Macy’s, Inc. (M), Nordstrom, Inc. (JWN): Earnings Misses Create Buying Opportunities in These Retailers

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Last week, department store operators Macy’s, Inc. (NYSE:M) and Nordstrom, Inc. (NYSE:JWN) reported disappointing sales and earnings results for the recently ended second quarter. Furthermore, both companies lowered guidance for the full year. Macy’s, Inc. (NYSE:M) cut its fiscal year 2013 EPS guidance from a $3.90-$3.95 range to a $3.80-$3.90 range, while Nordstrom, Inc. (NYSE:JWN) reduced its fiscal year 2013 EPS guidance from a $3.65-$3.80 range to a $3.60-$3.70 range.

Macy's, Inc. (NYSE:M)The weaker-than-expected results at Macy’s, Inc. (NYSE:M) and Nordstrom, Inc. (NYSE:JWN) demonstrate that neither retailer is immune to the sluggish consumer spending environment. That said, both are high-quality companies with strong customer loyalty and good long-term momentum.

JWN Chart

Macy’s vs. Nordstrom 1-Year Price Chart, data by YCharts.

As the chart shows, both stocks have experienced significant declines recently, due in part to their weak earnings. This has created good entry points for investors looking to take advantage of the long-term potential of these two businesses.

Macy’s hits a bump
Macy’s, Inc. (NYSE:M) has experienced a strong and steady recovery since the Great Recession. Same-store sales grew 4.6% in fiscal year 2010, 5.3% in 2011, and 3.7% in 2012. Macy’s, Inc. (NYSE:M) also achieved a same-store sales increase of nearly 4% in the first quarter this year. However, both total sales and same-store sales were down 0.8% in the second quarter.

On Macy’s, Inc. (NYSE:M) earnings call, CFO Karen Hoguet attributed last quarter’s weak sales to several factors. First, hot weather arrived late in much of the country, hurting sales of seasonal merchandise. Second, many consumers appear to be prioritizing capital purchases such as autos and housing over other discretionary spending this year. Third, Macy’s underemphasized “value” in its marketing messages during the second quarter.

None of the factors that dragged Macy’s down this quarter are “permanent.” Obviously, weather is unpredictable but not a real “threat” to the business, while consumer spending is likely to improve over time as the economy continues to recover. More important, Macy’s has addressed its messaging problem by refocusing on value both in its marketing and on the selling floor. Overall, Macy’s continues to operate a very healthy business.

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