Macy’s, Inc. (M): Why This Stock Is Better Than Its Peers

They say that an extremely cold winter can hurt your sales. Well, it’s not so if you can pull customers away from your competitors, and it looks like Macy’s, Inc. (NYSE:M) did just that this past holiday season. The company reported its last quarter earnings last week with some impressive numbers. Here’s a peek.

Good show

Many were expecting lower numbers in Macy’s, Inc. (NYSE:M) earnings report. The reason is simple – in the last quarter, there were a few causes to worry, low consumer spending at all levels and unreasonably cold weather conditions being two of them. Also, the athletic footwear segment of Macy’s was launched as a separately licensed department under Finish Line. This would, obviously, imply lower total sales in the last quarter due to the exclusion of sales from that department.

In this scenario, Macy’s, Inc. (NYSE:M) reported year-on-year sales growth of 4% was impressive. Sales for the quarter totaled $6.387 billion, with watches, handbags, and menswear being the biggest drivers. Comparable sales were up 3.8%. Net income was $217 million, up from $181 million in the previous year. Earnings grew by 28% to $0.55 per share, beating analyst estimates.

What’s the big deal?

Compare this to Kohl’s Corporation (NYSE:KSS)‘s recent numbers and you’ll see why. Kohl’s last quarter numbers were disappointing, to say the least. Sales went down 1% to $4.2 billion, with net income falling 4% from the previous year. Fewer transactions and lower transaction amounts affected sales. The company had a weak 2012, with inventory problems hurting sales. In the next quarter, Kohl’s Corporation (NYSE:KSS) expects its sales to grow by 1%-3%, fueled by warmer weather in the country. The company, however, lacks concrete plans for the future. Future plans are mostly comprised of replacing its online sales platform and working on its loyalty program, which has met with success in its initial phase. At a moment like this, strategic planning for the future is essential.

Am I the only one?

Kohl’s is not the only company that suffered from a weak holiday season last quarter. If anything, peer J.C. Penney Company, Inc. (NYSE:JCP) did worse. The company’s last quarter sales were down 16.4% to $2.67 billion. The company reported a loss of $348 million, amounting to $1.58 per share. Given the situation, Kohl’s could do with an aggressive sales driving policy to pull customers away from rivals. The company’s future plans, however, have little to offer. Macy’s, Inc. (NYSE:M), on the other hand, plans to use its M.O.M. marketing strategies to foster growth in the future. Inventory management and improvement of online sales systems are also in the pipeline.

As for J.C. Penney Company, Inc. (NYSE:JCP), with Ullman back at the helm, many are banking on a turnaround for the company. Future plans include initiatives to increase traffic by reconnecting with the customer and improving marketing strategies. The company will be launching a revamped home department in a bid to drive sales in the segment, one of the worst performing segments in the last few years. For the next few quarters, the best bet would be to wait while the company makes its way out of troubled waters.

What else?

While there’s not much for Penney’s investors to look forward to right now, Macy’s, Inc. (NYSE:M) investors can expect fatter dividend checks, as the company increased its quarterly dividend by 25% to $0.25 per share. Its dividend yield now stands at 2%. Though Kohl’s offers a better yield of 2.7%, Macy’s has rewarded its shareholders with better returns on investment. Macy’s return on equity for the past 12 months stands at 23%, way above Kohl’s 16% ROE. More importantly, Macy’s has returned (total return price, which includes dividend) a massive 138% to investors in the past five years. Kohl’s investors have seen their investments grow just 25% during the same time frame.

Foolish takeaway

One thing Macy’s managed to do in the last quarter was steal the show from its peers. With consumer spending in the U.S. getting better, the next few quarters are sure to bring in greater success for the company. The company expects to earn between $3.90 and $3.95 for the full year.

With a P/E of 14.4 times, slightly lower than the industry average of 16.4 times, the stock has some upside potential for now. I’d advise investors to hold on to the stock for now.

The article Why This Stock Is Better Than Its Peers originally appeared on Fool.com and is written by Sonam Chamaria.

Sonam is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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