Macy’s, Inc. (M), Nordstrom, Inc. (JWN): Investing in High-End Retail

These initiatives helped Dillard’s post its 11th consecutive quarter of positive comps last quarter. And now its return on equity is over 17% versus 5% in 2006 and towering over the industry average of 3%. Dillard’s is also rewarding shareholders nicely, having paid out $185 million on share repurchases in 2012 and $250 million on dividends.

The other big advantage for Dillard’s, Inc. (NYSE:DDS) is the opportunity for growth in the U.S. In looking at Dillard’s store locations, it’s easy to see that even with 330 stores, the company has plenty of room for expansion in the West.

Source: mapmuse.com

Hedge fund trade

Going into the second quarter, there were a total of 39 hedge funds long Macy’s, Inc. (NYSE:M). The hedge fund with the largest position includes Lee Ainsile’s Maverick Capital, which has 3.6% of its 13F portfolio invested in the stock.

Nordstrom, Inc. (NYSE:JWN) had 24 hedgies long the stock, a 14% decrease from the previous quarter. However, its top hedge fund owner by position is billionaire Ken Griffin’s Citadel Investment Group, with a $75 million position. Meanwhile, much like the analyst coverage, hedge funds have little love for Dillard’s. The retailer had 21 hedge funds long the stock.

Don’t be fooled

Dillard’s trades at the cheapest of the high-end department stores on a price-to- earnings basis.

Dillard’s also has a top-notch balance sheet, with the lowest debt-to-equity ratio.

All-in-all, Dillard’s has solid growth prospects despite already having over 300 stores — a similar number to Macy’s, with key opportunities lying in the West. Although it can be argued that Dillard’s does not cater to the ultra high end as much as say Macy’s and Nordstrom do, this should be considered a positive, where Dillard’s can tap a larger consumer base. Macy’s, Inc. (NYSE:M) appears to be an interesting investment, with a 0.9 PEG ratio, but Nordstrom, Inc. (NYSE:JWN) appears to be too expensive with a 17.5 P/E ratio.

Marshall Hargrave has no position in any stocks mentioned. The Motley Fool owns shares of Dillard’s. Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Investing in High-End Retail originally appeared on Fool.com and is written by Marshall Hargrave.

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