Stocks’ Details
 

Macy’s, Inc.

 
Business Update on COVID-19 Outbreak: Macy’s, Inc. (NYSE: M) sells a broad range of merchandise, including apparel and accessories (men’s, women’s and kids'), cosmetics, home furnishings and other consumer goods.  Recently, the company stated that keeping in mind the health and safety of its customers, colleagues and communities, it has closed all its stores since 18 March 2020 due to the COVID-19 outbreak. The stores would remain closed until the situation becomes better.
 
Macy's Suspends Dividend & Withdraws FY20 Outlook Amid Coronavirus: In another update, the company updated the market pertaining to the suspension of its quarterly dividend, valuation of non-essential operating costs and withdrawal of FY20 guidance in view of uncertainty surrounding the coronavirus pandemic. 
 
4QFY19 Financial Highlights: During the quarter, the company reported adjusted earnings of $2.12 per share, down from $2.73 per share reported in the year-ago period. The company reported net sales of $8,337 million, down from $8,455 million reported in the year-ago period. Adjusted EBITDA stood at $1,160 million, down from $1,399 million reported in the year-ago quarter. The company exited the period with cash balance of $685 million. Long-term debt amounted to $3,621 million at the end of the period.
 

Key Financial Highlights (Source: Company Reports)
 
Valuation Methodology: EV/Sales Multiple Based Relative Valuation

 
EV/Sales Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of M closed at $5.37 with a market capitalization of ~$1.66 billion. The stock made a 52-week low and high of $4.73 and $26.33 and is currently trading at the lower band of its 52-week trading range. The stock has corrected by ~67.98% and ~77.65% in the last three months and six months, respectively.  We note that the novel coronavirus has been shaking most companies and disrupting global economic activities. Notably, Macy’s effort to optimise price, and meet customer-oriented demand, is a key positive. Considering the aforesaid facts and current trading levels, we have valued the stock using Enterprise Value (EV) to Sales based relative valuation method. We have considered peers like J C Penney Company Inc (NYSE: JCP), L Brands Inc (NYSE: LB), Gap Inc (NYSE: GPS) and arrived at a target price of lower double-digit upside (in % terms). Hence, we recommend a ‘Hold’ rating on the stock at the closing price of $5.37, down 2.89% as on 30 March 2020.
 

Kohl's Corporation

 
Business Update in Response to COVID-19 Outbreak: Kohl's Corporation (NYSE: KSS) is engaged in operating specialty department stores and an e-commerce site in the United States. In a bid to curb the spread of COVID-19, the company recently announced that it will continue to shut down its store until further notice. The company is taking additional measures to strengthen its financial flexibility during this global uncertainty. Further, the company also withdrew its recently provided guidance for first quarter and fiscal 2020, given the current situation.
 
KSS Announces Strategic Partnership with Lands’: On 17 March 2020, the company announced strategic alliance with Lands' End. Per the partnership deal, Kohl's will provide Lands' full collection of women’s, kids as well as men’s, along with home solutions on Kohls.com.
 
Q4FY19 Operational Highlights for the Period ended 01 February 2020: KSS declared its quarterly results, wherein the company posted total revenues of $6,832 million, up a marginal 0.1% year over year. Gross margins for the period stood at 32.7% as compared to 33.5% reported in the year-ago quarter. Selling, general and administrative expenses (SG&A) stood at $1,742 million, up from $1,694 million in Q4FY18. The company reported non-GAAP net income of $308 million in Q4FY19 as compared to $366 million in Q4FY18. The company’s non-GAAP net earnings per share stood at $1.99, down from $2.24 per share reported in the year-ago period. As on 01 February 2020, the business reported cash and cash equivalents at $723 million, while merchandise inventories stood at $3,537 million. 
 
 

Key Financial Highlights (Source: Company Reports)
 
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

EV/EBITDA Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of KSS closed at $16.03 with a market capitalization of ~$2.49 billion. The stock made a 52-week low and high of $12.85 and $75.91 and is currently trading at the lower band of its 52-week trading range. The stock has corrected by ~66.33% and ~76.69% in the last three months and six months, respectively. The company remains on track to focus on innovation, brand investments and strategic alliances. Considering the aforesaid facts, current trading levels, recent price movements and the company’s brand presence, we have valued the stock using Enterprise Value (EV) to EBITDA based relative valuation method. We have considered peers like Nordstrom Inc (NYSE: JWN), Macy's Inc (NYSE: M), Gap Inc (NYSE: GPS), to name few and arrived at a target price which is offering a correction of single-digit (in % terms). Hence, we have a watch stance on the stock at the closing price of $16.03, down 8.66% as on 30 March 2020.
 

The Gap, Inc.

 
Business Update as a Result of COVID-19 Outbreak: The Gap, Inc. (NYSE: GPS) is a premier international specialty retailer, which is engaged in a wide range of clothing, accessories, and personal care products.Due to the rapidly spreading COVID-19 impact, the company recently announced that it will continue to shut down its store beyond April 1, 2020, until further notice.
 
 
Gap’s Necessary Actions to Deal with Coronavirus Outbreak: The company recently came up with a plan to improve financial flexibility and liquidity. In doing so, GPS has fully drawn its $500-million revolving credit facility. Given the present situation, the company has also deferred the payout of its earlier declared dividend of 24.25 cents per share. The company also lowered $300 million of its planned capital expenditure for FY20. In addition, it is taking necessary measures to decrease all operating expenses to lower its overall spending. The company also withdrew the outlook it provided on March 12, 2020. 
 
Q4 Operational Highlights for the Period ended 01 February 2020: GPS declared its quarterly results, wherein the company posted net sales of $4.7 billion, up a marginal 1% year over year.  The translation of foreign currencies into U.S. dollars positively impacted quarter’s revenues. Gross profit for the period stood at $1.67 billion, up 2% year over year. Adjusted operating income came in at $278 million, down 25.3% year over year. The company’s non-GAAP net earnings per share stood at $0.58. As on 01 February 2020, the business reported cash and cash equivalents and short investments at $1.7 Billion.
 

Key Financial Highlights (Source: Company Reports)
 
 
Valuation Methodology: P/BV Multiple Based Relative Valuation

P/B Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of GPS closed at $7.42 with a market capitalization of ~$2.76 billion. The stock made a 52-week low and high of $6.04 and $27.00 and is currently trading at the lower band of its 52-week trading range. The stock has corrected by ~58.36% and ~71.66% in the last three months and six months, respectively. Considering the aforesaid facts, current trading levels, recent price movements and the company’s brand presence, we have valued the stock using P/B based relative valuation method. We have considered peers like Tapestry Inc (NYSE: TPR), L Brands Inc (NYSE: LB), Capri Holdings Ltd (NYSE: CPRI), to name few and arrived at a target price which is offering limited upside (in % terms). Hence, we have a watch stance on the stock at the closing price of $7.42, down 4.75% as on 30 March 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.