Evercore: Retailpocalypse is Over — Get Long Macy’s

Here’s an analyst with cognitive dissonance, strongly suggesting the fears of Amazon disrupting and racking retail into ashes is overblown. He believes now is the time to bear down and barrel in some shares of M. Yummy.

Analyst Omar Saad, who “double-upgraded” his rating on shares of the iconic department store to “long” from “short” over the weekend, said that Wall Street’s fear about a “retailpocalypse” stemming from Amazon’s ascent are overblown.

“In a nutshell, we are convinced that old-world brands and retailers are figuring out how to manage inventory and market to consumers in the digital era, a critical turning point for the sector,” Saad wrote in a note published Sunday. “Macy’s and others will have equal opportunity in the coming years to compete for the attention of discretionary consumers given a core set of competitive advantages that are not going away.”

“Multi-year share price underperformance and still modest valuations despite a very healthy consumer macro environment tell us that the market is still married to the sensational ‘retailpocalypse’ narrative which assumes that Amazon and other digital disruptors will continue unabated,” he added. That’s “a viewpoint with which we no longer agree.”

“A centralized pool of inventory will enable Macy’s to service the same (if not more) demand with less inventory, an incredibly healthy dynamic. In recent years, Macy’s has been implementing processes to improve inventory flow and management,” he wrote. “These efforts are just starting to pay off, with inventory continuing to decline over the past year while retail gross margins held relatively steady and finally inflected to positive in the first quarter of 2018.”

Let’s have a look at the numbers, shall we. Macro stuff, not this horseshit about M being able to manage their inventory better. Let’s look at this so called Amazon threat and if it’s real.

In the apparel sector, composite revenues that past 12 months were $107 billion. Free cash flow was just $6.4 billion. Quarterly revenue grow was up 5.3%, while earnings -24%. The median return for the apparel sector, YTD, is +6.7%. Nice showing, pretty much in line with revenue growth.

In the major department chains, including M, sales were $123 billion, with FCF of $1.7 billion. Nice fucking margins there. Quarterly revenue growth was +1.7%, while earnings growth was +55%, impressive thanks to gains at DDS, KSS, and M. YTD returns were a paltry +4.2%, thanks to major drawdowns in JCP and SHLD. If you ex them out, gains are in the 25-40% ballpark.

Finally, specialty retail had revenues of $128b, with +4.1b in FCF. Quarterly revenues were +7.9%, while earnings -1.7%. YTD, stocks are -7.5% on a median basis and that includes NFLX in the industry.

Meanwhile, over in Amazon land, sales were $113b, with $6.7b in FCF. Revenue growth was +42%, earnings +125%. Stock is up 40% YTD and they’re just getting warmed up.

Conclusion: there is a resurgence taking place at M, KSS, DDS and a handful of other retailers, perhaps at the expense of SHLD and JCP. Bottom line: the mall is still dead and the retail landscape is not any healthier today than last year, when compared to the Amazon threat.