Macy’s Had A Great 2011 Holiday Shopping Season

| January 13, 2012 | 0 Comments

Reports of a strong holiday shopping season were a bit exaggerated.  Large retail store sales for the month of December missed estimates by a wide margin.

Analysts were expecting sales to increase by 3.8%.  But they advanced by just 3.3%.

The weak economy, high unemployment, and low consumer confidence kept consumers cautious and sensitive to high prices.

But not every large retailer had a disappointing holiday season.  In fact, one stood out from all the rest.

Macy’s (M) had a very happy holidays!

The storied department store separated from the pack with exceptional results.

You see, sales were mixed amongst Macys’ competitors.  Retailers such as J.C. Penney (JCP), Gap (GPS) and Sears (SHLD) all called the holiday season highly promotional.  In other words, they played the deep discount game.  When shoppers turned out, they did so with the expectations of getting smoking deals on all products.

In fact, J.C. Penney lowered fourth quarter earnings guidance because of higher markdown activity.  And Kohl’s (KSS) cut forecasts after a disappointing December and a disastrous November.

However, Macy’s didn’t have to play this game.  Instead of cutting prices, they expanded their late night hours to more stores.  This helped drive more volume.

They also started the season off on the right foot.  They carried more exclusive goods and private label products in the way of electronics, home appliances, and women’s apparel.  This helped Macy’s differentiate themselves from the competition.

And it helped the top line too.

They reported a 6.3% revenue rise for December.  This was much better than the expected 4.3% revenue increase for the entire holiday season. As a result, Macy’s increased their profit and sales outlook for the quarters ahead.

In fact, this strategy also helped their overall 2011 financials.

Check out Macy’s full year 2011 results…

Revenue jumped 6.3% year over year to $25 billion.  This growth was certainly helped by not engaging in deep discounting practices during the holiday season.

Earnings are growing rapidly as well.  Macy’s earned $1.98 a share versus $0.83 a year ago.  That’s an impressive year over year increase of 139%.

And Macy’s was able to grow while lowering their debt at the same time. That’s right, Macy’s long term debt dropped from $8.5 billion in 2010 to $7.5 billion in 2011.  It’s truly amazing.

And it gets even better… the outlook for 2012 is bullish too.

Revenue is expected to grow 5% to $26.3 billion.  Improvements to the store’s online platform are expected to help boost sales.

Earnings are also expected to see another strong year in 2012.  Analysts are projecting a 40% increase from $1.98 a share to $2.78 a share.

Not too shabby…

But the best part is Macy’s shares are undervalued…

At a recent price of $35.04, M is trading at just 10.9x the 2012 estimate of $3.22 per share.  That’s well below the industry average P/E of 15.5x. Given the strong growth at Macy’s, the shares deserve a P/E at least equal to the industry average.  At that multiple, the shares would be worth about $50.

That’s an upside potential of 43%.

The stock also looks good on a technical basis.

After finding support in the low $20s back in August, Macy’s is moving higher in a solid uptrend.  And just last week, Macy’s broke out to the upside on the solid same-store sales data.  The breakout confirms increasing momentum and favors a continued uptrend.

Bottom line…

Macy’s seems to be the 800 pound gorilla in the room.  If retail continues to grow this year, this is the stock you want to own.

With its bullish chart and solid fundamentals, Macy’s is a terrific buy right now.  Take a closer look at this high quality retailer for your own portfolio.

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Category: Stocks

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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