A year ago, Macy’s Inc (NYSE:M) was essentially unownable. M stock was 45% below its mid-2015 peak price, finally hitting a headwind created by e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN), and what Amazon wasn’t able to do online, bargain-oriented rivals like TJX Companies Inc (NYSE:TJX).
The retail apocalypse was in full swing, and Macy’s was leading the parade. What a difference a year can make.
Not that brick-and-mortar retailing is back to its old self again [it never will be], but with enough old-school retailers like Sears Holdings Corp (NASDAQ:SHLD) and J C Penney Company Inc (NYSE:JCP) closing some stores while others have bowed out entirely, there’s a glimmer of hope yet for a beleaguered Macy’s.
Three reasons stand out above all the rest as reason to maybe, just maybe, step into the budding recovery effort M stock is working on.
1. Sales Are… not Getting Dramatically Worse
First and foremost, though there’s no denying Macy’s remains on the defensive and has a mountain of problems to solve, the major sales dips double-digit year-over-year declines in income are shrinking in a big way. The graphic below of the company’s top line and profits per share of Macy’s stock, past and projected, tell the tale.
There’s no getting around the fact that its lack of a strong e-commerce presence was a core cause of the company’s implosion… not that consumers do a great deal of apparel shopping online. They do enough, though, that Macy’s realizes it should have done more with the internet and omnichannel sooner.
To that end, the company’s newest executive loosely hints that Macy’s is finally getting serious about e-commerce. It recently tapped Jill Ramsey to take over as the retailer’s Chief Product and Digital Revenue Officer, a newly-created position.
Coming from eBay Inc (NASDAQ:EBAY), she’ll bring a wealth of internet commerce experience Macy’s simply didn’t have at its disposal.
2. The M Stock Dividend
It’s been an oft-overlooked detail of late, since there were so many other more pressing matters to discuss. But, thanks to the two-year beat-down of shares, the M stock dividend is an impressive 5.8%. That’s better than most other large cap and blue chip stocks, in or out of the retail sector.
And for the record (and in some cases contrary to popular belief), Macy’s can afford to pay its dividend, and will even be able to raise its dividend in the foreseeable future as long as the company’s meets analysts’ relatively low targets through 2020.
3. Real Estate Value
Finally, it’s been a contentious point for some time now, mostly because nobody could really come to an agreement on the figure. A couple of different analysts have recently come up with a similar valuation figure for all of Macy’s real estate, and both of them were bigger than many investors were expecting.
Cowen’ was the most recent assessment, pegging the real estate portfolio’s value at $16 billion. That’s more than the company’s total market cap of $7.8 billion, by the way, but it’s still not the most optimistic of estimates of the value of its properties. Starboard decided a year ago that the company’s real estate was worth $21 billion.
It’s a nuanced matter, of course. An asset’s value and the price an asset would actually command in the open market are two separate things. Still, even if the retailer’s real estate value was only half what Cowen said it was, the name and inventory and operation itself is more or less free to potential buyers.
Bottom Line for M Stock
Don’t read too much into the bullish argument. Macy’s still has plenty of challenges ahead, not the least of which is figuring out how to remain relevant in the modern era of retailing.
The real estate’s value also doesn’t mean a whole lot if the company is going to monetize it in a way that makes little sense, as Sears did in selling its properties to a REIT, only to begin paying rent to that REIT.
Macy’s has a much better handle on those matters than it has in the past though. Jill Ramsey will more than adequately address the former, and if nothing else, Macy’s current management team has given its real estate a large degree of intelligent thought about how or if to monetize it somehow.
All in all this is the first time current and would-be owners of M stock have good reason to be optimistic. That’s at least part of the reason M stock has mustered a 46% gain from its early November low. There’s plenty more room to recover though, setting the stage for a 2018 Cinderella story.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
