The traditional department store pricing strategy might have its advantages after all. Reuters reported that J.C. Penney Comapany, Inc. (NYSE:JCP) will bring back its sales events, as CEO Ron Johnson explained that ending the frequent sales had cost the store customers. J.C. Penney made a good decision here, but other department stores can also attract shoppers with sales events. Three factors could help an investor decide which department store stock offers the best deal.
Traditional department stores often hold valuable real estate even if they’ve lost some shoppers to online retailers. A chain with mall anchor locations throughout the nation could have some pricey property on its books. The beaten down J.C. Penney also has a beaten down price to book ratio, at 1.2. Kohl’s Corporation (NYSE:KSS) has a 1.7 price to book ratio, while Dillard’s, Inc. (NYSE:DDS) has a 1.92 ratio and Macy’s, Inc. (NYSE:M) has a 2.8 ratio. A department store chain could be a value trap even if it does own lots of land, so growth expectations also matter.
Department stores that look cheap by other measures don’t always look cheap under growth metrics such as the PEG ratio. Dillard’s looks the most expensive here, with a trailing P/E of 13.3 and a PEG ratio of 2.42. Back in February 2012 I made an outperform CAPS call on Dillard’s at $59.51, which I closed in November 2012 at $83.10 because the stock had become much pricier. As the Fool’s Brian D. Pacampara explains, other Fools think the same thing about Dillard’s right now.
Macy’s looks less expensive than Dillard’s right now with a trailing P/E of 12.4 and a PEG ratio of 0.88. Macy’s also reported 4.1% same store sales growth in December, although the chain also shut down some physical stores, a potentially bearish sign. The chain’s omnichannel strategy does make it less dependent on physical stores, though.
Kohl’s 10.4 trailing P/E is lower than Macy’s figure, but Kohl’s also has a PEG ratio of 1.45. Kohl’s reported 3.4% same store sales growth of its own in December, but the chain had to offer deep discounts to achieve this revenue growth, also a bearish sign.
J.C. Penney continues to run in the red, and its negative 0.46 PEG ratio looks ominous. These department stores are mature businesses, so a high PEG doesn’t necessarily mean a chain’s a bad investment. J.C. Penney still looks very risky here and Macy’s still looks like a bargain, though.