Barclays: High-End Retailers are Under Fire

Despite a strong macro economic background, Barclays warned today that the outlook for high-end department stores is troubled. In initiating coverage on Macy’s, Inc. M and Hudson’s Bay Co HBC, analysts noted that retailers may grow – but only at the expense of margins. The analysts placed Underweight rating on Macy’s with a price target of $55 and an Equalweight rating on Hudson’s Bay with a price target of $27. Macy’s closed at $64.32 on Friday. Hudson’s Bay is at C$23.65 on the Toronto Stock Exchange.

In addition to Macy’s and Hudson’s Bay, Barclays coverage of the high-end department space consists of Nordstrom, Inc. JWN. The analysts downgraded Nordstrom to Underweight with a $68 price target vs. a closing price of $79.41 Friday.

Specific to each company, here is what the analysts said:

• Macy’s: The brand portfolio is slowing, which pressures same-store comps and gives Macy’s sales “limited upside potential.” Growth, therefore, relies on lower-margin omnichannel sales – challenging EPS moving forward.
• Nordstrom: The company could be poised for “two or more years” of margin declines ahead. In addition, investors may be overvaluing the business for a divestiture of its credit business.
• Hudson’s Bay: Unlike the other two luxury department stores, Hudson’s Bay has greater opportunity to increase its footprint, while also the potential to convert its real estate holdings into a REIT – neutralizing industry negatives.