Macy's on sale?

This Thursday Macy's 89th annual Thanksgiving Day parade will wind it's way through New York to Macy's Herald Square. In a age where most retailers are being Amazoned (code word for retail destruction) Macy's stands out with its own parade. Macy's is still number one in apparel but Amazon is soon expected to take the lead. Unlike most department stores Macy's is online it is the 7th largest internet retailer (just behind Netflix) offering same day delivery in 17 markets. Macy's Thanksgiving day parade and their iconic locations make Macy's stand out from the brick and motor pack. Macy's don't disclose the cost of the parade but it does requires a lot of hot air. Apparently Macy's is the second largest helium consumer after the government that's one big Kung Fu Panda!

Macy's stock has taken a hit recently with declining mall traffic. They also took a hit from the strong dollar impacting sales as tourists find it more expensive to go on a shopping trip. Given its prominent locations Macy's is highly sensitive to a strong dollar. In total Macy's operates 885 stores in 45 states with 446 owned properties.

Sell stores not dresses
Investors are rightfully questioning the future of department stores but Macy's properties are iconic. Most investors seem more interested in their property as it is irreplaceable so much so that some think Macy's should sell their stores not dresses. Starboard an activist investor in Macy's believe that their flagship Herald Square store is worth $4 billion by itself, including all mall locations around $21 billion a similar level to Macy's market value. They also have a credit card business the situation looks similar to what happened here in Australia with David Jones where valuable property has been monetised.

Buy one get one free?
Understandably management are reluctant to introduce high fixed costs (rent) in the business separating the property in a sale and leaseback in a REIT structure would reduce the flexibility and increase the leverage they have in their business. Macy's is an enduring brand but it is a concern when investors value the property more than the business. Like many retailers the value is their property but Macy's is also their single tenet. Its tricky so they are seeing if they can monetise some of the space through a joint venture with Tishman Speyer they might let space to other stores. Just like many buy one get one free offers you receive something extra but did you really need it in the first place? For the moment Macy's is a property asset and you get the retail business for free.

Jason

http://www.decisiveassetmanagement.com/

Decisive has no position in Macy's (M). The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

The jockey and the horse: Top CEOs

The Melbourne cup was run 2 weeks ago. In racing we all know to bet on the jockey and the horse well its the same for investing. Fundstrat put together a great diagram of the greatest CEOs. As you can see on the top right the best performing CEO is John Malone the cable king. $100 invested with John is now worth $315,337 his returns put him in a similar class to Warren Buffet. John helped consolidate the cable industry his approach was to grow free cash flow, minimize taxes and buyback shares. He also had good timing buying and selling investments, his current holdings include Liberty, Discovery Communications and LionsGate.

Sleep at night factor
It's safe to say we all know Elon Musk and the others but one name I was least familiar with was Scott Thompson. He also has the best compound track record he was previously the CEO of car rental firm Dollar Thrifty which he sold to Hertz. In September he was named CEO at Tempur Sealy (TPX) the world's largest and most profitable bedding company. It's a well known global brand yet international sales are only 18% also in a world that is changing so quickly it's hard to see a mattress getting replaced or disrupted! On average mattresses last 8-10 years apparently over 80% of Americans still sleep on a mattress with a spring also unlike other industries the price for mattresses keeps going up. Their brands are below.

The TPX team is very motivated with 1.34 million restricted stock units given to management if they achieve EBITDA of $650 million for 2017 the estimate for this year is $462 million. In his first conference call Scott mentioned that he was attracted to the business because  "I was impressed with the following: the industry's consistent history of unit and pricing growth, the importance of bedding products in people's lives, the worth of the industry's brands, marketing and services to retailers, the healthy margins both for the manufacturers and the retailers, lastly, the great free cash flow attributes of the industry." If history is any guide the new CEO should be able to help TPX shareholders sleep at night even without one of their mattresses.

Jason

http://www.decisiveassetmanagement.com/

Decisive has no position in Tempur Sealy (TPX). The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

IPO week Square and Match.com

This week has seen a flurry of big IPOs out to beat the month of December. The most interesting IPOs we have looked at are Match.com and Square.

Swiping right with Tinder

Most mission statements are boring but Match's goal is to increase romantic connectivity worldwide who can't be motivated by that statement! Match has 45 online dating brands but Tinder is the brand making news. Tinder is a first impression dating service users swipe through 1.4 billion photos a day with 9.6 million daily active users. If you haven't heard of it 86% of users are under 35 years old. On average users spend 35 minutes a day swiping through 145 profiles. If two users swipe right they can message each other. Match has plans to introduce advertising in between the swipes. 

All you need is love

As a group Match has 59 million monthly active users with 4.7 million paying subscribers. Some services like Tinder are free with some brands charging fees to promote yourself in ratings and communicating. It's a tough business as if match is successful they no longer have to subscribe to their services though helpfully online dating no longer has negative connotations. Over the last 4 years in America alone Match has been responsible for 2.5 million marriages. 

Fair and Square (1/2 a CEO)
Meanwhile Square is one of the more famous Unicorn stocks in Silicon valley (value over one billion) helping small businesses to accept card payments anywhere, anytime with just their phone. To garner interest in its IPO Square has cut it valuation below previous private funding rounds. The problem with Square is that you're sharing the CEO with Twitter.

Magic on board

The most interesting part of Square's roadshow is the fact that Earvin "Magic" Johnson the 5 time LA Laker NBA champion is on the board. (As a basketball fan I was amazed to see it). Square is unprofitable but it has 2 million active sellers using their payment services. It has a large runway ahead as there are 30 million small businesses yet 20 million businesses only accept cash. Starbucks is Square's largest customer at 17.4% of sales though they are not a profitable customer. Starting next year Starbucks has announced that they will be transitioning to a new provider. The good news is that Square should benefit from increased card payments according to Nilson 17% of payments are still made in cash and amazingly 12% use cheques. 

Jason

http://www.decisiveassetmanagement.com/

Decisive has no position in Square or Match. The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.