LB LandBridge Company LLC

Macy’s Inc. (M) continues with its positive rhythm as it successfully approaches the end of another year, and we believe it will sustain the tempo as it enters 2012. The company’s relentless endeavors to keep itself on a growth trajectory have paid off.

Riding on Positive Comps

From January to November 2011, Macy’s has consistently registered comparable-store sales growth touching a low of 0.9% (in March) and reaching a high of 10.8% (in April), thereby recording an average growth of approximately 5.1%.

This is far better than its competitor J. C. Penney Company Inc. (JCP), which witnessed an average comps growth of a meager 0.8% in the same period. Between January and November 2011, J. C. Penney’s comparable-store sales fell as low as 2.6% (in October) and rose as high as 6.4% (in February and April).

Monthly sales data has also been encouraging for Macy’s, which has seen consistent growth. From January through November 2011, the company registered a minimum sales growth of 1.6% (in March) and a maximum growth of 10.9% (in April), compared to J. C. Penney, which experienced a steep sales decline of 6.6% (in October) and an increase of 3.4% (in April).

Black Friday Sales Bring Cheers

The Black Friday weekend sales brought cheers for retailers such as Macy’s, Saks Incorporated (SKS), Ross Stores Inc. (ROST) and Limited Brands Inc. (LTD), which went on to post better-than-expected November comparable-store sales growth of 4.8%, 9.3%, 5% and 7%, respectively. Early hour store openings, huge discounts, promotional activities and free shipping on online purchases were enough to woo customers on Black Friday, which turned out to be a bonanza for both brick-and-mortar as well as e-commerce retailers.

The saying "early bird catches the worm" goes well with Macy’s. For the first time, the retailer opened its doors at the stroke of midnight on Black Friday to attract customers.But J. C. Penney could not make the most of this opportunity. It followed its old tradition of opening stores at 4 a.m. on Black Friday. The decision hurt J. C. Penney’s November comparable-store sales, which were down 2%.

Where Lies the Strength

Macy’s sustained focus on price optimization, inventory management, merchandise planning and private label offering positions it to drive traffic, meet customer-oriented demand and improve the shopping experience.

In an attempt to increase sales, profitability and cash flows, the company has been taking steps such as integration of operations, consolidation of divisions as well as developing the e-commerce business and online order fulfillment centers.

Online sales, which include sales from macys.com and bloomingdales.com, continued to show growth momentum in November, soaring 49.6%. With the innovation of new technologies, consumers have also advanced and are now using smartphones and tablets to search for merchandises and grab the best available deal, instead of going from shop to shop. Consequently, the company seeks to expand both Macy's and Bloomingdale's brands online. Year-to-date, online sales were up 40.9%.

We remain optimistic about the company’s customer-centric localization initiative called “My Macy’s”. The program aims at improving comparable-store sales and reducing operating expenses, with stores and merchandise assortments focused on local customer needs and preferences.

Let’s Wrap Up

Macy’s department stores sell a wide range of merchandise. Its products include men’s, women’s, and children’s apparel and accessories, cosmetics, home furnishings and other consumer goods.

After the Black Friday sales blast, there is skepticism in the market about whether the success of weekend sales will be replicated during Christmas and New Year, or whether consumers who have now become more rational about spending will tighten their purses. However, the efforts of retailers to convert store traffic into business cannot be decried as they are trying to lure customers. Given its track record, Macy’s appears to be one of the forerunners.

Macy’s, which competes with Dillard’s Inc. (DDS), currently operates approximately 850 department stores in 45 states, the District of Columbia, Guam and Puerto Rico.

The above analysis supports our affirmative view on the stock, and therefore we currently have a long-term Outperform recommendation on it. Moreover, Macy’s holds a Zacks #1 Rank that translates into a short-term ‘Strong Buy’ rating, and correlates with our long-term view.

 
DILLARDS INC-A (DDS): Free Stock Analysis Report
 
PENNEY (JC) INC (JCP): Free Stock Analysis Report
 
LIMITED BRANDS (LTD): Free Stock Analysis Report
 
MACYS INC (M): Free Stock Analysis Report
 
ROSS STORES (ROST): Free Stock Analysis Report
 
SAKS INC (SKS): Free Stock Analysis Report
 
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