We’re adding Macy’s to our #Real Time Alerts on the short side. The theme is similar to the call on KSS that we made yesterday, but with more operational and financial leverage. We’re also bearish in GPS for some similar reasons. We’d characterize expectations around both inventories and comps heading into 2013 as being way too complacent.
For 2013, we’ll be going against a year where JCP will have ceded nearly $4bn in share, and it starts to comp against that in a few short weeks. Will JCP comp positive? Not likely. But even if it comps down 5 or 10% that creates a meaningfully negative delta to the companies that benefitted from the displacement.
Furthermore, inventories industry-wide were extremely tight in 2012 despite JCP’s issues, thanks to the off-price channel keeping the channel clean. That buffer will be unlikely to carry the trajectory forward in 2013.
Out of every name in the space, the most emotion rests with Macy’s. We consistently get the argument stating ‘you can’t short it bc it’s cheap’. But when you look historically, valuation has almost never been a catalyst to buy department store names. We don’t think now is a time to start.