Why Investors Should Focus on Macy Inc (M)’s Omnichannel?
Macy’s, Inc. (NYSE:M) shares suffered a loss of nearly 40% in the last one-year period. The retailer indicated in January that it would slash thousands of jobs to cut down its costs after a disappointing financial number for the year 2015. That is because it sees enough scope improve the operational efficiency. However, the company has its own advantages and is trying to beat the competition from fast-fashion stores such as H&M, which specializes in up-to-the-minute styles at cheaper rates. It is also a plus factor that the company is concentrating on omnichannel rather than a specific segment. There is also a general belief that its omnichannel business model provides a plenty of driver for revenues, as well as, margins in the upcoming years. Let’s look at them and how it could help the share price valuation.
Macy’s, Inc. (NYSE:M)’s one of the focus areas is undoubtedly the same-day shipping. It was famous mostly when it comes to Amazon.com, Inc. (NASDAQ:AMZN) or synonymous with its online shopping for several customers. However, as far as apparel e-commerce sales were concerned, Macy’s ruling the rust. That also resulted in a fierce competition. The interesting point here is that the retailer is ahead of the online marketplace firm in covering more and more markets. For instance, Amazon expanded its same-day delivery markets on April 6 thus taking the total areas covered to 27. In a nutshell, the online shopping firm added eleven new markets
However, Macy’s, Inc. (NYSE:M) has been offering same-delivery to seventeen markets even as of August last year. That is more than six months ahead of it thus ensuring its supremacy on it. The company’s Chief Omnichannel Officer, Harrison, said that it was a key part of its value proposition as an omnichannel retailer serving customers, who shopped their stores, as well as websites. He expressed his company’s ability to expand the same-day delivery because of merchandise inventories at its stores and the newly established delivery footprint of its partners at Deliv. Significantly, the company has 870 locations to serve as product warehouses to ensure same-day delivery whereas Amazon.com, Inc. (NASDAQ:AMZN) has 50 fulfillment, as well as, distribution centers. Shipping plays a key role in ensuring smooth traffic to the stores.
Digital Approach On China
Macy’s, Inc. (NYSE:M)’s focus on H&M stores also ensures that some quality standard were maintained despite offering several items on lower price but with great value. Its CEO, Terry Lundgren, believes that there was continued strength in footwear and athletic apparel, especially among millennials. During an interview with CNBC, he said that he expects light at the end of the tunnel, which means that the issues troubling the company’s financial numbers would turn into favorable things. He was hopeful of the consumers returning to clothing stores. The retailer was one among those to suffer sales loss as consumers have either preferred to retain cash or spent on big-ticket items such as autos, and home improvement. The CEO is confident that the situation will change for the better in the later part of the current year.
As car as China is concerned, Macy’s, Inc. (NYSE:M) indicated that it was planning to crack the market by aligning with e-commerce firm, Alibaba Group Holding Ltd (NYSE:BABA). For that purpose, both have struck an exclusive deal so as to enable the joint venture to perform as an online flagship store of Tmall Global portal. Lundgren said that there was a proposal to open big stores in China a decade ago but preferred a digital-first route fueled by mobile, as well as, Internet shopping in the nation. He said that this was where the eyeballs were. He said that the focus would be tourists coming to America also and not restricted to the businesses in that country.
There are few other points to be taken care. For instance, Macy’s, Inc. (NYSE:M) heeded to the calls of the shareholders to unlock value in its real estate holdings. For that purpose, the company hired a President for real estate division. Of course, this has got nothing to do with the ongoing efforts to turn around. However, the REIT providing additional revenue to the company is a big boost to the shareholders and a positive one to boost dividend rate. The CEO said that he would maximize the available opportunities with real estate though he said that it was the growth in top line that will drive the stock higher. The retailer does not have any problem in converting the strong top line into a robust bottom line.
Another factor is Macy’s, Inc. (NYSE:M) dividend yield. Its latest dividend provided a yield of 3.5%, which is above the five-year average dividend yield of 2.0%. The company has been paying a dividend since 2003 and has been lifting the dividend rate for five straight years. Its average dividend payout ratio for the five-year period was 28.0% while the latest dividend indicated a payout ratio of 45.0%. Similarly, the average five-year dividend growth rate was 55.04%. There is enough scope to increase the dividend subject to the retailer earning more profit.
On valuation, Macy’s, Inc. (NYSE:M) performs better in six parameters. For instance, its PE for the trailing twelve-month period was only 12.6 times compared to the industry average of 45.1 times. Similarly, its average revenue drop in the three-year period was only 70 basis points whereas the industry suffered 4.1% fall. However, its net income dipped 7.1% whereas the industry gained 10.3%. The situation might change for the better as it was engaged in closing stores and slashing jobs, which would show up in the later part of the year. The strong point is that the retailer is enjoying operating and net margin of 7.5% and 4.0% respectively compared to the industry average’s 3.6% and 0.8% respectively. The return on assets and equity were strong several times higher than the industry.
The first quarter has never been strong for the retailers. Therefore, investors can look forward to better fortunes from the second quarter from Macy’s, Inc. (NYSE:M). The company’s omnichannel focus should also help in the upcoming quarters. On valuation, the stock looks cheaper, and dividend yield also looked attractive.
Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.
Latest posts by Viraj Shah (see all)
- Tesla Motors Inc (NASDAQ:TSLA)’s Elon Musk Is Going After Semi Truck Industry - November 17, 2017 04:37 AM PDT
- Tesla Motors Inc (NASDAQ:TSLA) Is Not “Hotbed for Racist Behavior” - November 15, 2017 06:58 AM PDT
- Nikola Tesla and Tesla Motors Inc (TSLA) – The Past & Future of the World You Cannot Ignore- Part 1 - May 15, 2017 05:11 AM PDT