Don’t let that dissuade you — the dip only makes Macy’s that much more of a buy than it already was.
Macy’s numbers were mixed. Revenues missed Wall Street expectations, sure, but only by a hair — Q4 sales came in at $9.364 billion to just miss a $9.4 billion bar. Still, revenues did improve by 2%. Overall income declined 2%, though adjusted earnings of $2.44 per share did manage to beat estimates by 2 cents.
Sure, Macy’s bought back more shares than expected last year … but it’s able to buy back shares thanks to growing profitability.
Macy’s hit its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) target of 14% of sales. Since the market bottomed out in 2009, Macy’s adjusted EBITDA has steadily rose from 11.3% in 2009, to 13.4% in 2012 and 13.6% in 2013.
Macy’s execs credit the EBITDA success to the “MOM” strategy — a corporate philosophy introduced back in 2008. “MOM” is designed to boost sales and efficiency and position Macy’s at the top of the shopping mountain.
‘MOM’ Knows Best
In short, MOM stands for…
- “M” — My Macy’s: The corporate quest to personalize the shopping experience in every one of Macy’s 800 plus stores. Each store is geographically placed into one of 69 districts. Each district has a team dedicated to understanding what the shoppers in those districts are looking for, and stocks items appropriately. Macy’s recognizes that the needs of shoppers in Tallahassee, Florida, are not the same as folks that shop in Madison, Wisconsin. The more each store can sell the items it stocks regularly, the less items will need to be marked down for clearance. And that helps margins.
- “O” — Omni-Channel: Omni-channel is every retail business’s favorite buzzword, and like other retail players, Macy’s offers products both in stores and through a robust ecommerce web site. But Macy’s leverages its business intelligence inventory systems — ensuring every customer has quick access to any item from any Macy’s store. If a local store is sold out, Macy’s will find the item in closest proximity and ship that item to the customer (shipping is free for all items over $99).
- “M” — Magic: The final M is for “magic” — a holistic customer relationship concept where Macy’s associates are encouraged to engage with their customers in a profound way. This means learning specific shopping needs as well as offering advice and inspiring customers to make a purchase.
Other Positives
Macy’s shareholders should look forward to the recent acquisition of beauty product power player Bluemercury, Inc. Macy’s also just announced a deal with branding mogul Martha Stewart Living Omnimedia, Inc. (NYSE:MSO) on an an exclusive bedding and dinnerware collection.
Macy’s execs also plan to open new “offprice” locations and are experimenting with multiple new store concepts. All of these should help Macy’s revenue. Current guidance points to 1% revenue growth in fiscal 2015.
And by hitting its EBITDA target, Macey’s CEO Terry J. Lundgren can focus on growth: “We are shifting our resources and energies to growing the topline faster while maintaining this high profitability rate level.”
Macy’s has increased its dividend every year since 2009. While Macy’s cut its quarterly payout from 13.25 cents before the financial crisis to 5 cents, it has since jacked payments up more than 500% to a current quarterly payout of 31.25 cents per share.
Bottom Line
Macy’s stock might be lagging, but the company isn’t. There’s no time like the present to add M to your portfolio.
As of this writing, Scott Michnick did not hold a position in any of the aforementioned securities.
