Can This Retailer Win the Department Store Battle?

Continuing to move along from strength to strength, Macy's turned in a solid quarter, beating analyst expectations. The department store's stock has increased 25% over the past 12 months, easily beating out the S&P 500. Macy's has been on an almost straight path since the end of 2008, when it hit a 10-year low point as the economy turned into a festering cesspool. Today represents a new 52 week high for Macy's, and it looks like there's plenty left to come.

The basis for the success
To quickly swing through the ropes that got Macy's to today's announcement, let's start with sales. Comparable sales were up 3.8%, a figure that includes online sales as well. One of the beauties of this quarter's increase was that it came from business as usual. There was no crazy special, no huge change -- just straightforward selling to customers.

Macy's distilled those sales down to earnings of $0.55 per share, which beat out analysts' expectations of $0.53. Operating margin hit 6.8%, up from 6.4% for the same quarter last year. The bump in earnings was enough encouragement for management to declare an increase in the dividend as well, raising it $0.05 to $0.25.

Macy's success in context
Macy's growth was positive, and it put it closer to the top of the department-store pile. Firmly crushed down at the bottom is J.C. Penney . The company announced some preliminary results last week, and as usual, things looked rough. Comparable sales for the first quarter are forecast to drop 16.6%. That's going to drag total sales down 16.4% and should firmly cement J.C. Penney as "worst of breed."

Sitting on top of the pile is Nordstrom , which has had fantastic success over the past few years. In its last quarter, comparable sales were up 6.1%, with total sales up 6.3%. That growth came from Nordstrom's focus on customers and its constant increasing of the ways that customers can interact with it. Mobile shopping and mobile registers in-store are making it easier for customers to shop, and it's driving sales across the board.

What's next for Macy's?
Macy's is on the way, and investors should be happy with its current position. The company has had some help from the weakness of competitors -- read: J.C. Penney -- but management has said that that support has been minimal. Macy's is basically doing it on its own, and it's doing it well.

For the rest of 2013, be on the lookout for similar comparable-store gains. Macy's has forecast 3.5% for the full year, but I wouldn't be surprised by anything up to 4%. Investors should also keep an eye on the new brands that Macy's is launching this year, as those lines will give customers new reasons to visit the stores.

As a final note, Macy's opened just one store in the first quarter, and expansion is going to continue at a very slow rate. I'm excited about management's outlook on store growth, actually, especially given a comment from CFO Karen Hoguet at an investment conference earlier this year: "Omnichannel changes [the need to build new stores to grow], and we're able to grow significantly more than any new store would add, and without the capital." If Macy's can deliver on that idea over the next few years, then the company should be able to push its margins up and deliver even more to investors.

What about Penney?
J.C. Penney's stock cratered under Ron Johnson's leadership, but could new CEO Mike Ullman present the opportunity investors have been waiting for? If you're wondering whether J.C. Penney is a buy today, you're invited to claim a copy of The Motley Fool's must-read report on the company. Learn everything you need to know about Penney's turnaround -- or lack thereof. Simply click here now for instant access.

The article Can This Retailer Win the Department Store Battle? originally appeared on Fool.com.

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