Saks’ Stock Gets No Respect, While Macy’s Shares Lead the Parade

Saks (SKS), owner of Saks Fifth Avenue department stores, has done its part in showing that rich people are spending money even while little people worry about recessions. Indeed, as long as the consumers are wealthy, consumer sentiment isn't so bad.

Saks sales are up, its profit margins have widened, and the company mostly talks optimistically about the holidays and the New Year. So why, when buying shares in high-end retailers like Macy’s (M) remains popular sport, do investors think so little of Saks these days?

Saks is one of the most shorted stocks in the market now, despite having a share price that’s already declined about 22% this year. Investing superstar Steven Cohen still owns some Saks shares, but he reduced his stake in the company by 75% last quarter. Analysts offer only wishy-washy hold ratings on the shares while blessing Macy’s with far more buy recommendations. Saks shares, whose 57% gains last year were not alarmingly higher than Macy’s, wiggled downward this year while Macy’s rose.

Saks Stock Chart by YCharts

YCharts Pro’s conservative rating system marks Saks shares as avoid because of weak fundamentals and high share price valuations. Macy’s, which also has a lot of debt and somewhat high valuations, gets a neutral rating from the charts.

For the most part, Saks has done what it’s supposed to do as a department store company recovering from a major recession. It more than halved its debt, although debt service still takes a big bite out of earnings every quarter.

Saks Debt to Equity Ratio Chart by YCharts

Saks boosted same store sales more than 10% in the first nine months of this year, grabbing more than its share of rising retail sales. Underlying income marched up too.

Saks EBITDA TTM Chart by YCharts

Saks has sold more goods in recent months despite backing off of a lot of the discounts and promotions that drew shoppers to stores in the past. Profit margins improved considerably.

Saks Gross Profit Margin Chart by YCharts

But there have been signs recently that suggest that improving the bottom line from here will be harder. October sales figures at Saks, as well as Macy’s, were lower than analysts had predicted. Saks warned that gross margins will slip about a half point in the fourth quarter as it discounts to reduce inventory. Expenses that the company had consistently tamped down so nicely in recent quarters are expected to be about the same in the fourth quarter as they were a year earlier. The CEO noted that market volatility, which affects the amount of money its upper income customers have to spend, and the weak economy warrant planning “cautiously.”

Meanwhile, Macy’s reported outsized sales gains in both back-to-school and Black Friday shopping days this year. It recently announced plans to open three new stores and doubled its dividend to 10 cents a share. Saks has paid big special dividends in the past, like the $8 per share in 2006 when it sold Belk’s department stores, but no one’s expecting another one of those or any other kind of dividend from Saks any time soon.

It’s possible that Saks and Macy’s really aren’t very different in their financial trends. But fairly or not, Saks now comes off as a company hunkering down to get through trouble ahead, while Macy’s appears focused on blowing through all that and growing anyway. And on Wall Street, just like in these stores, presentation can make or break a sale.

Dee Gill is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.