Macy’s, Inc. (M) and Nordstrom, Inc. (JWN) are two popular department stores. M is an omnichannel retail organization that operates stores, websites, and mobile apps, selling a range of apparel, cosmetics, accessories, home furnishings, and other consumer goods. As of January 30, 2021, M operated 727 stores. It operates in Dubai, United Arab Emirates and Kuwait under license agreements. JWN, by comparison, is a fashion retailer that offers clothing, footwear, beauty products, accessories, and home goods. It offers a range of branded and private label products through multiple retail channels, discount stores, boutiques, catalogs and the Internet. As of March 02, 2021, it operated 358 stores in the United States and Canada.
As restrictions related to the pandemic have eased this year with a strong vaccination campaign, department stores have seen an increase in foot traffic. As a result, most department stores reported impressive second quarter results. However, the resurgence of COVID-19 cases could slow the increase in foot traffic in the short term. Additionally, the decision by e-commerce giant Amazon.com, Inc. (AMZN) to add department stores to its business list will likely increase competition in the department store space.
On a positive note, inelastic demand for consumer goods and the practice of passing higher costs due to inflation on to customers should support the industry. The global department store and other general merchandise store market is expected to grow at a CAGR of 6% to reach $ 2.18 trillion by 2025. Therefore, M and JWN are expected to perform well.
But while JWN has fallen 21.8% in price in the past six months, M has jumped 48.2%. In terms of last month’s performance, M is a clear winner with price gains of 29.2% over negative returns from JWN. But, which of these titles is the best choice now? Let’s find out.
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Latest developments
On August 26, 2021, M’s upscale department store, Bloomingdale’s, opened its first “Bloomie’s” store in Fairfax, Virginia. Bloomie’s store offers a very neat assortment of top contemporary and luxury brands, convenient services, tech-savvy stylists, new store design concepts and a vibrant restaurant experience. By offering Omni services, lively restaurants and a high assortment, Bloomie’s looks forward to providing a better customer experience.
On July 12, 2021, JWN acquired a minority stake in the Topshop, Topman, Miss Selfridge and HIIT brands from UK online cosmetics and fashion retailer ASOS plc. JWN will own the exclusive multi-channel retail rights for Topshop and Topman throughout North America and will become the sole physical presence of these brands in the world.
Recent financial results
M’s net sales for its fiscal second quarter, ended July 31, 2021, increased 58.7% year-on-year to $ 5.65 billion. The company’s operating profit was $ 597 million, compared to a loss of $ 631 million in the prior year period. M’s adjusted net income was $ 411 million for the quarter, compared to a loss of $ 251 million for the prior year period. His adjusted EPS was $ 1.29, down from a loss of $ 0.81. As of July 31, 2021, the company had $ 2.14 billion in cash and cash equivalents.
For its fiscal second quarter, ended July 31, 2021, JWN’s total revenue grew 100.5% year-over-year to $ 3.66 billion. The company’s EBIT was $ 111 million, down from a loss of $ 421 million in the prior year period. Its net income was $ 80 million for the quarter, compared to a loss of $ 255 million for the period a year earlier. JWN’s EPS was $ 0.49, down from a loss of $ 1.62 per share in the prior year period. The company had $ 487 million in cash and cash equivalents as of July 4, 2021.
Past and expected financial performance
M’s tangible book value has grown at a CAGR of 7.3% over the past three years. Analysts expect M’s revenue to grow 28.9% year-on-year in the current quarter, ending October 31, 2021, 36.8% for the current year, and decline by 1.2% next year. Its EPS is expected to drop 9.4% next year.
In comparison, JWN’s tangible book value has declined at a CAGR of 72.3% over the past three years. JWN’s revenue is expected to grow 15.2% year-over-year in the current quarter, ending October 31, 2021, 36.4% for the current year, and 3.7% next year. Its EPS is expected to rise 59.8% next year.
Profitability
M’s last 12 months turnover is almost 1.6 times that of JWN. M is also more profitable, with an EBIT margin of 5.8% against 3.2% for JWN.
In addition, the ROE, ROA and ROTC values of M of 18.9%, 4.4% and 7.2%, respectively, compare favorably with the values of 0%, 2.8% and 4.9% of JWN.
Evaluation
In terms of non-GAAP forward P / E, JWN is currently trading at 19.28x, which is 199.4% higher than Mr.
In terms of the non-GAAP forward PEG, JWN’s 3.21x is 494.4% higher than Mr.
POWR odds
While JWN has an overall rating of C, which translates to Neutral in our proprietary POWR rating system, M has an overall rating of B, which is equivalent to Buy. POWR scores are calculated taking into account 118 different factors, each weighted to an optimal degree.
In terms of quality, M achieved a B rating, which is in line with its profitability ratios above those of the industry. M’s gross profit margin of 39.3% over the past 12 months is 10.8% higher than the industry average of 35.5%. However, JWN’s C rating for quality is in line with its lower profitability ratios than the industry. JWN has a gross profit margin of 35% year over year, 1.4% lower than the industry average of 35.5%.
M has an A rating for growth, which matches its impressive profit growth over the past year. M’s EBITDA has increased 993.8% over the past year. However, JWN has a B grade for growth. The company experienced 229.4% year-over-year EBITDA growth.
Of the 64 A-rated fashion and luxury stocks, JWN is ranked 53rd, while M is ranked 21st.
Beyond what we’ve stated above, our POWR rating system also rated M and JWN for value, momentum, stability, and sentiment. Get all JWN notes here. Also click here to view additional POWR ratings for Mr.
The winner
With a growing footprint and strong online presence, M and JWN are expected to benefit in the coming months. However, we believe its higher profitability and lower valuation makes M a better buy here.
Our research shows that the odds of success increase when betting on stocks with an overall buy or strong buy POWR rating. Click here to access the top rated stocks in the fashion and luxury industry.
Click here to view our 2021 Retail Industry Report
M shares fell $ 0.04 (-0.17%) outside of trading hours on Friday. Year-to-date, M has gained 104.36%, compared to a 21.22% increase in the benchmark S&P 500 over the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a particular interest in researching market inefficiencies. She is passionate about educating investors so that they can be successful on the stock market. Following…
