Myles Udland, Brian Sozzi, and Julie Hyman dive into some of Thursday’s early market movers, which include: Macy’s reinstating dividends and buybacks after blowing away earnings estimates, Kohl’s boosting its 2021 outlook as the company continues to rebound with a 30% bump in its Q2 sales, and Amazon moving forward with plans to open department stores to push its own-branded goods.
And essentially, you're seeing a company-- and even a Kohl's-- this morning, we'll talk more about Kohl's-- benefiting from consumers out there rebuilding their closets. We've talked at length about this. And this is playing out in a Macy's.
But where I do take issue with a Macy's here today, coming out and essentially saying in not so many words, we can care less about the COVID-19 Delta variant and the fact that it might be pressuring consumers and consumer confidence and what they're out there buying. We are coming out here and we are reinstating our dividend. They brought back the dividend, $0.15 a share, $200 million annual payout. And also, they announced a new $500 million stock buyback plan.
And it is interesting to see these things, considering Macy's had to raise billions of at the height of the pandemic, I believe 4 and 1/2 billion, in March 2020 just to survive the pandemic. You would think Macy's would take a more pragmatic or a disciplined approach to, all of a sudden, now giving cash away.
The pandemic is not over. And while executives at Macy's might feel like a hero today for putting up a 62% sales increase compared to when their stores were closed last year, those things could turn at the drop of a dime. And they could very easily come back next year and be suspending their buyback and cutting the dividend again. A little surprised by their actions here.
But you also have large retailers like Walmart, like Target saying they are not yet seeing a hit from the Delta variant. Where we are seeing in the hit and the economy is in travel, is in people getting out in that way. It's not necessarily in people shopping.
So maybe Macy's is going to take a hit from these things. But if what we're hearing-- what we are hearing across retail is pretty remarkably consistent in this way in terms of the cash return theme and what they are saying about Delta. So Macy's has some problems of its own, to be sure. But the problems are not with the sort of more macro environment that we're hearing about from other retailers.
BRIAN SOZZI: I see your point. And I very much understand it. But just given the fact that Macy's shares are down 55% over the past five years, the S&P 500 is up close to 110%. The fundamentals of retail are rapidly changing. The pandemic has fundamentally changed how retailing is done. I see Target winning.
And I just would be concerned about what the next five years looks like for a Macy's. Should you be keeping that $200 million annual dividend payment, keeping that cash on your balance sheet? Use 50 million, and get out of one of your crappy stores that nobody's going to. I think that would be a more prudent use of capital than essentially paying investors here a quarterly dividend and especially going out there and buying back your stock.
Save that money. Better ways to use it, in my humble view.
MYLES UDLAND: Well, I mean, look, I think this gets to a fascinating kind of strategy question for executives and also a great conversation around portfolio construction and which investors you as a management team are trying to court. Macy's is saying they're not going to be a growth story.
I understand this outline, Sozzi, of take the money, close stores, reinvest it in the business, digital this, omnichannel that. We had guests yesterday talking about omnichannel, omnichannel, omnichannel. Well, not every company is a growth story. Macy's is not going to start turning in quarter over quarter 15%, 18%, 20% comp growth. It's just not where the business is at. It's not where this management team thinks the business is at in its lifecycle.
So what do you do? You incentivize shareholders to own your stock. You pay them for owning your stock. You tell them that you are going to repurchase your shares in the market so that they own a larger slice of your business over time without having to do anything. $0.50 on an annual basis, on a $19 stock is a little bit better than a 10-year. It's about a 3% yield.
So that's where it fits in someone's portfolio. You want to generate a little bit of income? Now you can buy Macy's.
And again, I take your point on the growth story. But it's just not going to happen. That's what the team is saying. It's just not going to happen. It's not going to be a big secular grower. It's Macy's. Everyone knows that Macy's is. And so the way to incentivize shareholders is to give them money for being your shareholders, not to promise them roses and daisies out five or 10 years.
BRIAN SOZZI: We can agree to disagree. I just think put that 50 million into your top 10 or top 25 best-performing stores. To me, I know that wouldn't necessarily make them a growth retailer. But it would perhaps give them a better fighting chance to perform better coming outside of the pandemic.
MYLES UDLAND: Well, we'll see. We'll see. But look, to me, the strategy is clear. I just don't think you'll get your wish. I think you're just going to end up being disappointed.
BRIAN SOZZI: I don't know. Who cares? I'm just reporting the news.
