Other comps
Macy’s, Inc. (NYSE:M) is the higher-end retailer operating two brands, Macy’s, Inc. (NYSE:M)’s and Bloomingdale’s. Macy’s has held up nicely despite a struggling economy given the fact that high-end customers have been less impacted. The retailer managed to post 4Q EPS of $1.83, compared to $1.74 for the same period last year, on the back of 3.9% higher same-store sales. As well, Macy’s is expecting this year (fiscal 2014) same store sales growth of 3.5%.
At the end of 2012, Macy’s had some $1.5 billion of share repurchase authorization remaining, where Macy’s could use its growing cash flow to buy back more shares. Net cash flow from operations came in at $2.26 billion in 2012, compared to $2.09 billion for 2011.
J.C. Penney Company, Inc. (NYSE:JCP) is the struggling turnaround story in the retail sector. This includes its poor fourth quarter performance, failing to meet expectations and reporting a fifth consecutive quarter of sluggish results. Last quarter, the retailer posted a quarterly loss of $1.95 per share compared with earnings of $0.21 in the year-ago quarter. Meanwhile, quarterly sales of $3.88 billion were down over 28% from the prior-year quarter and comp-store sales were down 31%.
The story really has been dismal for Penney, with traffic declining 11% in the first quarter, 12% in both second and third quarters and 17% in the fourth quarter of fiscal 2012. Analysts are also not encouraged by its future prospects, with expectations for long-term (5-year) EPS to decline by an annualized 27%.
Billionaire Bill Ackman of Pershing Square Capital continued to be the hedge fund with the largest position going into 2013, owning some 39 million shares, which made up 8.4% of his 13F portfolio (check out Ackman’s top stock picks).
By the numbers
Although the outlook for J.C. Penney Company, Inc. (NYSE:JCP) is bleak, there are industry players that could be solid long-term investments. Ross is reasonably priced in the context of other retailers and competitor TJX:
| Ross Stores | TJX Companies | J.C. Penney | Macy’s | |
| Forward P/E | 14 | 15 | n/a | 10 |
What’s more is that the “off-price” retailers (Ross and TJX) offer investors a very impressive ROI:
| Ross Stores | TJX Companies | J.C. Penney | Macy’s | |
| Return on investment | 41% | 41% | n/a | 9.50% |
So what sets Ross above TJX? Well Ross has a better balance sheet (lower LT-debt to equity) and is also collecting its cash quicker (higher receivables turnover):
| Ross Stores | TJX Companies | J.C. Penney | Macy’s | |
| Long-term debt to equity | 8.5% | 21% | 94% | 115% |
| Ross Stores | TJX Companies | |
| Receivables turnover | 185 times | 139 times |
Don’t be fooled
Ross is positioned in one of the fastest growing areas in the industry, off-price retail. This industry should continue to perform well despite a rebounding economy, and I believe Ross is best positioned with its growth plans and better balance sheet.
The article Specialty Retail’s Best Kept Secret originally appeared on Fool.com and is written by Marshall Hargrave.
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