About Macy’s

From what we’ve gathered from a business perspective along with making daylong trips to the mall, retail is awful.

The margins tend to be slim, the customers are always changing their behaviors and purchasing patterns, the industry has historically been riddled with theft (commonly referred to as “shrink” in the industry), waste and high labor costs.

As you’ve probably deduced from our brief statement of disdain regarding retail as an investment and a hobby, we’re not the biggest fans. Nevertheless, what better opportunity to try to open up our eyes to new perspectives on seasoned retail companies?

Macy’s is exactly that.

Founded in 1858 by Rowland Hussey Macy, Macy’s has grown into 600 stores across the globe. The company sells apparel of all sorts, just like any other major design, fashion and/or clothing retailer. To lend some perspective, some of the company’s competitors include Nordstrom, Kohl’s, Amazon (Macy’s and retail’s worst nightmare), Target, Gap and other establishments. 

Although Macy’s is the main course, the company itself also owns some notable strategic subsidiaries such as Bloomingdale’s and Bluemercury.

Now that we’ve laid some of the groundwork on Macy’s and the retail industry in general, let’s try on the company’s financials for size and see if this company’s stock is in season or out of style.

Macy’s stock financials

With a market capitalization of $4.31 billion, an annual dividend of $0.63 and an astonishingly low price-to-earnings (P/E) ratio of 3.03, the company is off to a decent start according to our standards.

Seriously, that is the lowest P/E ratio we’ve ever seen or analyzed thus far.

The real question is whether or not there is any value to be derived or had if one decides to invest or is already invested in this company. Does the market perceive Macy’s as being incredibly undervalued or low value?

There’s a huge difference.

Let’s break out the magnifying glass and get a better glimpse of the numbers behind Macy’s.

Before venturing further, however, we’d like to briefly note that the company reportedly owns a considerable amount of real estate, which will likely aid Macy’s in its gradual yet inevitable transition (from our perspective) of in-store to fully online sales.

While we don’t think this will happen in the next year, we see this as a necessary plan of action if the company wants to stay alive.

This is just something to keep in mind and not to bank on as we trudge through the company’s core financials and other important figures.

According to the company’s balance sheet, Macy’s maintains around $17.6 billion in total assets paired with nearly $14 billion in total liabilities. This general balance sheet structure isn’t all too surprising given our initial statements regarding retail and how it’s not exactly a walk in the park financially, especially with onset and continuance of COVID-19.

However, while many other retailers might’ve drowned themselves in additional long-term debt, Macy’s executive team has apparently done a solid job keeping the company’s total liabilities relatively stable over the last five years, which we can’t imagine was an easy task given the macroeconomic environment and the decline of retailers across the board.

Additionally, Macy’s total revenue over the past five years has been as steady as it comes, staying in the $25 billion area code while taking a temporary plunge in 2021 down to just north of $18 billion.

We’ll give Macy’s a pass in 2021 given what COVID-19 and the broken links in the supply chain had and has done to retail matched with the fact that the company’s total revenues rose back to normal levels the next year.

In accordance with the company’s cash flow statement, 2021 wasn’t a fun year for the company (maybe it actually was a fun year as it relates to tax purposes) as Macy’s net income plunged to nearly -$4 billion, again, a direct result of COVID-19 and supply chain-related inefficiencies.

However, other years were positive and the company has also been able to extract a good amount of cash from operations over the past half of a decade.

Macy’s stock fundamentals

As retail is not a fun industry to operate from a financial standpoint because margins are slim, Macy’s, being a leader in the industry, has been able to achieve a trailing twelve month (TTM) net profit margin slightly higher than that of the industry, which isn’t anything to discount or scoff at.

Specifically, Macy’s TTM net profit margin is 5.95% compared to the industry’s average of 5.37%, according to TD Ameritrade’s platform. This may seem to be a miniscule and insignificant difference, but any edge in profitability Macy’s can nab is a huge and crucial win for its present and the future.

As a point of reference, Macy’s currently maintains around 2% of the clothing retail space.

Another perk of being a leader in a crowded retail industry is having a greater ability to achieve returns, particularly those on equity, assets and investment. 

Macy’s has done this too.

For instance, the company’s TTM returns on equity, assets and investment are all higher (although not by wide margins) than the industry’s average.

Again, nothing to yawn at.

Should you buy Macy’s stock?

Although the company has some solid assets (namely real estate and its strategic subsidiaries) and hosts a fun Thanksgiving Parade, our team’s outlook on retail and retail stocks is bleak and although the company has posted impressively consistent numbers, we think there are better opportunities to be found elsewhere, especially during a recession.

Given all of this information, we give Macy’s a “hold” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.