Principles of Finance Mgmt 260 Natalyia zaiats

Macy’s Inc. Valuation Project

Fabiola Abissa Carla Dasilva Anastasia Mashtaler EiEi Kyawt San

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Table of Contents

Executive Summary

Macy’s Overview

SWOT analysis

Financial Statement Analysis

Firm Riskiness Analysis

Firm Valuation

Conclusion and Recommendation

Appendix

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Executive Summary

Macy’s is a well­known chain of department stores owned by the American multinational corporation

Macy’s Inc.; they are also owners of Bloomingdale’s. The company started out as a dry goods store in 1858

and with time became the profitable department store chain that it is known as today. Macy’s main strengths

as a company include its My Macy’s localization, Omnichannel integration initiative, and its MAGIC Selling

customer engagement strategy. Some other strengths are their price competitiveness and the variety of the

products offered both in­store and online.

Macy’s Overview

Macy’s, from the name of his founder Rowland H. Macy was originally a dry goods store founded in

1858 in New York . Eager to push the success of his small company further, Rowland launched R HMacy & 1

Co and associated to his brand the star we are all familiar with

to symbolize success. Although that year Rowland made small sales debut, he saw his revenues increased

from the $11.06 he collected on his first sale day to $85,000 at the end of the year. Soon, Macy moved his

current store location to herald square and increase the size of his store through a renovation project. With the

expansion of its retail space totalizing more than 1 million, macy’s annual sales ­which was now the biggest

store existing back then­ were estimated to $36 millions in 1918. Four years later the company went public

and Rowland started to open regional stores. 2

After few years of prosperity and expansion, Macy’s was forced to file for Bankruptcy in 1992, losing many

of its regional store and two years later, R. H macy’s and Co was acquired by the Federated Department

Store, Inc. After Macy’s, the federated department store regrouped numerous other stores under its label for a

few more years and in 1996 was renamed as Macy’s. 3

1 College William & Mary. Macy’s Department store: company History . Retrieve from <http://web.wm.edu/americanstudies/370/2005F/sp4/home_macys_generalhistory.htm> 2 Macy’s Inc. (2014). Macy’s Inc. History. Retrieved from <http://www.macysinc.com/about­us/macysinc­history/overview/default.aspx> 3 College William & Mary. Macy’s Department store: company History . Retrieve from

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As one of the giants of the retail industry, Macy’s Inc. accounts for more than 850 stores spread on 45

states and is also present in Guam, the district of Columbia and Puerto Rico operating either under Macy’s or

Bloomingdales . Its market is segmented based on the population’s income and mainly targets upper as well 4

as middle class individual. Some of the items foundMacy’s store are, but not limited to men's, women's, and

children's apparel/accessories, cosmetics, and home furnishings. As one of the geant in the retail industry,

Macy’s

SWOT Analysis

Strength

­ Omnichannel

­ Celebrities endorsement

Weaknesses

­ No physical location for international customers

Opportunities

­ International market expansion

Threats

­ Economic conditions

­ Competitors

Strengths

One strength of Macy’s is its ability efficiently its Omnichannel integration initiative, which allows

the company to provide its merchandise to customers in a variety of ways. This gives customers many

purchasing option and gives them control as to how they want their merchandise to be provided to them.

With approximately 850 stores spread on 45 states as well as US territories, Macy’s is capable of fulfilling

<http://web.wm.edu/americanstudies/370/2005F/sp4/home_macys_generalhistory.htm> 4 SEC filing Data (2014). Retrieved from <https://www.sec.gov/Archives/edgar/data/794367/000079436714000071/m­02012014x10k.htm>

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purchases in­store, online, and through mail­order which gives customers flexibility when it comes to how

they would like to make their purchase and the variety of merchandise available to them increases. This

guarantees a more responsive and customized for of customer service and ensures a quicker, more efficient

delivery of their merchandise.

The ability to use celebrities endorsement is also one of macy’s strength. By using celebrities, Macy’s

is bringing its products and its brand to the people who did not know anything about the products it offers.as

a result, it adds more customers to the ones who are already faithful to the brand, thus increasing its sales.

Weaknesses

the biggest weakness of Macy’s is the absence of physical store on an international scale. Although

Macy’s did a great job in making sure that the stores are accessible to most of its customers in the US, the

same cannot be said for the ones which leave in countries such as France, Japan, China or Morocco.

International customers are left only with option of online shopping which might not be at everyone’s

preference. It might push away customers who are not used to technologies and would like to visit a store to

buy a product rather than sit behind a screen and place an order.

Opportunities

by being present only in the US and on US territories, Macy’s has the opportunity to expand its

business operations internationally. Market such as Asia, Brazil, Europe have a lot of potential to be exploit

and could contribute in Macy’s success and profitability. Having an international representation of Macy’s at

the international level could be made by doing a partnership with other local companies a first and then in the

long run, open a Macy’s chain.

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Threats

Because it is only present in the US, one threat that Macy’s would constantly have to face is the

economic condition of the country. indeed, in the event that there is a recession, the purchasing power of

households will decrease. Macy’s will suffer a decrease in the sales as its activities will slowdown. as a

results we might observe a decline in the growth rate and a loss might be incurred by Macy’s.

Competitors are also another threat Macy’s has to face as one of the giants of the retail industry. The

indirect competitors of Macy’s in industry include JC Penney and Sacks whereas Dillard’s is a more direct

competitor.

Competitive Advantage

Macy’s must compete with other department stores that offer similar products and services. It must

also face variable macroeconomic conditions and low customer switching costs, both challenges to

maintaining a sustained competitive advantage. There are certain aspects of the company that allow it to have

a competitive advantage over rival departments stores. Developed in 2013, Macy’s has orchestrated three

main strategies that have allowed its business to prosper: My Macy’s localization, Omnichannel integration,

and MAGIC Selling customer engagement. These strategies are known by the acronym M.O.M.

Macy’s has benefitted greatly from its My Macy’s localization strategy and it continues to do so

because it adds familiarity and personalization to it’s department store based on varying location and climate.

Each of Macy’s stores provides merchandise that is directly related to the location and thus all of the

customers who shop and live there. This makes merchandise variety very different for each store, answering

the different tastes and needs customers seek when it comes to merchandise style, fit, color, weight, and

overall quality.

Macy’s also considers the demographic, economic, and socio­economic background of each of their

store locations to offer optimal customer service and relevant marketing to their customers. Representing the

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needs and wants of their multicultural customers is one of Macy’s main goals as they account for a large

proportion of their overall customers. The company continues to make improvements to this initiative such as

refining its merchandise localization from store to store, store fulfillment processes, testing and adding a Buy

Online Pickup In­Store option, and expanding their capacity in direct­to­customer fulfillment centers.

The next strategy utilized by Macy’s is its Omnichannel integration initiative, which allows the

company to provide its merchandise to customers in a variety of ways. This gives customers many

purchasing option and gives them control as to how they want their merchandise to be provided to them.

Macy’s is capable of fulfilling purchases in­store, online, and through mail­order which gives customers

flexibility when it comes to how they’d like to make their purchase and the variety of merchandise available

to them increases. In addition to these methods, as of 2013 there are over 292 out of the total 850 stores

nationally and internationally that collectively participate in the fulfillment of orders. The number of stores is

expected to increase in future years. This guarantees a more responsive and customized for of customer

service and ensures a quicker, more efficient delivery of their merchandise.

The third key strategy Macy’s utilizes is the MAGIC Selling customer engagement initiative. This

strategy focuses on employees and ensures all sales associates are trained and equipped with the tools they

need to be more confident and engaged with customers on the sales floor. This is another initiative that

improves the overall quality of Macy’s customer service because it encourages associates to be more caring

and responsive to their customer’s needs, both actual and perceived.

Macy’s also functions in other ways to ensure that its competitive advantage is sustained, regardless

of its competitor’s success. The company has decided to target the Millennial customer, commonly known as

those aged from 13­30 years old. Since they often go to speciality stores because they cannot find their

desired merchandise in department stores, Macy’s is now providing more specialty brands that will draw this

segment into their stores. It has even successfully created brands that are considered national or exclusive to

the company itself, increasing its differentiation amongst competitors. It has also has unique purchasing and

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advertising economies of scale that successfully compete with smaller retailers.

Finally, Macy’s takes advantage of different technologies both in­store and online to maximize the

customer experience. This includes using tablet computers in­store, tap­and­pay mobile technology,

providing paperless digital receipts, promoting the use of QR code technology to further engage shoppers,

and delivering special offers to shoppers via Foursquare, Shopkick, Google and Facebook, as well as through

other social media.

Even if competitors can also provide exclusive brands and maintain their own purchasing and advertising

economies of scale, it is a challenge for more centralized national retailers to copyMacy’s top three strategies

that have promoted its success in the industry. Local merchandising would take much time and resources

these retailers and would be complex to build internally.

By using My Macy’s localization, Omnichannel integration, and MAGIC Selling customer

engagement, Macy’s has been able to differentiate itself from its competitors and sustain competitive

advantage in its industry. It has succeeded in providing quality merchandise at competitive costs and to a

highly diverse customer base, regardless of varying customer location or need.

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Financial Ratios Analysis 5

Macy's Inc. Industry 6

Jan. 2011 Jan. 2012 Jan. 2013 Jan. 2013

PROFITABILITY

ROA 6.09% 6.04% 7.08% 5.20%

ROE 22.71% 22.50% 24.56% 17.20%

Profit margin 4.76% 4.82% 5.32% 2.00%

DEBT MANAGEMENT

Times Interest Earned ­4.40 ­4.95 ­5.87 4.90

Total Debt Ratio 0.73 0.73 0.71 0.40

LIQUIDITY

Quick Ratio 0.43 0.58 0.51 .5

Current Ratio 1.38 1.40 1.55 1.9

ASSET MANAGEMENT

Total Asset Turnover 1.28 1.25 1.33 2.3

Fixed Asset Turnover Ratio 1.92 2.08 2.13 10.9

DSO 4.67 4.85 4.85 1.63

Inventory Turnover Ratio 5.55 5.41 5.26 3.2

MARKET VALUE

M/B 2.30 2.80 3.60 2.60

P/E 11.8 11.9 14.9 12.06 7

5 SEC Filings Data (2014). Retrieved from (Anastasia put your source here) 6 E­statements industry ratio (2014). Department store. Retrieved from <http://www.statementstudies.org/IndustryResources.aspx> 7 Dillards P/E computed from the historic prices of Dillard’s and the EPS for 2013

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Trend Analysis

Liquidity Ratios

current ratio :Macy’s current ratio values from 2011 to 2013 were respectively 1.38, 1.40 and 1.55.

The increase in the values of the current ratio shows that Macy’s in improving it ability to pay off its

debt.

quick ratio: from 2011 to 2013, we can see an increase in macy’s quick ratio values which went

from 0.43 to 0.58 from 2011 to 2012 and from 0.58 to 0.51 from 2012 to 2013. The trend observed

indicates that Macy’s is improving its ability to pay its current debts at the time they are due.

Overall, macy’s liquidity has been improving meaning that Macy’s is doing good when it comes to its

assets into cash to meet its obligations.

Asset Management Ratios

inventory turnover ratio :As we look at the Macy’s turnover inventory ratio from 2011 to 2013, we

can see that it slightly decreased over this 3­year span, the values being respectively 5.55 , 5.41 and

5.26. The decrease in inventory turnover ratio could be the result of a decrease in sale or an

overstock resulting in high inventories.

Days’ sales outstanding (DSO):as we look at the Days’ sales outstanding (DSO) ratios of macy’s

frm 2011 to 2013, we see can see that the values are trending up. This means that Macy’s is taking

longer to converts it account receivable into cash.

Fixed Asset turnover :Macy’s fixed asset turnover ratio were 1.92, 2.08 and 2.13 respectively for

2011, 2012 and 2013. The increase observed in macy’s fixed asset turnover ratio indicates that

Macy’s is improving its ability to generate more income per dollar using its fixed assets.

total asset turnover ratio: the values observed over the 2011­2013 period were 1.28, 1.25 and 1.33.

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The increase observed in macy’s total asset turnover ratio indicates that Macy’s is improving its

ability to generate more income per dollar using its total assets.

Debt Management Ratios

total debt ratio : Macy’s total debt ratio was of 0.73 in 2011 and 2012 before slightly trending

down to 0.71 in 2013. the decrease in Macy’s total debt ratio over the 3­years span shows that

macy’s funds has been taking on less debt from year to year.

Time Interest Earning: the time interest earning values for macy’s from 2011 to 2013 were

respectively ­4.40, ­4.95 and ­5.87. the decrease observed indicates that macy’s is worsening and is

struggling to cover its interest expenses with its EBIT.

Overall, we can say that Macy’s debt management has been getting worse considering that most of its

funding come from debt and that it is unable to cover its interest expenses with its EBIT.

Profitability Ratios

profit margin:Macy’s profit margin which was 4.76% in 2011 increased to 4.82% in 2012 and then

to 5.32% in 2013 has increased. The upward trend observed indicates that macy’s has been

improving its profit margin over the three years.

Return on Assets (ROA): just like the profit margin, the ROA values of macy’s from 2011 to 2013

are trending up values and are respectively 6.09%, 6.04% and 7.08%. this increase in macy’s ROA

over these 3 years indicates that macy’s is improving its ability to generate more income per dollar

of its asset.

Return on Equity (ROE): from a historical point of view, we can see that macy’s ROE increased

from 22.71% to 22.50% from 2011 to 2012 and again from 22.50% to 24.56% from 2012 to 2013.

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%. this increase in macy’s ROE over these 3 years indicates that macy’s is improving its ability to

generate more income per dollar of its equity and increase its rate of return on equity investments.

Overall, macy’s is becoming more efficient over the years in generating more income per dollar of

assets and increasing its rate of return on equity investments. Macy’s profitability is furthermore supported by

the increase in its profit margin over the 3­year span

Market Value Ratios

Price/ Earnings Ratio : The Price/ Earnings Ratio for Macy’s ever so slightly increased from

2011 to 2012 from 11.8 to 11.9 to increase significantly in 2013, going from 11.9 to 14.9.

These increasing values mean that investors are willing to pay more money per dollar of reported

profits and thus that have confidence in the company and its future growth.

Benchmark Analysis

Liquidity Ratios

current ratio :Macy’s current ratio values from 2011 to 2013 were respectively 1.38, 1.40 and 1.55

while the industry average was 1.5. Macy’s values are overall slightly lower than the industry

average which means that it is worse than the industry in term of its ability to pay of its debt.

quick ratio: the industry quick ratio average for 2013 was 0.9 while the values recorded for macy’s

from 2011 to 2013 were 0.43, 0.58 and 0.51. from these observations, we can see that Macy’s is

worse than the industry when it comes to paying its sort term debts.

Overall, macy’s liquidity is worse than the industry, meaning that it is struggling to covert asset into

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liquidity quickly enough to meet its obligation and pay its debts.

Asset Management Ratios

turnover inventory ratio : even thoughMacy’s turnover inventory ratio from 2011 to 2013, slightly

decreased over this 3­year span, being respectively 5.55 , 5.41 and 5.26, they are significantly

higher than the industry average which is 3.2.

macy’s is better than the industry in selling the inventory and making more sales.

Days’ sales outstanding (DSO):as we look at the Days’ sales outstanding (DSO) ratios of macy’s

from 2011 to 2013, we see can see that the values are trending up being respectively 4.67, 4.85 and

4.85 compared to the industry average which is 1.63.

From these observations we can say that macy’s is doing worse than the industry as it takes longer to Macy’s

to converts its account receivable into cash.

Fixed Asset turnover :Macy’s fixed asset turnover ratio were 1.92, 2.08 and 2.13 respectively for

2011, 2012 and 2013 while the average industry ratio was 10.9. Since

these values are substantially lower than the average and thus, macy’s is worse than the industry in its ability

to generate more revenue per dollar of fixed asset.

total asset turnover ratio: the values observed over the 2011­2013 period were 1.28, 1.25 and 1.33

for Macy’s total asset turnover ratio against 2.3 for the industry average. The fact that the total asset

turnover ratios for macy’s are lower than the industry indicates that macy’s is worse than the

industry in term of generating more income per dollar using its total assets.

Overall, we can say that macy’s asset management is worse than the industry meaning that Macy’s is

not efficient in generating more income per dollar of assets

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Debt Management Ratios

total debt ratio : Even if Macy’s total debt ratio over the 3­years span decreased going from 0.73

for 2011 and 2012 to 0.71 in 2013, it is substantially higher than the industry average which is 0.40.

we can thus say that macy’s is worse than the industry as it is financed more by debt than the

average industry company.

Time Interest Earning: the time interest earning values for macy’s from 2011 to 2013 were

respectively ­4.40, ­4.95 and ­5.87 while the average industry value is 4.90 . the fact that the values

are lower than the industry average indicates that macy’s is worse than the industry when it comes

to covering its interest expenses with its EBIT.

Macy’s debt management is worse than the industry as it is more debt funded than the average

industry company and struggles to cover its interest expenses using its EBIT.

Profitability Ratios

profit margin:Macy’s profit margin which was 4.76% in 2011 increased to 4.82% in 2012 and then

to 5.32% in 2013. Since these values are higher than the industry average which is 2.00% , we can

say that macy’s is doing better than the industry in generating more profit..

Return on Assets (ROA): just like the profit margin, the ROA values of macy’s from 2011 to 2013

are trending up values and are respectively 6.09%, 6.04% and 7.08% and remained significantly

higher than the industry average which is 5.20%. this indicates that macy’s is better than the

industry at generating more income per dollar of its asset.

Return on Equity (ROE): from a historical point of view, we can see that macy’s ROE increased

from 22.71% to 22.50% from 2011 to 2012 and again from 22.50% to 24.56% from 2012 to 2013.

%. When comparing these values to the industry average which is 17.20% , we can say that macy’s

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is doing better than the industry at generating more income per dollar of its equity and increase its

rate of return on equity investments.

Overall, macy’s profitability is better than the average industry company since it is more efficient at

generating more revenue per dollar on asset and equity and make more profit.

Market Value Ratios

Price/ Earnings Ratio : The Price/ Earnings Ratio for Macy’s ever so slightly increased from 2011 to

2012 from 11.8 to 11.9 and increase significantly in 2013, going from 11.9 to 14.9. comparing the

values of Macy’s to the P/E of macy’s main competitor , Dillard’s, which is 12.60 we can say that

macy’s is doing better than the industry.

Overall, macy’s market value is better than the average industry company because investors are

willing to pay more from year to year

DuPont Analysis

ROE = Net Profit Margin

X Total Asset Turnover

X Equity Multiplier

2011 22.71% = 4.76% X 1.28 X 3.73

2012 22.50% = 4.82% X 1.25 X 3.72

2013 24.56% = 5.32% X 1.33 X 3.47

Ind. 17.20% = 2.00% X 2.30 X 3.74

By breaking down ROE in the DuPont Analysis, it can be on one hand determined that Macy’s main

weakness in generating more revenues on equity is its Assets turnover ratio. Indeed, we see that Macy’s

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performance in all the other components of the Dupont equation is good if not better than the industry on the

other hand we see that profit margin plays an important role in the ROE yield of Macy’s. To be able to

improve its performance, Macy’s will have to come up with better asset management strategies to increase

revenues while improving and if not, maintaining its current performance.

Analysis of Firm Riskiness

Although Macy’s faces similar types of risks that other corporations do, such as the threat of an

industry takeover (monopoly?) by other competitors they have other sources of risks. The risks that are

within the company are a low inventory turnover and variety, its loss of regional brand value that comes with

being an established national brand, and its repositioning efforts. A lower inventory in stores can lead to

decrease in net sales if customers choose to go to different apparel stores. Customer loyalty may decrease if

smaller, regional brands choose to market to Macy’s current segments. Regional brands cater to unique

customer needs and wants based on geographical, demographic, and even behavioral information. The

impersonality of a national brand may hurt Macy’s market share and profitability overtime if it does not

diversify its products and services.

This also ties into Macy’s repositioning strategy in which it had to switch from being known as a

department store to a company providing “affordable luxury” with brands such as Calvin Klein, Ralph

Lauren, and Liz Claiborne. Their brand repositioning may have negative effects such as store closings, loss or

transfer of employees, loss of suppliers, loss of distribution channels, and unsatisfied customers.

If inventory turnover and variety aren’t up to par then the company will experience a loss in profits

which will limit its ability to pay back its debts and ultimately reduce the value of the firm for both

stockholders and general consumers. It’s unique brand identity also adds value to the firm because it

promotes loyalty and recognition among competitors nationally and internationally. Successful repositioning

efforts also may yield favorable results for the company

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The risks within the market and industry are other competitors, seasonality, and consumer behaviors.

Other competitors may offer more apparel selection of a higher quality for less than Macy’s, may be

successful in niche markets with more specific needs according to the targeted market segments, or have

differentiated products and services that exceed that of Macy’s. The retail fashion industry is highly affected

by the seasonality of certain apparel items. Sales tend to increase during the holiday season but costs also go

up in relation to this trend. Varying consumer needs and wants also influence how they perceive Macy’s as

brand. Some consumers from a particular segment may prefer to shop at smaller, more luxurious boutiques in

place of department stores. It may even be that some consumers are interest in smaller chains that provide

unique styles for similar prices and quality.

The value of Macy’s itself is directly reflected through how Macy’s strategizes in response to the

firm­specific, market, and industry risks it faces. If they are successful in their efforts to adapt then investors

will see the company as being a good investment.

Beta

we computed beta through a regression function on Excel using the historical prices of Macy’s

against those of S&P 500 and found it to be equal to 0.99. Although result is different from the one obtained

from Yahoo! Finance (0.94), Morning star (0.95) or Bloomberg (0.94), it is very close from all of them and

identical to the one published by the online investor (0.99). the reason why these betas are different could be

that companies use different computation techniques, different reference share as well as different value to

calculate it. since our beta is lower than one, we can say that Macy’s risk is lower than the market risk.

Firm Valuation

Dividend Discount Model (DDM)

The use of the Dividend Discount Model was one method used to find the stock price of

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Macy’s. the first step toward finding the stock price of Macy’s was to compute Re using the CAPM

formula Re=rf+Rpm * , where the risk­free rate of return rf=3.00 % which is the rate of return on a β

30­year treasury bill as of November 2014; beta = 0.99 and the market risk premium RPm=5%. we β

chose that value for RPm based on the analysts speculations that were evoked during class. we then

plugged all the numbers into the CAPM equation and got Re=7.95%.

consulting the historical dividend growth rate of macy’s for the past 10 years, we found that the growth

rate in 2011, 2012 and 2013 were respectively 75.00%, 128.00% and 18.75%

FY 2004

FY 2005

FY 2006

FY 2007

FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

FY 2013

Dividends USD

0.27 0.39 0.51 0.52 0.53 0.2 0.2 0.35 0.8 0.95

% change

- 44.44%

30.77%

1.96% 1.92% -100.00%

0.00% 75.00%

128.00%

18.75%

after finding historical values for Macy’s dividends growth rate we looked at the predicted 5­year

growth rate estimated by the analysts which is of 12.40 % according to Yahoo finance. Next using the

formula g=ROE* (1­dividend per share/EPS), we computed g using ROE= 24.56% which is the value

obtained after computation of the numbers contained in Macy’s financial statements. as a value for the

dividend per share and EPS we used respectively 0.95 and 3.86. Replacing all the variables in the equation

with the numbers mentioned above we have: g=24.56* [1­(0.95/3.86)] with a resulting growth rate of

18.52%. Comparing the computed value with the estimated one published on Yahoo finance, we decided to

set our g= 12.40% . this choice is justified by the fact that Macy’s sales have been stalling since july and

earlier this year, the company announced the closing of five of its stores, resulting in a cut of approximately

2500 jobs.

