It is certain that online retailers are hurting the sales of traditional brick and mortar retailers. In the last quarter, the likes of Macy’s (M, Financial), JCPenney (JCP, Financial) and Kohl’s (KSS, Financial) all reported terrible earnings as the rise of ecommerce saw traffic at these stores crumble.
While companies like JCPenney were always in a lot of trouble, I was expecting Macy’s to buck the downtrend and report a better quarter than it did. Macy’s quarterly earnings were ugly as the company’s sales and earnings fell substantially and its guidance was weak as well.
Clearly, online retailers are snatching market share from retailers like Macy’s. Amazon (AMZN, Financial) sales jumped considerably in the latest reported quarter. April retail sales were also way above the consensus estimates yet brick and mortar retailers struggled and will likely continue to struggle.
However, Macy’s, unlike other retailers, has a big advantage that can help it offset the threat of online retailers. Macy’s real estate assets are estimated to be worth tens of billions of dollars, and it was reported that Starboard was looking for ways to monetize those assets. Macy’s even added a few real estate experts to its board.
If the company manages to monetize its real estate assets, it can unlock great value for investors. Monetization of those assets can provide Macy’s with enough funds to effectively compete against the likes of Amazon.
With the stock having fallen 40% in the last few weeks, investors can consider adding it to their portfolios as its value proposition is great. The risk/reward ratio is highly attractive as Macy’s will find a way to monetize its real estate assets. In fact, in the long term, Macy’s will have to compete against online retailers to stay relevant, and monetizing its real estate assets is the best way for the retailer to develop an effective online platform to compete against online retailers.
Conclusion
Given that monetizing its real estate assets is Macy’s only viable option to stay relevant in the long term, the company probably will do it soon. It will unlock great value for Macy’s investors and given that the stock has plunged almost 40% in the last few weeks, Macy’s is a great speculative play right now. Macy’s valuation limits its short-term downside potential, which is why it is a great speculative buy.
Disclosure: The author doesn’t have any position in the stock mentioned in the article.
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