Imitation is the sincerest form of competition
Macy’s Inc. (NYSE:M) was late to the party on designer collaboration but has been doing well with it if the stock price is any indication. Of course, this isn’t the only reason Macy’s has been doing well; the resurgence of the aspirational middle-income consumer and its localization stratagem have surely helped. Macy’s climbed from under $10 in 2009 to a multi-year high of $42.47 on March 13.
While Macy’s and Macy’s owned Bloomingdale’s haven’t drawn the Black Friday-like crowds to its collaborations, they’re not hurting. Frankly, it didn’t need the driver as much as Target Corporation (NYSE:TGT), but with Macy’s only up 5% over the last year Macy’s needs to play its A game.
At a 12.83 P/E and 1.90% yield Macy’s may be undervalued in comparison to Target. The PEG at .91 indicates this as well. Macy’s also earns an impressive 39.56% gross margin.
Kohl’s is the department store laggard, only up 0.02% in a year, but it has the biggest yield at 2.80% and lowest P/E of 11.64. It’s seen as less fashion forward than Macy’s or even Target. Analysts aren’t very optimistic, giving Kohl’s a 6% five year EPS growth rate.
Kohl’s used to be an up and coming retailer, and this Macy’s Inc. (NYSE:M) wannabe image they’re saddled with is concerning for shareholders. Hopefully, these two collaborations they’ve planned for this year amp up their allure for aspirational fashionistas. If J.C. Penney manages to succeed in their agora/bazaar stores within stores concept this would be most damaging to Kohl’s.
Kohl’s reported worsening revenues and earnings year over year when it reported Q4 2012 results on Feb 28. For full year 2012 net income was only $1 billion compared to $1.3 billion for 2011. Shareholders may want to consider lightening up on Kohl’s on upticks.
E-Tail is getting into the game
Finally, there’s eBay, which is a better buy for its PayPal than its auction component. It too has a collaboration in place for spring with the Council of Fashion Designers of America for its third annual “You Can’t Fake Fashion” handbags this year, featuring 90 designers with limited edition handbags on its auction site, but this doesn’t move the needle for them.
PayPal is leading the advance in mobile payments even as the auction site is losing long time sellers. EBay also has the highest P/E of these four names at 25.18 with no yield. Its PEG isn’t out of line at 1.26 for a tech e-tailer. However, it’s pulled back 12% from its 52 week high, mostly due to concerns that big credit card companies like Mastercard are planning a digital wallet fee that would obviously impact eBay.
When companies like Discover were playing nice there was good reason to get in eBay, but this fee would reduce annual EPS by two cents according to analysts. EBay also competes with Google and Intuit in this mobile wallet space.
The final takeaway
Target Corporation (NYSE:TGT) still seems to have mastered designer collaboration and all things being equal is the best bet. Macy’s Inc. (NYSE:M) runs a close second on valuation. EBay and Kohl’s have issues going forward that should make investors take pause. Designer collaborations help Target bring in a desired demographic they need, but it’s just not enough for these others.
The article How Collaboration Is Pumping up the Volume for Fashion Retailers originally appeared on Fool.com and is written by AnnaLisa Kraft.
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