A confession: There's not really a Macy's (NYSE:M) on Wall Street proper. However, the lack of an outpost there -- you can go to Brooklyn or up into Midtown to shop -- hasn't stopped Macy's from making its presence felt. The company has been on a solid tear over the last year, up 29% compared to the S&P 500's 21% gain. The company is riding the wave of strong sales growth and increasing margins, under the watchful eye of a strong management team.
While Macy's star may not be the fastest riser in the world of department stores, it's one of the most dependable. The company's brand has been around for over 150 years, and there's no reason I can see to doubt that it'll make it to 300.
The business of branding
In the world of department stores, brand is almost everything. Each store attracts a specific kind of shopper, and the long history of most chains has made it hard to move customers around much. Sure, you might jump from Macy's to Nordstrom (NYSE:JWN) or from J.C. Penney (NYSE:JCP) to TJX's (NYSE:TJX) T.J. Maxx chain, but that's the limit.
As J.C. Penney found out the hard way, changing a long-running brand can lead to disaster. Customers who like coupons can't suddenly be made into the sorts of shoppers who think a "denim bar" is a great idea. J.C. Penney took a hit for its attempts to meddle, and it's paid the price.
Macy's has done no meddling, and it has maintained its strong middle ground. The company's strong pull helped it maneuver the weak early spring this year, with comparable sales rising 3.8% while other retailers looked on enviously. According to Interbrand, the company's brand value increased more than 60% in the last year, moving into the top 50 brands in American retail.
Doing more with -- more
In addition to increasing its top line, Macy's has had success turning that into more cash for the company and investors. Again, that's better than competitors like TJX, which managed to increase comparable sales by 2% while operating margins remained flat compared to the previous year. Macy's bumped its operating margin up, benefiting in part from fewer defaults among its credit card holders.
So far, things are looking very good for a case that Macy's might be the best dog in the show -- but hold on, I hear you say. What about Nordstrom? Hasn't it made just as strong a case for itself? Admittedly, the company has an even stronger brand, coming in 10th place on the brand value list. Nordstrom has also driven a sales increase recently, with comparable sales up by a respectable 2.7 last quarter.
Macy's strength is, once again, its margin push. Nordstrom had a drop in gross margin that worked its way through the income sheet. While I like Nordstrom due to its focus on customers and its almost single-minded focus on omnichannel, Macy's just edges it out.
At the end of the day, I'll actually take either company. Macy's seems to be winning the battle right now, but there's nothing stopping Nordstrom from jumping out into the lead. I think Nordstrom may be playing the better long game right now, but only time will tell if it can take the title from Macy's.
Editors Note: a previous version of this article incorrectly stated TJX's operating margins decreased slightly in Q1 of fiscal year 2014. The Motley Fool regrets and apologizes for this error.