Evaluating Two Of The Top Holiday Retailers

Key Takeaways

Macy’s and Kohl’s are two of the most prominent department store chains in the country. Kohl’s has 1,162 locations across the United States, while Macy’s has 722 stores nationwide.

With Thanksgiving, Black Friday, and the holidays coming up, many people will be heading through these doors to check a great many names off their holiday shopping list.

Here’s what investors should know as they set out to assess whether or not to add these retailers to their investment portfolio.

A brief history of Macy’s and Khol’s

Macy’s got its start as Federated Department Stores, which traces its corporate history to F&R Lazarus & Company. This company was founded in 1851 in Columbus, Ohio.

Shortly before the Wall Street crash of 1929, owners of major department stores, including Fred Lazarus Jr., Walter N. Rothschild, and Edward Filene, agreed to merge their stores into a single entity, Federated Department Stores.

Lazarus is responsible for many things we take for granted today, including convincing then-President Franklin D. Roosevelt to move Thanksgiving from the last Thursday in November to the fourth Thursday. This extended the holiday shopping season and created Black Friday.

Over the next five decades, Federated Department Stores expanded and acquired many other department store brands.

Macy’s, a separate entity at the time, declared bankruptcy in 1992. Federated Department Stores acquired it in 1994 and made it the consumer-facing identity of its stores over the next few years.

Kohl’s began as a supermarket that was founded by Maxwell Kohl in 1946. Kohl, a Polish immigrant, had worked in grocery stores since the 1920s.

After expanding his store to a full-size supermarket, Kohl opened his first department store in Brookfield, Wisconsin, in 1962.

Kohl positioned his store as a mid-range option that was less expensive than the luxury stores but with higher quality options than the discount stores. He later sold off the grocery chain to focus on the department stores.

A group of investors purchased the company in 1986 and began expanding it over the next few years. The company grew to be a national brand in the 1990s, with locations in every state but Hawaii.

Macy’s today

Today, Macy’s is one of the largest fashion retailers in the world. It remains well-known thanks to its size and hosting the annual Thanksgiving parade that is televised nationally from New York City.

The company published earnings this past week with mixed results. Revenue, net income, and profit margin all fell. However, earnings per share beat investor expectations by more than 130%, which helped boost the company’s stock.

Nevertheless, investors are wary given that the company’s revenue is forecast to stagnate over the next three years while the rest of the retail industry is expected to experience mild growth.

Kohl’s today

Kohl’s also reported its third-quarter earnings this past week. Like Macy’s, Kohl’s experienced a drop in revenue, net income, and other financial metrics. The company also declined to provide guidance for Q4.

Explaining their earnings and decision to not release guidance, Kohl’s noted the unusual economic situation of high inflation, recession fears, and people still recovering from a pandemic.

Last year, many consumers went holiday shopping early to avoid stockouts caused by supply chain issues, but Kohl’s hopes that trend has reversed this year, with shoppers waiting on good holiday deals.

That said, Kohl’s knows there is a chance that its primary market is being squeezed by inflation and may reduce spending in discretionary areas like clothing and home goods.

How They Compare

Both Kohl’s and Macy’s are major retailers that are feeling the squeeze of inflation and recession fears. However, despite drops in most financial metrics, both saw their stocks spike in price last week.

Market Capitalization

Macy’s and Kohl’s are two of the country’s largest retailers.

Macy’s closed at $23.61 per share yesterday for a market capitalization of just over $6.1 billion. Kohl’s stock price is higher at $32.23, with a market capitalization of over $3.6 billion.

Both firms are large, but some investors may feel that Kohl’s has more room to grow due to its lower market cap.

Dividend Yield

As established companies, both Macy’s and Kohl’s pay solid dividends.

Kohl’s pays a quarterly dividend of $.50 per share for an annual payment of $2. Based on its current price of $32.23, that gives it a dividend yield of approximately 6.21%.

Macy’s, on the other hand, pays a quarterly dividend of just under .$16 for a total of $.63 per year. Based on its stock price of $23.61, it has a dividend yield of roughly 2.67%.

Dividend investors might be attracted by Macy’s higher dividend yield.

Net Sales

Both companies saw their net sales fall in Q3.

Macy’s sales fell to around $5.2 billion, a decrease of 3.9% compared to Q3 2021. However, it was an increase of 1.1% over Q3 2019. Kohl’s Q3 sales were down 7.2% compared to Q3 2021 of approximately $4.05 billion.

Kohl’s sales decrease nearly doubled the decline in Macy’s sales, so investors may worry about the company’s ability to reverse its fortune as recession looms.

Recent Stock Movements

Macy’s has outperformed Kohl’s by a significant margin year-to-date.

Kohl’s experienced a spike early in the year, with its stock price jumping approximately 20%. Meanwhile, Macy’s was on a relatively steady downward trend. By June, Kohl’s fortunes had reversed while Macy’s started regaining some ground.

The companies moved relatively in tandem between July and October before Macy’s began to pull ahead. As of the time of writing, Kohl’s stock is down roughly 35.3% for the year compared to Macy’s decrease of around 14.1%.

What it means for investors

Macy’s and Kohl’s are two of the largest retailers in the United States. With the supply chain still recovering from the effects of COVID-19 and people fearing that a recession is on the horizon, retail has been understandably weak recently.

However, despite falling revenues, both Kohl’s and Macy’s have beat projections recently and hope that the upcoming holiday season will boost their sales.

Investors willing to take a risk on the chance of a recession might want to buy shares in either business while they’re cheap in hopes that the economy will recover and the retailers will see sales grow again.

Bottom Line

Both Kohl’s and Macy’s are among the top retailers in the U.S. If you’re looking to add that segment to your portfolio ahead of the holidays, especially facing down predictions of a pending recession for the year ahead.

Q.ai takes the guesswork out of investing. Our artificial intelligence scours the markets for the best investments for all manner of risk tolerances and economic situations. Then, it bundles them up in handy Investment Kits that make investing simple and – dare we say it – fun.

Best of all, you can activate Portfolio Protection at any time to protect your gains and reduce your losses, no matter what industry you invest in.

Download Q.ai today for access to AI-powered investment strategies. When you deposit $100, we’ll add an additional $100 to your account.