J.C. Penney Company, Inc. (JCP), Macy’s, Inc. (M) & More: Who’s The Favorite?

Many think the retailers’ business model is dead. I do not think so, but I do believe that there will be fewer retailers 20 years from now than there are today. People are changing their shopping habits and buying more products online. However, there is still some value left in the “physical-shopping” model. I want to analyze three companies and decide if any of them are worthy of your portfolio going forward.

J.C. Penney, the turnaround story.

After its failed turnaround, J.C. Penney Company, Inc. (NYSE:JCP) came back to its ex-boss, Mike Ullman. Now, the real-estate-rich retailer is seeking to generate value for its shareholders. One significant example is the debut of Joe Fresh. The company rolled out the Joe Fresh store-within-a-store concept to more than 650 locations throughout the US.

Let’s review the top positive facts that make investors, including George Soros, trust the company’s future (Soros just acquired 7.9% of the retailer’s shares).

– Better execution with Joe Fresh Roll-out:  Compared to store roll-outs in the prior year, this launch appeared complete and on time.
– Price points seem appropriate for J.C. Penney Company, Inc. (NYSE:JCP) consumers:  Price points in the Joe Fresh section are about $8 to $39, which I view as appropriate for the J.C. Penney Company, Inc. (NYSE:JCP) consumer.
– Coupons back in style:  J.C. Penney Company, Inc. (NYSE:JCP) emailed $10-off-$50 coupons this past week, and associates were readily handing them out within store. This is the third coupon promotion since early February.

Still generating negative EBITDA figures, J.C. Penney Company, Inc. (NYSE:JCP) can be an opportunity if the turnaround actually works. That said, I would not bet on such uncertainty. The risk is that J.C. Penney could go from one turnaround plan to the next, eating up its huge real-estate reserves.

My favorite retailer

Macy’s, Inc. (NYSE:M) is my favorite retailer. A great focus on shareholder value and fair valuations make Macy’s, Inc. (NYSE:M) a sustainable company.

Macy’s, Inc. (NYSE:M) is confident that opportunities remain to drive momentum for years to come with its three-legged strategy: My Macy’s, Inc. (NYSE:M) (localization), Omnichannel (e-commerce integration with physical stores), and MAGIC selling (increased training for sales associates).

While Omnichannel should be the number-one growth engine going forward, opportunities remain in terms of simply merchandising better. Not only do “FABplus” (Footwear/Accessories/Beauty plus men’s) categories, which represent more than 50% of Macy’s sales, have more room to run, but important opportunities are ahead in areas like millennial (younger customer) and home goods.

Moreover, Macy’s, Inc. (NYSE:M) has stressed returning capital to shareholders as an important priority. Looking ahead, (regrettably) I expect a more significant portion of that return to be in the form of share buybacks. The company should increase its cash dividend to $1.00 on an annual basis from $0.80 today, which would represent a 2.4% yield. Trading at 2013 6x EV/EBITDA, I think that Macy’s, Inc. (NYSE:M) is a good idea in the retailer space.