With two of the biggest U.S. mall retailers set to report earnings a day apart next week, I figured I would do a little comparison. When the average American hears the names Macy’s, Inc. (NYSE:M) and J.C. Penney Company, Inc. (NYSE:JCP), the first thing they may think of is just how similar these two companies are. However, while the two companies’ stores may sell similar products and even look similar, as investments these companies are as different as night and day.
Let’s start with a little bit about the two companies. Macy’s operates about 850 department stores under both their own name and the Bloomingdale’s name, offering a range of merchandise including apparel, cosmetics, home furnishings, and other products. The company also operates a substantial online business through both macys.com and bloomingdales.com. Last year, Macy’s did over $26.4 billion in sales, and had earnings of $2.92 per share.
J.C. Penney seems very similar on the surface, and is actually the leading mall-based department store operator based on the number of stores with over 1,100 locations in 49 states and Puerto Rico, and they offer a very similar assortment of products as Macy’s. Unlike Macy’s, sales have been on a decline, with the steepest losses in sales expected for the current year.
Macy’s earned $1.28 per share for fiscal year 2012; however they are expected to post losses for the next two years. It is fair to say at this point that Macy’s seems to be in much better shape, financially.
Although Macy’s sales experienced a small dip after the recent recession, the company has grown sales nicely over the past three years, and earnings have grown along with it. As a result, shares have climbed from their 2009 low of $5.07 to the current level of just under $40.
In addition, Macy’s has a nice record of creating shareholder value through both dividends and buybacks. The shares yield 2% annually, and the total number of outstanding shares has dropped from 427.3 million to 395.3 million just in the past two years, a reduction of 7.5%.
As you can see from the chart above, the trend is the exact opposite for J.C. Penney’s. Their shareholders have taken a beating, watching their shares that were worth up to $87.18 at one point reduced to under $20.
So why the sales plunge from J.C. Penney’s? The company is currently in the middle of a restructuring plan to adapt to changing business dynamics, and as a result, there are some expenses and losses that come with it. The company discontinued its famous “big book” catalogs in 2011, and they plan to update all 1,100 of their stores to modernize their look and attract new customers.
As a result of the restructuring, the company expects to return to profitability in FY 2014 and produce a 13% operating margin by FY 2016.