Team 7

Daniel Eads
Akash Miriyala
Andrew Rodela
Kunaal Umarwadia

Background Information

Department store company founded in 1858

Largest U.S. department store in terms of sales, with just over $28 billion in 2014
sales.

Products include: clothing, bed & bath, beauty products, jewelry, and home goods.

Retail is a competitive industry Macys competitive advantages include: its

diverse supplier base, Macys Thanksgiving Day Parade, and its omnichannel
strategy.

Main competitors in the department store industry include: Dillards, Kohls,

JCPenney, Sears, and Bon-Ton in the mid-range, and Nordstrom, Lord & Taylor,
Von Maun, and Saks Fifth Avenue in the high-end.

Sales Projections
2015 sales growth= -1.9%
"Based on its assessment of current and
anticipated market conditions and its recent
performance, the Company's 2015
assumptions include: Total sales growth of
approximately 1% from 2014 levels"
-10K pg. 24

Stabilizing to .6% in 2023

2024 sales growth

(terminal growth rate)= .3%

We regressed Macys real sales growth against the real nondurable PCE growth, which gave an adjusted
R-squared value of about .5 indicating the growth is moderately correlated.
Our calculations found the average growth was 1.2%, which resulted in Macys growth being .6%.

Other Analysis
Choice of plug: Cash
-High volatility in cash account
in previous ten years.
-Use cash to balance the
balance sheet, following the
growth trends of other items on
balance sheet.

Rd=6.25%
average interest expense/LT debt
for past ten years.
Re=11.29%
Re=5% + .89(7%)
Rf=5%
=Jan. 2005-Dec. 2014
Rm=JPMorgan Report
MV Equity= $22,439,704,000.00 (75.81%)
MV Debt= $7,159,000,000.00 (24.19%)
MV D+E= $29,598,704,000.00 (100%)
Tc= 35.95% (2008 tax rate low due to
pretax loss, which carries over to 2009.)

WACC= 7.14%

CapEx:
According to the Q1 2015
earnings call, Macys CFO
Karen Hoguet told investors
that the firm will be investing at
least $1.2 billion into capex for
the next ten years.

Recommendation
April 21, 2015 stock price: $67.03
Our analysis stock price: $74.67
Recommendation: Buy

Sensitivity Analysis
Terminal Real Sales Growth
-Affects the discounted terminal FCF
-Moderately sensitive

WACC
-Includes market risk premium and beta
-Sensitive
-However, we dont believe WACC will
change substantially in the future

Inflation
-Includes nominal sales growth and
growth of financial statement items
-Assumed inflation rate of 3%
-Moderately sensitive