Why Macy's Must Consider A Sears-Like JV: JPMorgan Explains

Macy's, Inc. M reported worse-than-expected Q1 results on Wednesday. However, the company increased its dividend by 15 percent and its share buyback program by $1.5 billion.

Net income for the quarter came in at $194 million, 14 percent lower than the $224 million it reported for the same quarter last year. Revenue also dipped slightly from $6.28 billion last year to $6.23 billion.

JPMorgan Senior Retail Analyst Matthew Boss, who has an Overweight rating on Macy’s, was on CNBC following the results to weigh in on them and discuss the value in Macy's real estate.

Embedded Value

"Fundamentals are tough right now," Boss said, "but there's a lot of embedded real estate value here."

He explained, "They have a credit card income stream that makes up 20 percent of their EBITDA. I think there is some optionality that is worth considering on Macy's."

Related Link: A Technical Breakdown Of Macy's

Retaining Control

"Macy's real estate, we think, is in excess of $15 billion, and so as you think about that in relation to a market cap here, that's roughly $27 billion. That's a big portion of the value today," Boss said.

"I think the most likely scenario, and we published this this morning, would be a JV similar to what you saw Sears do with some of their REITs, and I think the idea would be Macy's could retain control of their real estate.

"They don't have to potentially put up for grabs any of their trophies or their flagships. And I think the idea would be to potentially monetize some of the properties where the real estate value might exceed the retail value on a go-forward basis," Boss concluded.