Macy’s upgraded but Nordstrom downgraded, as department store category continues to shift

Macy’s Inc. stock rose 2.7% on Wednesday after the department store was upgraded to outperform Evercore, with analysts citing assets like real estate and an ongoing consumer shift playing in favor of Macy’s.

Macy’s M,
+2.52%
stocks are up more than 73% in the past year, far outpacing the benchmark S&P 500 SPX index,
+0.22%,
which is up 13%. The decline in ProShares of the Retail Store ETF EMTY,
+1.40%
is down 17.8% over the period.

“Not only do we see the opportunity for Macy’s to more aggressively leverage its core assets (real estate, web traffic) to create significant incremental equity
From the current depressed valuation, we are seeing a shift in culture and strategy that takes a more disciplined, data-driven approach to managing all aspects of the business (stores, inventory, marketing, promotions, costs, etc.) .),” the analysts said. written by Omar Saad.

Read: Supply chain disruptions could benefit off-price chains like TJ Maxx and Burlington Stores

Analysts admit Macy’s stock is not “for the faint-hearted” as earnings per share are at risk.

Macy’s fourth fiscal quarter FactSet consensus is for EPS of $1.99, up from 80 cents last year. The FactSet consensus for annual EPS is $4.87 after losing $2.21 last year.

On the other hand, Nordstrom Inc. JWN,
+0.49%
was downgraded to outperformance line at Evercore.

“[T]enterprise-wide omnichannel and BOPUS [buy online pickup in store] capabilities do not lead to a broader inflection in sales and margins, or help the business overcome its [off-price] Rack inventory challenges or persistent comfort and home trends that don’t align with the company’s core merchandising strengths,” the analysts said.

Macy’s also has a discount business called Backstage.

The ratings changes come amid ongoing changes in the department store category.

Prior to COVID, department stores faced challenges related to consumers shifting online and other changes in consumer habits.

More recently, Macy’s faced calls from activist investors Jana Partners LLC to separate its e-commerce business from the brick-and-mortar business. The company has already announced a new market and made or proposed other changes.

Kohls Corp. KSS,
-0.07%
is also battling activist investors, with Macellum Advisors GP LLC announcing plans to appoint a slate of 10 new directors. Kohl also rejected takeover offers earlier this month.

See: Kohl’s rejects takeover offers

Department stores saw a slowdown in business over the festive period as sales picked up as shoppers started shopping for Christmas gifts earlier amid concerns over supply chain disruptions.

“Industry concerns include slower traffic in December; meanwhile, strength in the apparel, gifts and beauty categories has been robust,” Cowen analysts wrote in a note released Tuesday.

“We are looking for higher AURs [average unit retail] and gift card productivity in January to offset cautious traffic trends. Supply is likely still limited for the next few quarters and retailers will need to increase prices (~5% to 8% or more) to share the burden of increased COGS [cost of goods sold].”

Yet Cowen analysts have also grown more optimistic about Macy’s, saying they prefer it to Nordstrom. Cowen rates Macy’s stock outperform with a price target of $45, and rates Nordstrom’s market with a price target of $25.

Macy’s is expected to release its fourth quarter results on Feb. 22, according to the FactSet calendar. Nordstrom is expected to report fourth quarter results on March 1.

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