4 Stocks For Department Store Earnings Season

Michael Teague |

Department stores have been and will continue to be a news item this week and the next.

Macy’s (M) reported earnings on Wednesday that showed earnings for the second quarter slightly short of expectations, but the real miss was to be found in the ever-important retail metric of overall and comparable sales, which were down 0.8 percent for the period, in stark contrast to a projected gain of 2.3 percent.

Second-quarter earnings season is winding down, with one of the last flurries of reports to come from department stores. The brick-and-mortar monolith Wal-Mart (WMT) , whose report is scheduled for release on Thursday, is often among the most anticipated as the company’s global presence and reliance on consumer spending has come to be looked at as a unique indicator of the general state of consumers worldwide (in a manner analogous to how Alcoa ($AA) and Caterpillar’s (CAT) earnings reports are seen as indicators of global economic growth for how they reflect construction-spending).

With JCPenney (JCP) , Target Corp. (TGT) , and Sears Holdings Corp. (SHLD) set to report next week, investors may want to take a look at the following 4 stocks from the department store industry that were selected according to three criteria:

-A current ratio greater than 1.5: this figure is important in a cyclical industry such as department stores, as it indicates a company’s ability to pay for short-term expenses.

-A return on investment rate greater than 10 percent: consumer goods are part of a highly competitive market, with countless different varieties existing for each product. A decent ROI rate can indicate that a company is successfully showing how its products and services stand out from those of its competitors.



-A gross margin of greater than 10 percent: given the relatively high level of competition in the consumer goods sector, profit margins can be an unreliable indicator of success. A company’s gross margin figure is preferable in this instance because it gives a more accurate picture of revenue.

The TJX Companies, Inc. (TJX) – The $37.4 billion market-cap company operates well-known brands such as T.J. Maxx, Marshalls, and HomeGoods. TJX has a current ratio of 1.7, an ROI rate of 42.9 percent, and a 28.5 percent gross margin. Shares are currently trading for $52, up over 23 percent year-to-date.

Macy’s Inc. (M) – The $18 billion market-cap company runs the department store of the same name, as well as its higher-end counterpart Bloomingdales. The company has a current ratio of 1.6, an ROI rate of 13.50, and an impressive gross margin of 40.2 percent. Shares are currently trading at $46.33, up 20 percent on the year.

Dillard’s Inc. (DDS) – The $3.7 billion market cap company operates department stores in most US states. Dillard’s has a current ratio of 1.8, a ROI rate of 12 percent, and gross margin of 37.4 percent, with shares trading for $79, down 5.6 percent in 2013

Sears Hometown and Outlet Stores Inc. (SHOS) – For all the trouble Sears has been in lately, its outlet stores have been performing decently. With a market-cap of $950 million, SHOS has a current ratio of 2.1, an ROI rate of 10 percent, and a 25 percent gross margin. Shares are trading for $41.13, up over 26 percent year-to-date.

Wal-Mart Stores Inc. (WMT) – One of the world’s most profitable companies, the $252.2 billion market-cap Wal-Mart only gets an honorable mention on this list because its current ratio is below 1 at 0.8. Otherwise, the discount retailer has an ROI rate of 15.2, and a 24.9 percent gross margin, with shares trading at $76.40, up 14 percent on the year.

 

[Image: Le Bon Marche in Paris, one of the world's first department stores. Courtesy of Flickr Creative Commons]

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Companies

Symbol Name Price Change % Volume
WMT Wal-Mart Stores Inc. 97.76 1.06 1.10 7,878,158 Trade
AA Alcoa Inc. 41.86 -0.54 -1.27 4,146,333 Trade
TGT Target Corporation 62.67 1.65 2.70 7,998,028 Trade
TJX TJX Companies Inc. (The) 73.90 0.28 0.38 4,208,265 Trade
M Macys Inc. 25.83 0.14 0.54 9,427,748 Trade
SHLD Sears Holdings Corporation 4.01 0.01 0.25 1,084,761 Trade
SHOS Sears Hometown and Outlet Stores Inc. 1.85 0.25 15.63 391,420 Trade
DDS Dillard\'s Inc. 58.05 0.95 1.66 479,617 Trade
CAT Caterpillar Inc. 148.57 5.15 3.59 6,486,223 Trade
JCP J.C. Penney Company Inc. Holding Company 3.02 0.15 5.23 15,165,605 Trade
CTMQF Castle Mountain Mining Co Ltd. 0.59 0.00 0.17 213,801

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