• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

Lack of Love for Macy's Doesn't Add Up

Strong same-store sales combined with robust earnings make the cheap stock a buy.
By DAVE BUTLER
Nov 14, 2018 | 02:24 PM EST
Stocks quotes in this article: M, AMZN, SHLD, JCP, KSS

Apparently Macy's (M)  third quarter earnings results gave me more hope than it did others. Comparable store sales gained 3.3% while income grew double digits. I wrote earlier in the week that comp sales were the ticket to shares finding momentum. I still believe that to be true despite the volatile reaction this morning. The stock was up premarket but was down over 6% to $33.56 as of 2:15 p.m. ET. Go figure. I partly blame the volatility of the overall market for the cold reception along with the general continued fear of a retail apocalypse.  Overall, I think the low valuation of the stock makes its quarterly results quite positive. There's much to be said about the efforts being made in all directions by the company to retain its place in retail. 

What I like

Net sales gained 2.3% year over year to $5.4 billion, and credit card revenues increased 27.6% to $185 million. Thanks to management's continued control of costs and sales of (hopefully) unneeded real estate, operating income increased 24.6% to $147 million. Lower debt levels this year have helped lower the company's interest expenses. Interest expense in the third quarter was down 20% year over year to $59 million. I'm a huge fan of liability reduction. The lower interest payments helped drive net income up 129% year over year to $62 million. Diluted earnings doubled to $0.20 per share. 

The comparable store sales growth of 3.3% is good. It helps dissuade the negative sentiment that most certainly affected Macy's in Q2 when it reported comp sales growth of 0.5%. I also like what's happening in the digital space. Though I strongly dislike the impracticality of buying clothes online without trying them on, I do understand that e-commerce is here to stay. I was very encouraged to hear Macy's report double digit growth in digital sales. It shows that they can compete with online retailers, a much needed attribute these days. 

What I dislike

Macy's Q3 results definitely benefited from real estate sales. It contributed $42 million to operating income, and $0.10 to earnings per diluted share. While selling off underperforming real estate is a perfectly acceptable exercise, it's not a sustainable long-term trend. Therefore I hope to see more of their operating income stem from sales of goods rather than assets in the future.

What I love 

Macy's cheap stock price allows it to react more to positive financial performance. If you own Amazon (AMZN) right now, you're playing a game where the company has to produce huge sales gains just to justify the current share pricing. Macy's needs to produce huge sales gains to justify higher share pricing. If this little pullback should continue, I am strongly considering taking a position around $33 if it gets that low; though I'm probably being a little too wishful. 

I love the industry dynamics happening around Macy's. The collapse of rivals is providing opportunities for the survivors to rise to dominance. With the Sears (SHLD) bankruptcy and JCPenney (JCP) closing so many stores, there's market share to be taken this holiday season. As strange as it sounds, I think Macy's big competitor now (aside from Amazon) is Kohl's (KSS) . Kohl's has aggressively improved the names it carries, and its earnings this year demonstrate its strength. These two names will be fighting to grab up the market share void being left by Sears, and potentially JCPenney. Nonetheless, I still view Macy's as a strong contender this holiday season.

With full year earnings guidance upgraded, I think management shares my sentiment. With $4.10 per share, the low end of full-year earnings guidance, that gives Macy's a P/E of 8.4 (at the time of writing). When you pair the cheap pricing with the 4.35% dividend yield, this is a hard stock not to own. 

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication Butler had no position in the securities discussed.

Jim Cramer and the AAP team hold positions in Amazon and Kohl's for their Action Alerts PLUS Charitable Trust Portfolio . Want to be alerted before Cramer buys or sells AMZN or KSS? Learn more now.

TAGS: Investing

More from Investing

When it Comes Time to Sell, Will You Act or Will You Freeze?

James "Rev Shark" DePorre
Jan 16, 2021 10:00 AM EST

Why don't more people embrace the ease and power of selling stocks? Why do they freeze and do nothing as losses build?

Cybersecurity Stocks that Lagged in 2020 Could Get Boost from SolarWinds Hack

Eric Jhonsa
Jan 16, 2021 8:00 AM EST

The hack stands to drive an uptick in corporate and government spending to protect both on-premise and cloud assets.

Hungry Traders and Stock Opportunities Aren't Likely to Go Away Soon

James "Rev Shark" DePorre
Jan 15, 2021 4:40 PM EST

It doesn't take much time for stocks with strong momentum to reset and continue on their way.

At What Price Is Ballard Power Systems a Buy?

Bruce Kamich
Jan 15, 2021 3:09 PM EST

Let's check out the latest charts of BLDP.

United Parcel Service Is Testing Key Support

Bruce Kamich
Jan 15, 2021 2:30 PM EST

A look at the charts of UPS.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:01 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    When it's time to sell, will you act or freeze?
  • 08:35 AM EST GARY BERMAN

    Wednesday Morning Fibocall for 1/13/2021

    Lower highs... SPX (Long-Term View) The 1/8/2...
  • 08:07 AM EST GARY BERMAN

    Tuesday Morning Fibocall for 1/12/2021

    Watch if the recent trend of lower highs continues...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login