Stock Wars: Macy's Vs. Dillard's

Benzinga’s latest Stock Wars matches up two leaders in a major industry sector, with the goal of allowing readers decide which company is the better investment.

This week, the duel is between two major department store retail chains: Macy’s Inc. M and Dillard’s, Inc. DDS.

The View from Macy’s: Macy’s was founded in 1858 by Rowland Hussey Macy, who worked as a 15-year-old on the whaling ship Emily Morgan. During his time at sea, he had a red star tattooed on his forearm — the skin ink would become the symbol of the business.

The company comprises three retail brands — Macy’s, Bloomingdale’s and Bluemercury — and operates 789 stores across all brands. The company’s flagship store at New York City’s Herald Square became immortalized in pop culture with the 1947 Christmas film classic “Miracle on 34th Street,” while the company’s Bloomingdale’s opened its first international store in Dubai, United Arab Emirates (UAE) in 2010. A second UAE Bloomingdales and the first international Macy’s branded store opened in Abu Dhabi, UAE, in 2018.

As the COVID-19 pandemic recedes in the U.S., Macy’s has ratcheted up efforts to bring more shoppers back to its brick-and-mortar and e-commerce sites.

Earlier this month, the company teamed with television personality Nina Parker on a new line of plus-size clothing. In March, Macy’s launched Icons of Style, a collaboration with five prominent Black designers Zerina Akers, Misa Hylton, Aminah Abdul Jillil, Allen Onyia and Ouigi Theodore to exclusively sell ready-to-wear, men’s and footwear offerings.

In February 2020, the month before the pandemic paralyzed the economy, Macy’s launched the Polaris strategy to stabilize the company for growth and profitability in the midst of shifting consumer shopping trends.

When it announced first-quarter earnings, Macy’s credited the Polaris strategy in helping the company weather the worst of the pandemic’s economic tumult.

“As we look to the rest of the year, we are hyper-focused on meeting consumers’ demand for speed, convenience and a seamless omnichannel shopping experience,” chairman and CEO Jeff Gennette said. “We also continue to evolve our merchandising strategy, and we remain a partner of choice for top brands with more collaborative and profitable vendor relationships.”

Macy’s closed the quarter with $4.71 billion in net sales, up from $3.02 billion one year earlier, with net income of $103 million or 32 cents per share, a vast difference from one year before when it recorded a $3.6 billion loss or $11.53 per share.

Furthermore, the company said it brought 4.6 million new customers into its brand during the first quarter — a 23% increase compared to the pre-pandemic first quarter 2019 — with nearly half of them arriving through its digital channel in the first quarter of 2021.

During the first quarter, Macy’s digital sales grew 34% over the first quarter of 2020 and 32% over the first quarter of 2019. The company added its digital penetration was 37% of net sales, a 6% increase from one year earlier when stores closed, but was also a 13-percentage point gain from first quarter 2019.

Macy’s also upped its 2021 guidance from $19.7 billion–$20.7 billion to $21.73 billion–$22.2 billion.

Macy’s trades around $17.96, closer to its 52-week high of $22.30 than to its 52-week low of $5.49.

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The View From Dillard’s: Dillard’s was founded in Nashville, Arkansas, in 1938 by William T. Dillard, who borrowed $8,000 from his father to finance the start-up. Today, the Little Rock-headquartered retailer has 281 stores in 29 states, including 57 in Texas and 42 in Florida; 30 of these stores are clearance units offering discounted and discontinued lines.

Not unlike Macy’s, Dillard’s is seeking to attract shoppers eager to put the pandemic behind them. Among the store’s new offerings are two limited-edition capsule collections by Antonio Melani, Dillard’s largest ladies’ exclusive brand, in collaboration with lifestyle and entertaining expert and author Kimberly Whitman and fashion blogger and former Spanx executive Emily Hertz.

Dillard's CEO William T. Dillard II observed a shift away from the pandemic-era stagnation in the company’s first-quarter earnings report.

“As vaccinations increased, stimulus money was released and warmer weather arrived, we saw sales increase over 2019 levels, with momentum continuing throughout the quarter,” he said.

During the first quarter, total retail sales reached roughly $1.3 billion, up 73% from $751 million one year earlier. Net income reached $158.2 million in the quarter, or $7.25 per share, up 11.9% from the $162 million loss, or $6.94 per share, for the prior year’s first quarter.

Included in the Q1 net income was is a pretax gain of $24.6 million ($19.2 million after-tax or $0.88 per share) that was primarily related to the sale of three store properties.

Unlike Macy’s, Dillard did not issue a guidance for the quarter. However, two days after the Q1 earnings was published the company declared a cash dividend of $0.15 per share on the Class A and Class B Common Stock, the 209th consecutive quarterly dividend since becoming a public company in 1969, as well as a new plan to repurchase up to $500 million of its Class A Common Stock.

Dillard’s trades around $129.31, near its 52-week high of $152.19 and nowhere near its 52-week low of $22.38.

The Verdict: Both Macy’s and Dillard’s are well-positioned to welcome back retail therapy addicts eager to toss their COVID face masks and get back into the brick-and-mortar shopping scene, and both companies are following intelligent strategies to move back to as much pre-pandemic normalcy as possible.

Macy’s appears to be putting more emphasis on digital channels than Dillard’s — the latter didn’t even include the word “digital” in its quarterly earnings press release.

Nonetheless, Dillard’s has traditionally the stronger stock, and the latest quarterly earnings data was greeted with a new rush of upward movement.

In comparison, Macy’s vibrant earnings were greeted with decidedly mixed reviews by analysts.

In this duel, the nod goes to Dillard’s.

It will be intriguing to see a rematch after the year-end holiday shopping season to determine how the two companies fared in an improving economy.

What is your opinion on a Macy’s-Dillard stock duel? Share your thoughts at editorial@benzinga.com and philhall@benzinga.com.

(Photo by Artem Beliaikin on Unsplash)