Martha Stewart Living Omnimedia, Inc. (MSO), Macy’s, Inc. (M): Sizing Up the Players in This Love(less) Triangle

Looking forward, the company is adapting to the digital age by increasing its online distribution of content, as it recently forged deals with AOL, Inc. (NYSE:AOL)’s On Network and Hulu. Martha Stewart Living has also moved into the radio segment with a new daily radio show, Martha Live, on Sirius XM Radio Inc (NASDAQ:SIRI). The publishing and broadcasting segments remain a sideshow to the company’s licensed merchandising arm, though, which are its only profit center and the source of future growth. Ultimately, Martha Stewart Living needs to find a way to turn its content into gold.

The iconic sponsor of New York’s Thanksgiving Day Parade is winning an increasing number of customers these days, with the right mix of branded products at both its Macy’s, Inc. (NYSE:M) and upscale Bloomingdale’s stores. The company’s MyMacy store program allows local management teams to fine tune their inventory selection, leading to lower markdowns and improved inventory turnover. In addition, the company is finding ways to incorporate technology into its business, including Beauty Spot kiosks that allow customers to search and select products based on their profile.

In FY2012, Macy’s, Inc. (NYSE:M) produced another year of solid growth, with increases in revenues and operating income of 4.9% and 10.4%, respectively versus the prior year. The company achieved an increase in operating margin due to a strong 41% increase in its online sales, as well as its pruning of selected underperforming stores. More importantly, Macy’s, Inc. (NYSE:M) strong cash flow generation, with $2.3 billion in 2012, allows it to continue reinvesting funds in productivity-enhancing store programs, while returning excess funds to shareholders through buybacks.

J.C. Penney’s attempt to upgrade its stores and merchandise selections put it into direct conflict with Macy’s, Inc. (NYSE:M), its larger and more successful competitor. While J.C .Penney has valuable assets, its pension liabilities and lower gross margin place it at a definite disadvantage. Until J.C. Penney and Martha Stewart Living Omnimedia, Inc. (NYSE:MSO) find a way to earn a return, investors need to skip past them and stick with Macy’s.

The article Sizing Up the Players in This Love(less) Triangle originally appeared on Fool.com and is written by Robert Hanley.

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