Macy's Is the Warren Buffett of Retail

Despite retail posting lackluster earnings lately, the earnings beat reported by Macy's sent retailers that reported poor or mediocre results like Dillard's and Nordstrom higher. It even had a positive effect on those who have yet to report. Just as in the case with Warren Buffett, when Macy's speaks, investors listen.

Mar 3, 2014 at 5:30PM

G

Source: Wikimedia Commons

After reporting earnings for the fourth quarter of its 2013 fiscal year on Feb. 25, shares of Macy's (NYSE:M), one of the nation's largest retailers, rose 6% to close at $56.25. For the year, shares of the company have risen more than 5%; this has brought the business's share price appreciation to 49% from where it stood a year ago. Given this meteoric rise, is now a prime opportunity to take some cash, or does Macy's still have some room to run?

Results were mixed but good!
For the quarter, Macy's reported revenue of $9.2 billion. This represents a 1.6% drop compared to the $9.35 billion that management reported a year earlier and fell just shy of the $9.27 billion that analysts expected. Although there is no excuse for failing to live up to Mr. Market's expectations, comparing its sales this quarter to the fourth quarter of 2012 is a bit unfair because of the extra week the company was able to book last year. Adjusting for this anomaly, Macy's actually saw its comparable-store sales rise 1.4% (2.3% if you account for its store-within-a-store operations.)

While the company fell short of what investors were hoping to see when it comes to revenue, it made up for that by reporting stronger-than-expected profits. For the quarter, management reported earnings per share of $2.16, 18% higher than the $1.83 earned the same quarter last year. This jump in profits was due, in part, to a 6% decline in the quantity of the company's shares outstanding, but was largely due to net income jumping 11% from $730 million to $811 million.

Macy's can move the market!
After seeing mixed results come from retailers like Dillard's (NYSE:DDS) and Nordstrom (NYSE:JWN), it looked like there was no upside in sight. That was, of course, until Macy's reported. Although Nordstrom reported earnings that topped analyst expectations by $0.03 at $1.37, the company's profitability slid from the $1.40 it reported the same quarter a year earlier. However, if you exclude the impact of the extra week the business enjoyed during 2012, its earnings per share would have come in at $1.36.

Despite enjoying a 0.4% rise in sales (5% after adjusting for the higher sales generated from the company's extra week of operations a year earlier) from $3.7 billion to $3.71 billion, Nordstrom was negatively affected by rising costs in relation to sales. The primary driver behind the company's decline in profitability was its cost of goods sold, which rose from 60.5% of sales to 61.1%.

While Nordstrom's performance during the quarter was mediocre, Dillard's was downright awful. For the quarter, Dillard's reported a 3.5% drop in revenue. After adjusting for its extra week during 2013, the business's rise in merchandise sales only amounted to 1%, whereas its comparable store sales rose 2%. This doesn't appear terrible at first glance, but when you look at its bottom line, the picture is anything but decent.

In terms of profitability, Dillard's saw earnings per share come in at $2.71. This represents a 19% decline from the $3.36 the company reported the same quarter a year earlier and is largely attributable to a rise in its cost of goods sold. At 67.4% of sales, the company's cost of goods sold stands considerably higher than the 65.6% of sales it amounted to a year earlier. Even after factoring in certain adjustments, the company's earnings fell 6% from $2.87 to $2.69, greatly missing the $3.00 that Mr. Market anticipated.

Retailers Shot Up

Source: Yahoo! Finance

In light of these shortfalls, the strong performance reported by Macy's brought about strong gains in the retail sector. In response to the news, shares of Nordstrom rose 1% while Dillard's jumped nearly 8%. Even Sears Holdings and J.C. Penney, two struggling retailers, saw their shares climb 2.5% and 7.7%, respectively, after Macy's reported.

Foolish takeaway
Based on the performance seen by Macy's this past quarter, it's difficult to argue that the company is a bad investment prospect. Yes, the business is more expensive than some of its peers, but it has demonstrated time and again that it grants shareholders better financial performance and greater stability. Furthermore, it appears that when Macy's comes out and talks retail, the shares of its peers react just as Mr. Market does when Warren Buffett comes on the air. Moving forward, it's impossible to know which retailer will return the greatest value to shareholders, but Macy's looks like one of the best options.

Warren Buffett's greatest wisdom
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Daniel Jones has no position in any stocks mentioned. The Motley Fool owns shares of Dillard's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers