Macy's (M) Pulls Retailers Higher After Earnings

NEW YORK (TheStreet) -- Healthy quarterly profits and gross margins from Macy's (M) were pulling the much-aggrieved retail sector higher on Tuesday. 

Long-suffering J.C. Penney (JCP) and Sears  (SHLD) are making gains, while Dillard's  (DDS) is recovering from Monday's post-earnings drop.

By early afternoon, J.C. Penney had added 5.4% to $5.51, Sears climbed 2.9% to $39.15, and Dillard's jumped 6.1% to $88.73.

Before the bell, Macy's reported adjusted net income of $2.31 a share for the three months to Feb. 1. Analysts surveyed by Thomson Reuters had anticipated earnings of $2.17 a share.

Also See: Macy's Reports Better-Than-Expected Q4

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TheStreet Ratings team rates DILLARDS INC as a Buy with a ratings score of B+. The team has this to say about their recommendation:

"We rate DILLARDS INC (DDS) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels, increase in net income, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

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TheStreet Ratings team rates PENNEY (J C) CO as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate PENNEY (J C) CO (JCP) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, generally high debt management risk, disappointing return on equity and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is very high at 2.12 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.36, which clearly demonstrates the inability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Multiline Retail industry and the overall market, PENNEY (J C) CO's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for PENNEY (J C) CO is currently lower than what is desirable, coming in at 29.47%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -17.59% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$737.00 million or 1502.17% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • PENNEY (J C) CO has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, PENNEY (J C) CO reported poor results of -$4.49 versus -$0.73 in the prior year. For the next year, the market is expecting a contraction of 39.0% in earnings (-$6.24 versus -$4.49).

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TheStreet Ratings team rates SEARS HOLDINGS CORP as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate SEARS HOLDINGS CORP (SHLD) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is very high at 2.51 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.12, which clearly demonstrates the inability to cover short-term cash needs.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Multiline Retail industry and the overall market, SEARS HOLDINGS CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for SEARS HOLDINGS CORP is rather low; currently it is at 23.34%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -6.45% trails that of the industry average.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, SHLD has underperformed the S&P 500 Index, declining 14.10% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The change in net income from the same quarter one year ago has significantly exceeded that of the Multiline Retail industry average, but is less than that of the S&P 500. The net income has decreased by 7.2% when compared to the same quarter one year ago, dropping from -$498.00 million to -$534.00 million.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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