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Monday, November 28, 2022
Today's newsletter is by Brian Sozzi, editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Read this and more market news on the go with Yahoo Finance App.
So I'm watching the Macy's (M) Thanksgiving Day Parade and was pleasantly surprised to see musical performances by icons Paula Abdul and Mariah Carey on the docket.
They both crushed it in my view, and so did Macy's CEO Jeff Gennette sitting behind them in a seasonal bright blue scarf and CEO hair.
Then I see that the parade had 27.7 million viewers between linear and streaming platform Peacock — the most in five years and a slight bump from last year's 27.4 million views.
Those two wins were enough for me to dive back into Macy's fundamentals for this year.
To be clear, I've been super critical of this company for years.
Management was painfully slow to close stores. The stores that were opened looked terrible. You couldn't find associates in the store to ask basic questions (for example: Where is the fitting room?). There was too much inventory in the stores. The website was awful, ditto the mobile app. The company was often more inclined to over-promise and badly under-deliver on earnings.
However, the winds of positive change appear to have been blowing through Macy's this year, which is even more impressive considering the shifts happening in consumer spending — paying up for experiences and buying less stuff — amid the sluggish economy.
Here are a few things that stand out on Macy's fundamentally on this Cyber Monday:
The stock has pretty much out-performed the S&P 500 for the majority of 2022. No small feat given the hate for consumer discretionary stocks with recession fears swirling.
Inventory levels are some of the healthiest among rival department stores, reflecting management efforts to fine-tune assortment planning.
Same-store sales are out-performing rival department stores such as Kohl's.
Bloomingdale's is having a good year despite higher income shoppers pulling back on their spending amid stock market wealth destruction.
I am not alone in spotting a revival in Macy's fortunes.
"Think about what has happened over the last three years," former department store executive and frequent Yahoo Finance Live guest Jan Rogers Kniffen told me.
"First, J.C. Penney completely imploded and reconstituted itself as a much smaller competitor — and the bottom 40% of Macy's business always overlapped JCP's business. Kohl's, which also overlaps the bottom 40% of Macy's business, slowed a lot as a competitor — it lost share, dropped volume and became less competitive. Then, Nordstrom, which has always overlapped the top 25% of Macy's business and more like 50% in some of Macy's best stores, started shooting itself in the foot."
Kniffen also agreed in Macy's doing a better job managing inventory and getting store expenses under wraps.
By no means is Macy's in perfect fundamental shape, something captured in the stock trading at a 65% discount to the S&P 500 on a forward P/E basis. Same-store sales are still under pressure, and the retailer still operates 770 plus physical stores in the age of digital. The short-term margin outlook is murky at best given the promotional intensity in retail right now. The company just cut its 4Q guidance two weeks ago too, owing to a slow start to holiday spending this month.
But I must give Macy's credit where credit is due — they are operating a better department store and it's starting to show up in the financials. How that plays out in the stock price in 2023... is for you to assess.
What to Watch Today
Dallas Fed Manufacturing Activity, November (-23.0 expected, -19.4 during prior month)