MYLES UDLAND: That's right. That's right. Look, you're looking out for--
JULIE HYMAN: Very passionately.
MYLES UDLAND: Yeah, he does it very passionately to say the very least. Let's talk about Kohl's also out with its latest quarterly results. And we see here, beat on the top, beat on the bottom line. Brian Sozzi, I know a name that you've been following quite closely over the last year or so.
BRIAN SOZZI: Yeah. I'm sure another retail management team that is certainly feeling their oats this morning, feeling very happy about themselves. They're out here, Kohl's reporting really a comeback quarter in sales. Net sales up 31.4%. Gross margins in fact up 942 basis points from the quarter last year. Again, all these comparisons are borderline useless because these stores were essentially closed at the height of the pandemic last year.
And then Julie, to your point, Kohl's out here lifting its stock buyback plan. They plan to buy back 500 million to 700 million shares this year. They repurchased 255 million shares in the second quarter. I will say this though, Kohl's is in better fundamental shape compared to Macy's. I think you can at least understand how Kohl's can survive over the next decade. Macy's I'm just not there emotionally.
MYLES UDLAND: Are you there analytically though?
BRIAN SOZZI: What's that?
MYLES UDLAND: If you're not there emotionally, like analytically, are you there?
BRIAN SOZZI: I'm not there either. I'm not there emotionally or analytically on Macy's. Again, I just see Macy's, I see Sears. It's essentially the same business model, just with a different name on the outside of the front of the store. Maybe I'm wrong. What do I know?
JULIE HYMAN: I got to wonder then-- so how would you feel then about another big retailer getting into this same business?
BRIAN SOZZI: Oh, nice. Very nice, Julie.
JULIE HYMAN: You like that? You're right, because "The Wall Street Journal" this morning saying Amazon is getting into, effectively-- I mean, a smaller department store, right? Maybe more like a City Target. Remember the City Targets? Which I don't even know if they exist anymore, which was a smaller format of Target. And now supposedly, Amazon is looking at this model.
BRIAN SOZZI: Well I'll just say something quickly on this. I suppose Myles may want to say something. He has really covered and talked a lot about Amazon buying Whole Foods. Let's be hesitant here to say that Amazon is suddenly going to blanket the United States with 500 department stores. That is unlikely to happen.
And secondarily, Amazon has been working with Kohl's since 2017 on their returns program. That's what Amazon does. They'll partner up with other retailers. They'll use their name to get inside of other businesses.
And I'm sure Amazon has learned a ton of what not to do in department store retailing by working with Kohl's for the past 4 and 1/2 years because those returns programs are in close to 1,200 Kohl's stores. But let's just be hesitant here to think that Amazon is going to open up a lot of stores and suddenly take all the business away from Walmart and Target. That's just probably not going to happen.
MYLES UDLAND: Well, forget about the business from Walmart and Target. I just don't think anything about the Whole Foods experience tells you that when Amazon starts opening physical stores, we need to get that excited about some new paradigm. They're going to open some stores and see what happens.
The thing is, their business is moving away from retail in a huge way. And so them opening a few outposts is interesting. But it brings you back to 2017, 2018 when Amazon Pharmacy, Amazon HQ2, Amazon Stores, Amazon this, that, the other. It's fun to talk about, but it doesn't really do a lot for me.
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BRIAN SOZZI: --one of these stores open.
MYLES UDLAND: But you get excited to go to stores. And I'm sure people go to the stores. I'm just saying like, nothing about the ownership of Whole Foods says that when Amazon buys or gets into physical retail, it's some magical experience that people start rushing to. So that's all.
JULIE HYMAN: Yeah. I mean, listen, we all know that Amazon's strategy is to throw a bunch of stuff at the wall and see what sticks. And the only time it hasn't done that as much is with Whole Foods, when it bought something. If it's starting something itself from scratch, which this story implies that that's what it's doing, then that tends to be a strategy.
Yeah, they have some bookstores around the country. Yeah, they have some of those Five Star stores around the country. What does it do for them? Market research maybe. I don't know what more that it really does for them.
I mean, the story today in the "Journal" talks about Amazon giving a better showcase for its own branded products. Amazon does fine. I don't know what this pulling this lever is going to do for Amazon really.
BRIAN SOZZI: I wonder if you will have to be a Prime member to even park in the parking lot, probably.
MYLES UDLAND: Yeah. That's a new revenue stream for them.