Goldman Sachs says Macy's is 'best-positioned' among retail stocks and could rally more than 20%

Published Mon, Jan 30 20237:00 AM ESTUpdated Mon, Jan 30 20238:01 AM EST

Macy's is one of the best-positioned retail stocks and has notable upside despite what is expected to be a tough year for the broader sector, Goldman Sachs said. Analyst Brooke Roach initiated coverage of the stock as a buy. Her $28 price target implies an upside of 21.3% over where the stock closed Friday. "We believe M is best-positioned to navigate an uncertain but softer landing economic environment," Roach said in a note Monday to clients. She said the company is entering 2023 in a "position of strength" with high affinity among customers and improving brand momentum compared with peers. Roach added that Macy's was one of few retailers that could manage inventory levels and market share shifts between product categories in 2022. That gives Macy's a "clean" inventory position starting the new year and allows the company to focus on innovation. Macy's stock has advanced 11.8% so far in 2023. It modestly outperformed the broader market in 2022, losing 18.7% over the course of the year. Roach said there's upside potential from its improving private label and said initiatives such as non-mall, small-scale stores and the omnichannel support market share gain among department stores. And she said the company's focus on supply chain pricing and personalization strategies coming out of the pandemic can help margins even as the company's top line struggles amid the rollout of the smaller stores that are not part of malls. A return of tourist traffic in some areas could also help profit margins, she said. Beyond these initiatives, Roach said the company has a strong financial profile with good margins and a free cash flow that gets returns to shareholders. She said Macy's EBIT margin is "more durable" than other retailers' given its inventory management, innovation, asset sales and card income base. In a conservative model, Roach expects $500 million per year in share repurchasing given the fact that the company has no near-term debt maturing and a healthy balance sheet. But Roach is less optimistic about peers amid what she called a "choppy" retail environment as consumers grow increasingly price-conscious. She rated Nordstrom a neutral stock, while calling Kohl's a sell. Kohl's dipped 2.1% in premarket trading following the call. Macy's was down 0.5%, while Nordstrom was little changed. — CNBC's Michael Bloom contributed to this report.