well stacked against peers

Macy’s has been an outperformer when compared to peers such as Kohl’s (KSS) and J.C. Penney (JCP). The stock price performance of the three players, over the last five years, will make it clear.

Macy’s share price has appreciated by 418.80%, much higher than that of Kohl’s (29.04%) and J.C. Penney (-64.1%). The picture gets even better when annual revenue growth, during the same period, is considered.

Macy’s revenue has been increasing in the last five years, which has driven its share price higher. It has outpaced other players with a revenue growth of 18.91%.

On the other hand, J.C. Penney registered a decline of 32.5% during the same period. This is mainly because the retailer was undergoing a difficult situation. However, its turnaround plan, which is expected to complete by the end of this year, seems to be working well. Its recently reported quarter beat the Street’s estimates with a 6.3% surge in the top line over the previous year, clocking in at $2.8 billion. It managed to register a same store sales increase of 6.2% in its latest quarter as more customers flocked into its stores. Higher promotions helped the company attract more customers, especially during the Easter holiday. The retailer also opened 30 new locations during the first quarter and increased store size for 8 of its stores. However, Penney has a long way to go in order to bridge its losses and come back to profits.

However, Kohl’s performance was a lackluster one with a 3.1% drop in revenue and a 15% plunge in earnings over the prior year’s quarter. Both the top line and the bottom line failed to meet the analysts’ expectations. Also, same store sales declined 3.4% during the quarter as fewer people shopped at Kohl’s stores. Nonetheless, the company reaffirmed its guidance for FY 2014.

My takeaway

Macy’s has been able to put up a good show despite prevailing problems which hindered growth. Also, it has been a much better player among its peers, though Penney is making efforts to stage a comeback. Further, it has been providing dividends and doing share buybacks, which has been a delight to its investors. Hence, this player deserves a look.


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