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Wal-Mart Stores, Inc. (WMT), Macy’s, Inc. (M): 4 Department Stores for Your Portfolio

Department stores appear to be good investments as we approach their earnings release dates. Several are achieving comparable-store sales gains, while others are growing their location counts at solid profitability. Moreover, the companies tend to return cash to shareholders in the form of dividends and repurchases, to a greater extent than in other industries. Lastly, the stocks look appealing at their current valuations.

Global giant still a good bet

Wal-Mart Stores, Inc. (NYSE:WMT) is the operator of retail units under 69 banners across the world, by way of three business segments:

1. Wal-Mart Stores, Inc. (NYSE:WMT) U.S. contributes about 59% of total sales through 4,005 units as of January of this year.

2. Wal-Mart Stores, Inc. (NYSE:WMT) International is attributable for 29% of sales, approximately, stemming from its 6,148 units.

3. Sam’s Club brings in about 12% of total sales by way of 620 locations.

By merchandise type, Wal-Mart Stores, Inc. (NYSE:WMT)’s sales are roughly: 55% Grocery and consumables; 24% fuel and other categories; 8% technology, office, and entertainment; 8% home and apparel; 5% health and wellness.

Wal-Mart Stores, Inc. (NYSE:WMT)Wal-Mart Stores, Inc. (NYSE:WMT) continues to expand store counts at each of its major segments. It seems to also be on pace for same-store sales gains, albeit at a modest clip. These two factors combined are typically a healthy recipe for profit growth.

The shares are trading at a forward P/E of 13.4 and are worth considering. Despite the company’s discount format, its gross margins rival those of its peers. Also, it is slowly buying back stock and pays a 2.4% dividend yield.

Popular fashion retailer in growth mode

Macy’s, Inc. (NYSE:M), through the Macy’s and Bloomingdales names, operates 840 stores in 45 states, as well as Internet sites, as of February of this year. Sales by product category are as follows:

1. Feminine accessories, Intimate Apparel, Shoes and Cosmetics provide about 38% of the total.

2. Feminine apparel contributes 23% of sales.

3. Men’s and Children’s products bring in 23% of total sales.

4. Home/Miscellaneous offerings contribute 16% of the total.

The company is generating same-store sales increases, supporting improvements in the profit margin. I believe this is a by-product of investments in its product lines and the tailoring of merchandise in particular stores, as well as spending on its sales force. With the company also repurchasing shares rather aggressively, earnings per share ought to remain on an upward trajectory.

Macy’s, Inc. (NYSE:M) shares’ forward P/E ratio is 10.8, and it is a solid choice. Review also my previous posting on department stores: “3 Department Store Stocks for Your Portfolio .”

An overall solid company

The TJX Companies, Inc. (NYSE:TJX) operates more than 3,000 off-price apparel and home fashion retail stores in the U.S. and worldwide. Its four divisions as of May 2013 were:

1. Marmaxx consists of its T.J. Maxx and Marshalls chains in the U.S., including about 1,940 stores. It contributes about 66% of total sales.

2. HomeGoods retails home fashions in the U.S. through about 415 locations. It delivers about 11% of total sales.

3. The TJX Companies, Inc. (NYSE:TJX) Canada operates the Winners, Marshalls, and HomeSense franchises in Canada by way of 222 stores, approximately. Its sales are about 10% of the total.

4. The TJX Companies, Inc. (NYSE:TJX) Europe is the operator of T.K. Maxx and HomeSense stores in Europe through about 343 stores.

The TJX Companies, Inc. (NYSE:TJX) is likely experiencing modest same-store sales gains on a relatively flat store count. It is benefiting from heightened store traffic in the U.S. and improved margins in Canada. It looks like store re-modelings are having a positive impact on results domestically, while enhanced pricing power is supporting profits in Canada.

The shares, up sharply already this year, are trading at a forward P/E of about 16.2. Cash is being utilized for buybacks, as well as property expenditures. On that note, it believes it can grow the store base 50% over the long term, while also likely utilizing cash for buybacks and dividends. For that reason, the stock is a decent long-term selection.

Arkansas-based department store faring well

Dillard’s, Inc. (NYSE:DDS) sells merchandise through more than 300 locations, including 18 clearance centers, along with a website. Stores are primarily located in the southwest, southeast, and Midwest regions of the U.S. The merchandise mix for fiscal 2012 (ended Feb. 2, 2013) was:

Ladies’ apparel, 22%; Men’s apparel and accessories, 17%; Shoes, 16%; Cosmetics, 15%; Ladies’ accessories and lingerie, 15%; Juniors’ and children’s apparel, 8%; Home and furniture, 5%.

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