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Summary

  • The retail store operator was able to rake in $6.267 billion in the second quarter of 2014, representing an increase of 3.3% year on year.
  • Top line growth contributors: improvement in weather conditions, promotional activities, employment of MOM strategies, refurbishment of Herald Square flagship etc.
  • Operating income margin improved from 8.8% in the second quarter of 2013 to 9.1% in the most recent quarter.
  • Higher ROA and ROE are depicting Macy’s to be a cut above the industry peers.
  • The stock is highly undervalued based on its P/E and is offering a dividend yield of 2.18%.

Macy's, Inc. (NYSE:M), the premier national omnichannel retailer, serves its clients through its wide network of stores and online websites. The two brands, Macy's and Bloomingdale's are globally known for their distinctive identity and customer focus. The company has recently announced its second quarter results for the fiscal year 2014.

Let's take a look at how the company has performed in the midst of the slow economic environment and how it plans to move forward into the future.

Recent Performance At A Glance!

Top Line

To begin with, the retail store operator was able to rake in $6.267 billion in the second quarter of 2014, representing an increase of 3.3% compared to the same period last year. Total comparable sales contributed their share of the increase and went up by 4%. Compared to the first quarter, sales had picked up in the second quarter as the weather conditions improved and resurgence was witnessed in the shopping frequency. The positive growth was also attributable to the company's stepped up promotional activities. Macy's MOM strategies which is comprised of My Macy's localization, Omnichannel integration and Magic Selling customer engagement have played an active role in the achievement of top line growth. The revamp of Macy's Herald Square flagship in New York has also paid off well.

For the remaining half of the year, I believe that the company will be able to register top line growth on the back of its innovation in omnichannel including a rigorous Buy Online Pickup in Store process. MOM strategies have shown great results and significant untapped opportunities exist for Macy. The beginning of the back to school shopping season is also likely to spur retail sales growth. Moreover, the company is also expanding its retail store network and thus, plans to inaugurate three stores in Sarasota, FL, Las Vegas, NV, and The Bronx in New York City and a replacement store in Palo Alto, CA. The comparable store growth is expected to range in between 2% to 3%.

According to Millan Mulraine, deputy chief economist at TD Securities in New York, "Given the strong gains in labor market activity, along with other indications of strengthening domestic growth momentum, we expect this slowdown to be short-lived and we look for consumer spending to rebound strongly in the coming months".

Bottom Line

The top line growth was able to trickle down to the bottom line as the operating income margin improved from 8.8% in the second quarter of 2013 to 9.1% in the most recent quarter. In order to keep the demand higher for its products, Macy may need to continue to launch promotional activities. This is likely to translate into higher volume of products being sold but an improvement in the margins can be achieved through curbing operating costs.

Management Efficiency

Source: Thomson Reuters

Holistically, the key statistics of Macy's are depicting it to be a cut above the industry peers. The net margin of Macy's of 5.37% matched against the industry's 4.86% reinforces the fact that the corporation was able to generate greater income per $ of sales on the back of implementation of its advanced MOM strategies. ROA is higher than the industry while ROE is more than twice of the industry's average level, elucidating the fact that the company is utilizing its resources with additional efficacy. Also, Macy's has an active share repurchase plan under which the company intends to buy $2 billion worth of common stock. Buying back shares will result in same earnings being distributed among lesser shareholders i.e. each investor will get a larger portion of the total profit pie.

Conclusion

Within this industry, Macy has registered superior results in comparison to other peers and exhibits greater growth potential compared to other parallel players. Additionally, the stock is highly undervalued based on its P/E which is reported to be 14.26 whereas the industry's standard level is 47.24. The stock also caters to the need of providing regular income through dividends. The current dividend yield is 2.18% compared to the industry average of 1.54%.

Source: Macy's: A Value Stock