Money Power: Macy's new direction pays off
BY JENNIFER SCHRONBERGER Money Power
Saturday, May 05, 2012
5/05/12 at 5:40 AM
In 2007, the regional director of Macy's in the New York area walked past a footwear clearance sale in the Flushing, Queens, store and noticed that all the shoes were size 9 and above - even though many of the store's customers were Asian Americans, who tend to have smaller feet.
Meanwhile, on the clearance rack at a Macy's store in Brooklyn the sizes were 7 and below.
So, he swapped the stores' inventories, and the shoes sold quickly.
That incident led Macy's Inc. to adopt a new strategy in 2009 called My Macy's, which is aimed at boosting sales by tailoring the merchandise in each store to its clientele.
The strategy has enabled the chain to double earnings over the past three years, a time when most retailers serving the middle class have struggled. Macy's stock climbed sixfold during the period, closing Friday at $41.11.
The company, which owns Bloomingdale's as well, has also made a bigger push into exclusive private-label brands. In 2010, Macy's started selling the Material Girl clothing line, designed by singer Madonna, exclusively in Macy's teen departments.
And the company recently announced plans to target shoppers born in the 1980s and '90s - the so-called Millennials - a group it thinks is key to growth in the coming years.
Another bright spot for Macy's: growing Internet sales. Online revenue from Macys.com and Bloomingdales.com jumped 40 percent last year, to $962 million, estimates Morningstar, and are expected to grow to $2 billion this year.
All these strategies have helped Macy's perform well in a so-so economy.
The numbers tell Macy's success story best.
In the fiscal year that ended Jan. 27, sales increased 5.6 percent, to $26.4 billion, while earnings per share jumped 36 percent. Analysts, on average, see sales rising 4.9 percent, to $27.7 billion, in the year that ends next January and earnings jumping 16 percent.
Macy's is sharing the wealth. In January, its board approved a doubling of its quarterly dividend to 20 cents per share (the stock yields 1.9 percent). It also increased the company's stock-buyback cache by $1 billion.
Despite all the good news, Macy's stock is cheap. It trades at 12 times estimated earnings compared with 21 for the average department-store stock.
Brian Sozzi, chief stock analyst for NBG Productions, says Macy's low price-earnings ratio cushions the stock price from a big hit. He thinks the stock could climb 10 percent over the next 12 months, and it could do far better if the economy picks up steam.
Original Print Headline: Macy's new direction pays off
Jennifer Schonberger is a staff writer at Kiplinger's Personal Finance magazine.