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Using the dividend discount formula D1= D0* (1+g), we were able to compute the expected dividend for

2014 fiscal year and the calculation was done as follow :

D1= 0.95*(1+0.1240), yielding an expected dividend D1=0.84. after gathering all the information needed our

final step in the firm valuation using the dividend discount model was to compute Macy’s stock price. to do

so we used the formula P0=D1/(r­g) where r=Re=0.0795 and g for the purpose of the calculation is equal to

the GDP which is 3.5%. We then have: P0=0.84/(0.0795­0.035) yielding a price stock P0= $18.87.

Valuation using Multiples

Valuation using multiples allowed us to perform a relative valuation of Macy’s Inc. to do so, we

multiplied the industry P/E ratio which is 12.06 by the EPS of Macy’s for 2013 which value is 3.86.

Replacing the variables in the equation Stock Price= P/E * EPS, we were able to find that the stock price of

Macy’s was of P0=$46.55.

Weighted average

Macy’s Inc. valuation using DDM allows to take a closer look at elements such as the firm riskiness,

the market risk premium, the dividend growth rate which are all critical in determining the stock price of a

company while the valuation using multiple provides us which a much broader view of the company that

might not necessarily reflect its true performance. For that reason, we weighted the DDM stock price at 80%

and the stock price obtained using the multiples at 20%. Applying those weight to the respective stock prices

obtained, the weighted average stock price of Macy’s was:

P0= (0.2*46.55)+(0.8*18.87)= $24.40

Conclusion and Recommendations

After analyzing Macy’s financial statements, its riskiness, its strengths and weaknesses, and overall

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value in regards to its dividends we have concluded that Macy’s is a fairly valued firm and they can be

considered a good investment. The company is aware of the swiftly changing marketing and customer

engagement trends in the retail industry and they are implementing them. The three main retail trends Macy’s

has been integrating into their operation are Omnichannel marketing, mobile marketing, and

personalized/connected in­store and online shopping experiences. Macy’s has worked to integrate each of

these and is experiencing success so they ought to continue doing this as well as listening to their customers’

preferences so they will keep up with current demands.

However, Macy’s must be aware of the internal risks of the firm and the external risks of the market

and industry it competes in. It needs to become more efficient with its inventory, maintain its unique brand

identity, and reposition itself strategically in order to achieve competitive advantage.

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http://web.wm.edu/americanstudies/370/2005F/sp4/home_macys_generalhistory.htm

http://macysinc.com/for-investors/store-information/overview/default.aspx

http://www.vendhq.com/retail­trends­and­predictions

http://www.heathanderson.com/MBA/mkt6340/Test1/Group3Test1Q2.pdf

http://seekingalpha.com/article/1530282­is­macys­back­on­top?page=2

http://www.ukessays.com/essays/marketing/the­macys­case­analysis­marketing­essay.php

http://www.bloomberg.com/news/2014-08-13/macy-s-profit-trails-estimates-after-discounts-eat-into-marg

ins.html

http://www.nytimes.com/reuters/2014/08/13/business/13reuters­macys­results.html

http://www.bloomberg.com/markets/rates­bonds/government­bonds/us/

http://financials.morningstar.com/ratios/r.html?t=M&region=usa&culture=en­US

http://finance.yahoo.com/q/ae?s=M+Analyst+Estimates

http://www.tradingeconomics.com/united­states/gdp­growth

http://financials.morningstar.com/valuation/price­ratio.html?t=M&region=usa&culture=en­US

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