QUOTE AND NEWS
TheStreet.com  Nov 6  Comment 
Retailers are trading higher on Friday after positive same-store sales data.
Market Intelligence Center  Nov 6  Comment 
Financial Times  Nov 5  Comment 
US chain retailers’ October sales data yesterday underlined shoppers’ cautious mood, with several mainstream retailers showing continuing comparable-sales falls at or below the depths plumbed after last year’s financial crash
Business Wire  Nov 5  Comment 
Macy’s, Inc. (NYSE:M) today reported total sales of $1.692 billion for the four weeks ended Oct. 31, 2009, a decrease of 1.3 percent compared with total sales of $1.714 billion in the four weeks ended Nov. 1, 2008. On a same-store basis, Macy’s,
Bloomberg  Nov 4  Comment 
Investors should buy bullish options on Gap Inc. and Macy’s Inc. because the retailers may advance after reporting greater-than-estimated sales tomorrow, Goldman Sachs Group Inc. said.
PR Newswire  Nov 2  Comment 
NEW YORK, Nov. 2 /PRNewswire/ -- The magical procession returns to the Big Apple this November as the 83rd Annual Macy's Thanksgiving Day Parade kicks off the holiday season. On Thursday, November 26, 2009 at 9:00am at the sound of Let's Have a
PR Newswire  Oct 30  Comment 
COLUMBUS, Ga., Oct. 30 /PRNewswire/ -- Aflac, the company that pays policyholders cash benefits when they have been injured or become ill, and Macy's Department Stores are helping Americans who want to give back, even in a down economy. For the ninth
Business Wire  Oct 28  Comment 
Building on the great success of last year’s inaugural “Believe” campaign, Macy’s (NYSE: M) today announced exciting new elements of this year’s holiday effort to support the Make-A-Wish Foundation®. This year, Macy’s is adding to the
Business Wire  Oct 28  Comment 
Today Macy’s (NYSE: M) announced the launch of the new men’s fashion brand, Threads & Heirs, which will be exclusively available at 200 Macy’s stores nationwide and on macys.com in March 2010. Produced by LF USA’s Oxford Collections and
PR Newswire  Oct 26  Comment 
CHICAGO, Oct. 26 /PRNewswire/ -- Seven Summits Research issues PriceWatch Alerts for WFC, T, M, TTWO, and DEO. Seven Summits Strategic Investments' PriceWatch Alerts are available at http://www.iotogo.com/s/102609B (Note: You may have to copy this
Mining Weekly  Oct 26  Comment 
AtlX-listed minerals explorer Chrometco on Monday reported that its board had accepted the resignation of its financial director, John Francey, which was received on October 19. Trevor Scott, currently an independent non-executive director, has...
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Macy’s Inc. (NYSE:M), formerly known as Federated Department Stores, Inc., is a national clothing retailer. It sells men's, women's and children's clothes and accessories. The company is divided into mid-tier Macy's and Bloomingdale's, an upper-tier store that sells more exclusive items. The company posted a net loss of over $4 million in fiscal 2009[1], a symptom of a challenging retail industry caused by the 2007 Credit Crunch as well as the Subprime lending crisis.

The credit crunch has led to a decrease in consumer confidence, causing decreases in store sales and profits for this fiscal year. Bloomingdale's, as the higher-end chain, was hit especially hard during the third and fourth quarters of the fiscal year. Private label brands constituted 19% of total 2008 sales. Private brands have been receiving increased attention from retailers due to the increased control they have over the production and distribution of their own line. Also, they tend to have a higher profit margin than third-party goods. The credit crunch has also led to an increase in credit card balances and subsequently delinquent accounts. Macy's, as one of many retailers that extend a line of credit to their consumers, is thus susceptible to the risks inherent in a higher percentage of delinquent credit card balances. However, in October 2005 Macy's sold its credit business to Citigroup (C). As part of their agreement, the companies share any profits and losses related to the credit business. Therefore, Macy's exposure to increased credit card debt is mitigated through its partnership.

