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The Ever-Shrinking Retail Giants


Once-iconic retailers like Macy’s and JCPenney continue to be recognized household names, despite their significant decline in the industry.

A Misalignment of Perception

In a nation driven by consumer spending, it appears that public perception has not kept pace with the changing dynamics of retail. Surprisingly, some well-known retailers have become quite affordable for investors.

The Fall of Macy’s

Macy’s, once a dominant force in the department store realm, has witnessed a staggering 70% drop in its stock over the past five years. Since its peak in 2015, which coincided with concerns surrounding e-commerce, the stock has plummeted by 90%. In 2023 alone, Macy’s shares have already lost nearly half of their value.

A Bleak Valuation

Presently, Macy’s market value stands below $3 billion, and its valuation has suffered a similar fate. According to FactSet, the stock now trades at a mere 3.8 times forward earnings, making it the 10th-cheapest stock in the S&P 1500 and the most affordable retailer within the index.

The Struggles of Consumer Spending

This decline is not surprising considering Macy’s is one of several retailers expressing concerns about consumer spending habits. Shoppers are increasingly moving away from department stores while grappling with rising debt burdens. Despite these challenges, Macy’s has taken proactive measures by emphasizing private labels and forming partnerships with other prominent mall retailers such as Gap (GPS) to secure their share of the dwindling apparel market.

Other Affordable Retailers

Hibbett, the athletic retailer which owns Hibbett Sporting Goods and City Gear stores, is the next least expensive retailer in the S&P 1500, trading at just 5.8 times forward earnings. Following closely behind are Caleres, the parent company of Famous Footwear, trading at 5.9 times, and Chico’s, a women’s apparel retailer, trading at 6.3 times.

Skepticism in the Market

The undervaluation of Hibbett comes as no surprise. While athletic retailers experienced a surge in share prices during the pandemic, investors have been doubtful about their future growth prospects, despite their continued resilience. Even the larger players in this space, such as Dick’s Sporting Goods (DKS), trade at only 9 times forward earnings. Another smaller contender, Academy Sports & Outdoors (ASO), remains relatively low-priced with a forward price-to-earnings ratio of just 6.5.

Academy Sports Posts Impressive Second-Quarter Results

Academy Sports has proven the naysayers wrong with its impressive second-quarter performance, according to Wells Fargo analyst Will Gaertner. Gaertner describes the company as “compelling” and highlights its continued success.

Challenges for Discretionary Retailers

Caleres and Chico’s exemplify the difficulties faced by discretionary retailers in the current environment. These companies, particularly those in the apparel and accessory sector, have experienced significant declines over the past five years due to their reliance on traditional malls. Both Caleres and Chico’s have market capitalizations under $1 billion.

Bearish Outlook for Soft Line Retailers

UBS analyst Jay Sole maintains a bearish outlook for soft line retailers, which focus on selling softgoods such as clothing. He predicts the decline will continue in both the short term and the next year. Market research data supports his view, showing a 3.5% year-over-year decline in consumer spending intentions for softgoods in September, following a drop from August.

Deteriorating Growth Trends and Falling Earnings

Sole’s consumer survey reveals an increase in the percentage of shoppers who plan to spend less during the upcoming holiday season. This, combined with deteriorating growth trends and falling earnings, could further negatively impact these retailers’ stocks and valuations. Even though their multiples have already dropped significantly, Sole believes there is still a potential 27% decrease as they struggle to find stability in the current cycle.

In summary, these retailers not only struggle to find buyers, but their stocks also face challenges in the market.

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