Despite Rally, Strong Catalysts Still Make Macy’s Inc Stock a Buy

Macy's stock - Despite Rally, Strong Catalysts Still Make Macy’s Inc Stock a Buy

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After Macy’s Inc (NYSE:M) stock rallied in the wake of its stronger-than-expected first quarter results, multiple analysts were bearish on the shares, saying that Macy’s stock probably can’t advance much further going forward. For example, Citi’s Paul Lejuez wrote that Macy’s first quarter results were “as good as it gets” and kept a “Sell” rating on Macy’s stock.

But Macy’s stock has multiple strong positive catalysts going forward. These catalysts include the strong loyalty of its customers, hundreds of pending store closures by its competitors, and the very promising strategic initiatives it’s undertaking.

Customer Loyalty

As I reported in a previous column, in June 2017, The Wall Street Journal noted that 9% of Macy’s “customers account for 46% of its annual sales.” Macy’s results indicate that those customers have remained quite loyal and are visiting the retailer’s stores even more often.

Macy’s CEO Jeffrey Gennette also indicated this during the company’s recent earnings conference call when he stated, “The new loyalty program is having the intended impact on the spending patterns of our best customers.”

Competitors Closing Stores

Meanwhile, Macy’s competitors Sears Holdings Corp (NASDAQ:SHLD), Bon Ton, J C Penney Company Inc (NYSE:JCP), Abercrombie & Fitch Co. (NYSE:ANF), Gap Inc (NYSE:GPS) and Banana Republic are all closing stores this year.

Macy’s is poised to benefit from the Best Buy Co Inc (NYSE:BBY) phenomenon, in which a survivor in a contracting sector actually does rather well.

Promising Strategic Initiatives

Finally, Macy’s is launching multiple initiatives that sound quite promising. The retailer is taking many steps to improve the experience of its customers.

In addition to creating a loyalty program that is evidently resonating with core customers, Macy’s has launched Backstage stores that offer discounted clothing, doubtlessly pleasing the chain’s more cost-conscious customers and enabling Macy’s to profit from the current strong popularity of discount clothes.

Moreover, Macy’s has begun enabling its customers to order items directly from vendors on the retailer’s website. It has also started making more of its merchandise available online.

The former initiative is probably enabling the retailer’s customers to receive items more quickly. It also could be having a positive impact on the retailer’s profit margins since vendors could at least share the shipping costs.

And by offering more of its merchandise online, Macy’s is of course making life more convenient for its customers who like ordering the company’s products online. Additionally, Macy’s for the first time is enabling consumers to buy products online and have them shipped to their local stores.

Furthermore, the retailer is implementing many new initiatives, which were previously successful in tests, at 50 of its stores. Implementing ideas at 50 stores seems like a good way to quickly roll out new programs that can later be launched in many more locations.

Additionally, it’s encouraging that Macy’s is trying to implement many promising new initiatives, since doing so is the best way for companies to improve themselves.

Most intriguing is Macy’s acquisition of a company called Story which specializes in creating unique experiences and themes in stores which change every few weeks. Our whole society in general and millennials in particular have become enthralled with and addicted to new experiences.

If Story enables Macy’s to create wonderful experiences that are always changing at its stores, Macy’s traffic growth could be quite huge going forward.

Bottom Line on Macy’s Stock

Macy’s stock has many positive catalysts going forward, including tremendous customer loyalty, the Best Buy phenomenon and very promising new initiatives. Trading at a forward price-to-earnings ratio of around 10.5, Macy’s stock is affordable and has a great deal more room to run. Investors should buy Macy’s stock at current levels.

As of this writing, Larry Ramer did not own shares of any of the companies mentioned. 

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