Business Overview

Macy's 2008 sales by segment
Macy's 2008 sales by segment[2]
Macy's net sales vs. net income for FY 2004-2008
Macy's net sales vs. net income for FY 2004-2008[1]

Macy's and upscale Bloomingdale's sell men's, women's and children's apparel and accessories, cosmetics and home furnishings. Aside from its brick-and-mortar stores Macy's also operates macys.com, bloomingdales.com and Bloomingdale's by Mail in addition to an online bridal registry.[2] Macy's mostly sells products from third-party manufacturers, however the company also produces a number of private brands, such as Alfani and Club Room.[2] These private brands were responsible for 19% of sales in 2008.[3]

Result of Operations

Macy's reported an overall loss of over $4 million for fiscal 2008(ended January 31, 2009)[1], due in large part to the tough retail environment brought about by the recession in the American economy. Consumers who are worried about losing their jobs and their financial security have cut back on spending on nondiscretionary items such as clothing and accessories, leading to an overall decrease in demand across all price points. The company has tried to influence more foot traffic through markdowns, however those markdowns have also eroded its profits. The company has even begun to consider the possibility of starting outlet stores in order to get rid of some of its inventory and bolster sales.[4] Comparable stores sales decreased by 4.6% in 2008 and sales at macys.com and bloomingdales.com increased. Bloomingdale's performed the weakest during the third and fourth quarters of 2008.[5] Those quarters included the holiday season, which is a major time for retailers as customers shop for the holidays. However, the holiday season of 2008 was slower than usual for retailers as consumers cut back on their spending. Bloomingdale's, as the higher-end component of Macys Inc., faced a sharper decrease in sales compared to its mid-range counterpart.

For the second quarter of fiscal 2009, Macy's reported earnings of $7.0 million, or $0.02 per share. This was a substantial decrease from 2008's $73 million in earnings. Earnings include one-time restructuring charges of $34 million. If those charges are ignored, the company earned $0.20 per share, exceeding industry estimates of $0.15 to $0.17 per share. Total sales decreased by 9.7% from the second quarter of 2008. The results of the second quarter led the company to raise its earnings forecast for fiscal 2009, from $0.40 to $0.55 cents per share to $0.70 to $0.80 cents per share.[6]

Although sales in August decreased once again, the company's CEO has announced that the company is seeing some stabilization in sales. August same-store sales decreased by 8.1% after falling by 11% in July. The company says that sales declines for the second half of the year can be as small as 5%. Although sales are still decreasing, they are decreasing at a slower rate.[7]

' 2006 2007 2008
Stores at beginning of fiscal year868858853
Stores opened71311
Stores closed171817
Stores at end of fiscal year858853847
[8]

The number of Macy's stores has decreased from fiscal 2006 to 2008. This decline cuts down on overhead and additional costs associated with running a brick-and-mortar store, which decreases overall costs, which is especially beneficial during a recession. Since Macy's and Bloomingdale's have fully functional websites, the company does not have to worry about cutting out potential customers by closing retail locations.

Macy's started the My Macy's initiative in 2008. This initiative is geared towards increasing sales through specifically altering the merchandise in individual stores to best suit the demographics of the surrounding areas. The company is in the process of expanding the My Macy's program throughout the entire country. In the fourth quarter of fiscal 2008, My Macy's stores performed 1.5% better than stores that did not have the program, and in the first quarter of fiscal 2009, that discrepancy increased to 2.1%.[9]

