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Macy’s Stock Underperforms Key Department Store Rivals

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Macy’s competitors

Macy’s (M) competes with mid-scale to upscale department stores like Kohl’s Corporation (KSS), Dillard’s (DDS), Sears Holdings (SHLD), and Nordstrom (JWN). The company also competes with outlets or off-price retailers like TJX Companies (TJX) and Ross Stores (ROST). The SPDR S&P 500 ETF (SPY) invests about 0.12% of its portfolio in Macy’s.     

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Stock performance

Macy’s stock has appreciated by 16.9% since 2014. About 33.7% of the stock’s appreciation was from its price-to-earnings (or PE) multiple expansion, and the remaining due to an increase in forecasted earnings. Macy’s stock has underperformed peers like Dillard’s, Kohl’s, and Nordstrom, which have appreciated by 35%, 30%, and 28.2%, respectively, in the same period. However, Macy’s stock has appreciated more than the Consumer Discretionary Select Sector SPDR ETF (XLY) and the broad market represented by the S&P 500 Index. Macy’s makes about 0.95% of XLY ETF’s holdings.

Relative valuation

As of March 11, 2015, Macy’s was trading at a price earnings (or PE) multiple of 13.0 compared to 12.3 at the beginning of 2014. The company is trading at a lower multiple compared to competitors like Nordstrom, Dillard’s, and Kohl’s, which are currently trading at multiples of 20.7, 14.7, and 16.1, respectively. A lower valuation doesn’t necessarily imply that the company is undervalued. It can also indicate that the company doesn’t have ample growth opportunities.

Macy’s sales have been growing at a very slow pace over the past two years. The largest department store has been fighting increased competition, especially from online and off-price retailers. Against this backdrop, the company has issued a cautious outlook for fiscal 2015.

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