Macy's, Inc. (M) and Nordstrom, Inc. (JWN) are two popular department stores. M is an omnichannel retail organization that operates stores, websites, and mobile applications, selling a range of apparel, cosmetics, accessories, home furnishings, and other consumer goods. As of January 30, 2021, M operated 727 store locations. It operates in Dubai, UAE, and Kuwait under license agreements. JWN, in comparison, is a fashion retailer that provides apparel, shoes, beauty, accessories, and home goods. It offers a range of brand name and private label merchandise through multiple retail channels, discount stores, boutiques, catalogs, and the internet. As of March 02, 2021, it operated 358 stores in the United States and Canada.

As pandemic-related restrictions eased this year with a strong vaccination drive, department stores witnessed rising foot traffic. As a result, most department stores reported impressive earnings results for the second quarter. However, the resurgence of COVID-19 cases might slow down the increase in foot traffic in the near term. Also, e-commerce giant Amazon.com, Inc.’s (AMZN) decision to add department stores to its list of business ventures will likely increase competition in the department stores space.

On a positive note,  the inelastic demand for consumer goods and the practice  of passing on higher costs due to inflation to customers should buoy the industry. The global department stores & other general merchandise stores market is expected to grow at a 6% CAGR to  $2.18 trillion by 2025. Therefore, both M and JWN should perform well.

But while JWN has declined  21.8% in price  over the past six months, M has surged 48.2%. In terms of their past month’s performance, M is a clear winner with 29.2% price gains versus JWN’s negative returns. But, which of these stocks is a better pick now? Let’s find out.

Click here to checkout our Retail Industry Report for 2021

Latest Developments

On August 26, 2021, M’s full-line, upscale department store Bloomingdale’s opened its first “Bloomie’s” store in Fairfax, Va. The Bloomie’s store provides a highly curated assortment of top contemporary and luxury brands, convenient services, tech-enabled stylists, new store design concepts, and a vibrant restaurant experience. By offering Omni services, lively restaurants, and elevated assortment, Bloomie’s is looking forward to providing a better customer experience.

On July 12, 2021, JWN acquired a minority interest in British online fashion and cosmetic retailer ASOS plc’s brands  Topshop, Topman, Miss Selfridge, and HIIT. JWN will have the exclusive multi-channel retail rights for Topshop and Topman in all North America and will become the only brick-and-mortar presence for these brands worldwide.

Recent Financial Results

M’s net sales for its fiscal second quarter, ended July 31, 2021, increased 58.7% year-over-year to $5.65 billion. The company’s operating income came in at $597 million, versus a $631 million loss in the year-ago period. M’s adjusted net income was  $411 million for the quarter, versus a  $251 million loss in the prior-year period. Its adjusted EPS was $1.29, compared to an $0.81 loss . As of July 31, 2021, the company had $2.14 billion in cash and cash equivalents.

For its fiscal second quarter, ended July 31, 2021, JWN’s total revenues increased 100.5% year-over-year to $3.66 billion. The company’s EBIT was $111 million, versus a $421 million loss in the prior-year period. Its net earnings came in at $80 million for the quarter, compared to a $255 million loss in the prior-year period. JWN’s EPS came in at $0.49, versus a $1.62 loss per share in the prior-year period. The company had $487 million in cash and equivalents as of July 4, 2021.

Past and Expected Financial Performance

M’s tangible book value has grown  at a 7.3 % CAGR over the past three years. Analysts expect M’s revenue to increase 28.9% year-over-year in the current quarter,  ending October 31, 2021, 36.8% in the current year, and decline 1.2% next year. Its EPS is expected to decline 9.4% next year.

In comparison, JWN’s tangible book value declined at a 72.3% CAGR  over the past three years. JWN’s revenue is expected to increase 15.2% year-over-year in the current quarter, ending October 31, 2021, 36.4% in the current year, and 3.7% next year. Its EPS is expected to increase 59.8% next year.

Profitability

M’s trailing-12-month revenue is almost 1.6 times  JWN’s. M is also more profitable, with a 5.8% EBIT margin versus JWN’s 3.2%.

Also, M’s ROE, ROA and ROTC values of 18.9%, 4.4%, and 7.2%, respectively, compare favorably with JWN’s 0%, 2.8%, and 4.9%.

Valuation

In terms of non-GAAP forward P/E, JWN is currently trading at 19.28x, which is 199.4% higher than M’s 6.44x.

In terms of non-GAAP forward PEG, JWN’s 3.21x is 494.4% higher than M’s 0.54x.

POWR Ratings

While JWN has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, M has an overall B grade, equating to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.

In terms of Quality, M has been graded a B, which is in sync with its higher-than-industry profitability ratios. M’s 39.3% trailing-12-month gross profit margin is 10.8% higher than the 35.5% industry average. However, JWN’s C grade for Quality is in sync with its lower-than-industry profitability ratios. JWN has a 35% trailing-12-month gross profit margin, which is 1.4% lower than the 35.5% industry average.

M has an A grade for Growth, which is consistent with its impressive earnings growth over the past year. M’s EBITDA has grown  993.8% over the past year. However, JWN has a B grade for Growth. The company has witnessed 229.4% year-over-year growth in EBITDA.

Of the 64 stocks in the A-rated Fashion & Luxury industry, JWN is ranked #53, while M is ranked #21.

Beyond what we’ve stated above, our POWR Ratings system has also rated M and JWN for Value, Momentum, Stability, and Sentiment. Get all JWN ratings here. Also, click here to see the additional POWR Ratings for M.

The Winner

With a growing footprint and strong online presence, M and JWN should benefit in the coming months. However, we think its higher profitability and lower valuation make M a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Fashion & Luxury industry.

Click here to checkout our Retail Industry Report for 2021

M shares fell $0.04 (-0.17%) in after-hours trading Friday. Year-to-date, M has gained 104.36%, versus a 21.22% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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