Trends and Forces

Macy's Weathers Decrease in Consumer Spending

The 2007 Credit Crunch, followed by the bankruptcy of Lehman Brothers (LEH) and the stock market plunge, have had an adverse effect on consumer confidence.[10] Consumers have curbed spending on any item considered to be a luxury, and clothing is often one of the first to go. This decrease in spending hit hardest during the holiday season, which is a major revenue driver for retail companies. The deterioration in the U.S. economy contributed to the company's $4 million loss in 2008. In the holiday season specifically comp store sales decreased by 7%.[11] Although store sales decreased there is a silver lining: online sales increased by 24% and the My Macy's initiative, in which store merchandise is specifically altered depending on the demographics of the store's surroundings, sold 1.5% better than regular Macy's stores.[11]

Private Label Brands Benefits Both Consumers and Retailers

Private label brands are clothing lines whose design, production and distribution are controlled by the retailer itself. They are especially popular in department stores such as Macy's, J.C. Penney (JCP) and Saks (SKS). Private brands are an attractive choice for the retailer because they can produce exactly the pieces they want instead of looking for them among their suppliers. In addition, they have control over the quality and fabrication of garments under those lines so they are more able to control the costs of the goods. In addition, since they are produced and sold directly to the consumer, private brands are usually less expensive than brands from third-party companies. The lower price point makes private brands more attractive to low-income consumers as well as those hoping to curb their spending due to poor economic conditions. Private label sales represented 19%[3] of Macy's 2008 sales, whereas it formed 52% of competitor J.C. Penney's 2008 sales.[12]

Credit Card Losses Mitigated Through Partnership With Citigroup

The 2007 Credit Crunch has made it increasingly difficult for people to secure financing through methods such as borrowing against their homes. Therefore, many consumers have resorted to credit cards to make purchases. As of the third quarter of 2007, credit card balances rose by 7%, compared to an average of 2% a year for the previous six years.[13] In addition, delinquency rates for the same period were 4.47%, compared to 4.24% during the same period the previous year.[13] As credit card balances rise, so do the proportion of delinquent balances. This is bad news for retailers that extend lines of credit to their consumers. Macy's, however, has an advantage in the sense that it shares profits and losses with Citibank, meaning it does not suffer the full blow from an unpaid credit balance. In addition, Macy's benefits from letting Citibank--which has more experience in handling credit--deal with its credit cards, allowing Macy's to focus more energy on its retail business.

Competition

Macy’s faces strong competition in the retail industry from other retailers in their geographic areas, including other traditional, moderate or luxury department stores, specialty stores, general merchandise stores, off-price and discount stores and other forms of shopping including the Internet, mail order catalogs and television. Retailers competing with Macy’s include:

In terms of price point, Macy's faces stiffest competition from J.C. Penney (JCP) and Sears Holdings (SHLD):

  • J.C. Penney sells goods at a slightly lower price point than Macy's does. Since more than half its 2008 sales came from private labels, J.C. Penney places considerable effort in developing its own brands, which though they have a higher profit margin than third-party brands, they do not have the same name recognition that would come from a national or international line. In addition, private brands are usually produced to appeal to the greatest number of customers, meaning their designs tend to be more conservative than third-party brands. These safer, more tried-and-true designs can present a problem when they do not excite or interest consumers enough to compel them to spend money. As of fiscal 2008, Macy's had 847[8] stores in the United States whereas J.C. Penney had 1,093.[15]
  • Sears Holdings is composed of Sears, Kmart and Land's End. Sears sells home appliances, garden and fitness equipment and electronics. Kmart sells similar goods, along with home furnishings and clothing. Land's End sells clothes and accessories, primarily online and through catalogs. As a discount store, Kmart's price point is lower than that of Macy's, attracting a lower-income consumer. Sears Holdings is more focused on appliances and electronics, whereas Macy's is more focused on apparel and accessories (only 15% of 2008 sales came from home furnishings and other non-clothing goods[2]). Sears Holdings had 3,918 stores as of the end of fiscal year 2008[16], providing access to a much larger base of consumers than Macy's. The lower price point of Kmart stores also makes the chain more attractive to consumers looking to cut back on their spending considering the flagging American economy.

