From low to high-end retailers, the apparel industry offers plenty of growth opportunities for those wise enough to seize them. In this article I will look into three companies within this segment that target very different demographics: J.C. Penney Company, Inc. (NYSE:JCP) for the lower-end markets, Macy’s, Inc. (NYSE:M) for the middle-end, and Saks Inc (NYSE:SKS) for those wealthy enough to afford it. Through a brief analysis, I will try to elucidate which of these firms stands as the best long-term investment opportunity.
Pennies for J.C. Penney Company, Inc. (NYSE:JCP)
J.C. Penney Company, Inc. (NYSE:JCP) is a retailer that offers its products (mainly apparel, accessories, and personal services) through its recognized department stores, catalogs and websites. Despite being one of the leading retailers in the U.S. and Puerto Rico, the company has been facing rough times lately. This has been reflected in its margins and returns, all negative and well below industry averages. Same can be said about its last reported results, which once again failed to meet consensus expectations. So, even trading at 0.3 times its sales and 1.4 times its book value – substantially below industry average valuations – I’d recommend holding on this stock for now.
Once strongly differentiated for its prices, J.C. Penney Company, Inc. (NYSE:JCP) is now losing market share to other higher-end specialty retailers like Macy’s, Inc. (NYSE:M), which now offer low prices and high value products, and to other sector behemoths like Wal-Mart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT) that appeal to more price-sensitive audiences. The stiff competition and limitations imposed by the recession and U.S. fiscal policies on the middle-class have and will most likely continue to impact on the firm’s top and bottom line results. Moreover, this clientele loss seem permanent, as sales continue to decrease.
Poor recent financial results and weak growth and profitability figures discourage me from investing in this firm at the moment. However, I’d advocate keeping a close eye on it as its revamping plans, supported by strong liquidity and cash flows, could start paying off by 2014.
Macy’s, Inc. (NYSE:M) day parade
Macy’s, Inc. (NYSE:M) is one of the most famous brand names in the retail segment. Since I was a little kid, I knew that Macy’s, Inc. (NYSE:M) combined good prices with a quality product offering. Over the last couple of decades, the firm and its stock have outperformed its peers, including J.C. Penney Company, Inc. (NYSE:JCP) and Saks. So, currently trading at under 14.6 times its earnings, about a 16% discount to the industry average, is this stock a buy? I’d say it is, especially for the long-term.