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Macy’s Capital Expenditure to Support Store and Online Growth

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Growth opportunities

Macy’s (M) and other department store peers are investing in their online business and enhancing their technology capabilities to improve the consumer shopping experience and generate more sales. Macy’s is also exploring opportunities to enter the off-price market.

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Fiscal 2014 capital expenditure

In fiscal 2014, Macy’s capital expenditure increased by 27% to $770 million compared to last year. As a percent of sales, the company’s capital expenditure was 2.74% compared to 2.17% in fiscal 2013. The company’s fiscal 2014 capital expenditure, including capitalized software, was $1.07 billion.

Macy’s investments in fiscal 2014 were directed towards new stores, store remodeling, renovation of Macy’s Herald Square store, and distribution network improvements. Macy’s also invested in technology enhancements and in its omni-channel strategy, which seamlessly integrates the company’s traditional brick and mortar business with digital channels.

Among Macy’s peers, Nordstrom (JWN) has the most aggressive capital spending plans. Nordstrom spent about 6.37% of the fiscal 2014 sales in the expansion of its off-price Rack stores, international expansion and tech enhancements, among other initiatives. Capital expenditure of other department stores like Dillard’s (DDS), Kohl’s (KSS), and JC Penney (JCP) accounted for about 2.24%, 3.59%, and 2.06%, of their respective sales.

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Planned expenditure

Macy’s anticipates its fiscal 2015 capital expenditure, including capitalized software, to be $1.2 billion, a $100 million increase compared to the prior year. The company’s future spending will be directed towards further enhancement of its digital business, new stores, and growth of its recently acquired Bluemercury business.

Bluemercury acquisition

Macy’s acquired Bluemercury, one of the fastest-growing luxury beauty products and spa services retailers, for $210 million in cash. Bluemercury presently runs about 60 specialty stores in 18 states, and also has an online business. Macy’s plans to significantly expand its stand-alone Bluemercury specialty stores and strengthen its online capabilities. The company also plans to add selected Bluemercury boutiques and private-brand products to Macy’s stores nationwide in the future.

The SPDR S&P Retail ETF (XRT) has 6.53% exposure to department stores and 0.95% to Macy’s.

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