Zacks_Analysts' Blog : Macy's Sold Back Stake - Analyst Blog

Macy’s Inc. (M), one of the leading department store retailers in the U.S., recently sold back its 10.7% stake in The Knot Inc. (KNOT), a leading media company providing high end services in wedding planning, nesting and babies.

The Knot regained 3,671,526 shares owned by Macy’s for a price of $10.26 per share, aggregating approximately $37.7 million, financing the buyback amount through its cash and cash equivalents, which stood at $139.6 million as of December 31, 2010

The acquisition followed the company’s previously announced buyback program, which authorizes it to buy about $50.0 million of the company's stock. The wedding planner had approximately 34.3 million shares outstanding as of December 31, 2010and will retreat the acquired shares to the category of authorized and un-issued shares.

However, the transaction would not change the advertising or wedding registry conformity between the two companies. Macy's will continue to advertise in the Knot's media properties, while Knot will carry on driving customers to Macy's and Bloomingdale's registries.

Macy's chief marketing officer and head of its website, Peter Sachse, will continue to stay on Knot's board.

Macy’s sustained focus on price optimization, inventory management, merchandise planning and private label offering, positions it well to drive traffic, meet customer-oriented demand and improve in store shopping experience. The company expects comparable-store sales growth of 3.0% for first-quarter 2011.

We remain optimistic about the company’s customer-centric localization initiative named My Macy’s. The program aims at improving comparable-store sales and reducing operating expenses, with stores and merchandise assortments focusing on local customer needs and preferences.

However, Macy’s operates in an extremely aggressive retail goods sector. The company faces tough competition from a varied group of competitors, such as Wal-Mart Stores Inc. (WMT), Target Corporation (TGT), general merchandise stores, specialty stores and discount stores, which are likely to weigh upon its financial results.

After a broad evaluation, we prefer to maintain a long-term ‘Neutral’ recommendation on the stock. Macy’s also holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.