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Macy’s, Inc. (NYSE:M) Macy’s is an iconic department store retailer operating under the Macy’s, Bluemercury and Bloomingdale’s banners. 2021 sales were $25.3 billion, with 35% of sales from digital channels. A large portion of the current success results from strategic planning prior to the Covid-19 lockdowns.
The Polaris strategy was implemented in February of 2020. It is described as: “a three-year plan designed to stabilize profitability and position the Company for sustainable, profitable growth.” As a result, digital sales have increased by 39%, the store base continues to be rationalized and cost saving measures have been implemented. Overall, Macy’s has demonstrated that the company is a long-term survivor. Due to Polaris, management positioning and agility, and other factors, Macy’s achieved its best earnings in 5 years for 2021, and we consider the shares to be underpriced.
As of January 29, 2022, the operations of the Company included 725 stores, comprising a total of approximately 112 million square feet. Macy’s owns 427 stores with 104 operated under ground leases. All owned properties are held free and clear of mortgages. It is fairly likely that Macy’s owned real estate exceeds its current enterprise value, pricing only the 323 fully owned locations at around $200 per square foot.
Part of the reason that Macy’s trades at a 75% discount to the S&P 500 is that the investment community is slow to realize its success and demonstrated durability. We consider the short thesis to be seriously trashed, and the sell side brokerage opinions to be way behind reality with 4 buys and 18 holds or sells. The shorts seem to be out of touch with reality and massively vulnerable, with 36 million shares shorted versus 270 million shares currently outstanding. Macy’s bought back 24 million shares, or 8%, of the float in the first quarter, and we don’t see this slowing down. M does not have any “material debt maturities” for the next five years, giving the company flexibility to invest in the business and share buybacks.
Our price target of $40.00 and buy recommendation is based on 4 X 2022 enterprise value to EBITDA and 7.5 X current year (2023) earnings per share. We also see cash flow build, after dividends and capex of over $5 billion ($20 per share) through 2025, leading to further buybacks and debt reduction.
At Macy’s, Inc., we are a trusted source for quality brands at great values from off-price to luxury. Across our iconic nameplates, including Macy’s, Bloomingdale’s and Bluemercury, we help our customers express their unique style and celebrate special moments, big and small. Headquartered in New York City, we operate one of retail’s largest e-commerce businesses integrated with a nationwide footprint to deliver the most convenient and seamless shopping experience.
| PROJECTIONS IN MM | 2023 | 2024 | 2025 |
| Income Statement | |||
| Revenue | $25,438 | $27,219 | $29,124 |
| Gross Profit | $10,501 | $11,213 | $11,975 |
| Operating Income | $2,051 | $2,289 | $2,609 |
| Pre-Tax Income | $1,841 | $2,079 | $2,399 |
| Net Income | $1,399 | $1,580 | $1,823 |
| EPS | $5.38 | $6.58 | $8.29 |
| Revenue growth | 4% | 7% | 7% |
| EBITDA | $2,981 | $3,219 | $3,439 |
| Interest* | $210 | $210 | $210 |
| Capitalized Expense | $650 | $650 | $650 |
| Cash Flow | $1,679 | $1,860 | $2,003 |
| Equity Dividends | $164 | $151 | $139 |
| Cash Flow Dividend Coverage | NA | NA | NA |
| Retained Cash Flow | $1,516 | $1,709 | $1,864 |
| Retained Cash Flow Sum | $1,516 | $3,224 | $5,089 |
| Revenue Growth | 4% | 7% | 7% |
| Valuations | |||
| Cash Flow Yield Vs. Equity | 27.6% | 30.5% | 32.9% |
| EV/EBITDA | 3.05 | 2.82 | 2.64 |
| P.E Ratio | 4.36 | 3.56 | 2.83 |
| Enterprise Value | $9,088 | ||
| Total Debt | $2,994 | ||
| Equity Market Cap | $6,094 | $6,094 | $6,094 |
| Debt Ratios | |||
| EBITDA/Interest Coverage ratio | 14.20 | 15.33 | 16.37 |
| Debt/EBITDA | 1.00 | 0.93 | 0.87 |
| Liquidity | |||
| Cash | $672 | ||
| Borrowing Availability est. | 1000+ | ||
| Total Current Assets | $6,233 | ||
| Total Current Liabilities | $5,543 | ||
| Current Ratio | 112% | ||
| Debt | |||
| Borrowings | $2,994 | ||
| Total | $2,994 |
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