Luxury department stores such as Saks (SKS) operate at a higher price point, attracting a clientele with more disposable income. Discount stores operate at a much lower price point, attracting less affluent consumers. Macy's is distinct from warehouse stores in that it does not sell goods in bulk and operates at a higher price point. Below are charts comparing Macy's to the different retailers it competes with through the operational metrics of net or total sales and net income for fiscal year 2008(a loss is written in parenthesis).


Macy’s Comparison to other Department Stores
Dillard's Bon-Ton Stores Macy’s JC Penney Kohl’s Nordstrom Saks Sears
Net Sales (mn) 6,831[17] 3,130[18] 24,892[19] 18,486[20] 16,389[21] 8,272[22] 3,030[23] 46,770[24]
Net Income (mn) (.241)[17] (.170)[18] (4,803)[19] 572[25] 885[21] 401[22] (155)[23] 53[24]


Macy’s Comparison to Specialty Stores
Aeropostale AnnTaylor Stores (ANN) Macy’s Gap Limited Brands
Net Sales (mn) 1,886[26] 2,195[27] 24,892[19] 14,526[28] 9,043[29]
Net Income (mn) 149[26] (334)[27] (4,803)[19] 967[28] 220[29]


Macy’s Comparison to Mass Merchandisers
Macy’s Walmart Target
Net Sales (mn) 24,892[19] 401,244[30] 64,948[31]
Net Income (mn) (4,803)[19] 13,400[30] 2,214[31]



References

  1. 1.0 1.1 1.2 M 2008 Annual Report pg. 15  
  2. 2.0 2.1 2.2 2.3 M 2008 Annual Report pg. 3  
  3. 3.0 3.1 M 2008 Annual Report pg. 18  
  4. "Macy’s considers trying on outlets for size to help boost sales, clear inventory"
  5. M 2008 Annual Report pg. 18  
  6. Macy's reports diluted EPS of USD0.02 for Q2 of fiscal 2009
  7. Macy’s Chief Detects ‘Some Stabilization’ in Sales
  8. 8.0 8.1 M 2008 Annual Report pg. 12  
  9. Macy's F1Q09 (Qtr End 5/2/09) Earnings Call Transcript.
  10. Heather Burke and Cotten Timberlake. "Macy's, Target Monthly Sales Fall, Wal-Mart Gains".
  11. 11.0 11.1 Macy’s, Inc. Q4 2008 Earnings Call Transcript.
  12. JCP 2008 10-K pg. 18
  13. 13.0 13.1 Aleksandra Todorova. The Coming Credit-Card Crunch.
  14. 14.0 14.1 14.2 14.3 14.4 14.5 M 2008 Annual Report pg. 4  
  15. JCP 2008 Annual Report pg. 8  
  16. SHLD 2008 Annual Report pg. 12  
  17. 17.0 17.1 DDS 2008 Annual Report pg. 13  
  18. 18.0 18.1 BONT 2008 Annual Report pg. 18  
  19. 19.0 19.1 19.2 19.3 19.4 19.5
  20. JCP 2008 Annual Report pg. 11  
  21. 21.0 21.1 KSS 2008 Annual Report pg. 18  
  22. 22.0 22.1 JWN 2008 Annual Report pg. 14  
  23. 23.0 23.1 SKS 2008 Annual Report pg. 18  
  24. 24.0 24.1 SHLD 2008 Annual Report pg. 19  
  25. JCP 2008 Annual Report pg. F-3  
  26. 26.0 26.1 ARO 2008 Annual Report pg. 17  
  27. 27.0 27.1 ANN 2008 Annual Report pg. 16  
  28. 28.0 28.1 GPS 200\8 Annual Report pg. 16  
  29. 29.0 29.1 LTD 2008 Annual Report pg. 15  
  30. 30.0 30.1 WMT 2008 Annual Report pg. 1  
  31. 31.0 31.1 TGT 2008 Annual Report  
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