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Macy's, Inc. (M - Analyst Report) and Martha Stewart Living Omnimedia Inc. (MSO - Snapshot Report) have settled their legal dispute over latter’s deal with department store retailer, J. C. Penney Company, Inc. (JCP - Analyst Report). However, none of the companies disclosed terms of the deal.   

Macy’s, which competes with Dillard's Inc. (DDS - Analyst Report), did not welcome the licensing deal signed between J. C. Penney and Martha Stewart in Dec 2011. The company claimed that Martha Stewart’s agreement to sell certain home and lifestyle merchandise at J. C. Penney’s stores violated the exclusive pact that it shared with Martha Stewart. Consequently, it filed a lawsuit in the New York State Supreme Court against Martha Stewart for the breach of contract. It also dragged J. C.Penney to court over the deal.

Later, under a settlement, J. C. Penney was forbidden to sell any products under Martha Stewart brand but was allowed to sell selected products designed by Martha Stewart under its ‘Everyday’ label. However, Macy’s legal dispute with J. C. Penney is far from over.

Last year in October, J. C. Penney has agreed to return the 11 million shares (purchased for $38.5 billion) – which represent 16% stake – it acquired at the time of entering the deal with Martha Stewart. After the stock sale, J. C. Penney will cease to be part of the Martha Stewart’s board of directors.

We believe that the settlement is likely to put an end to high litigation expenses for both the companies. Macy’s as well as Martha Stewart fared decently in the past 4 quarters and beat the Zacks Consensus Estimate in 3 quarters with an average beat of 5.8% and 43.1%, respectively.

However, for J. C. Penney, troubles continue to linger. Though there have been signs of improvement in the company’s performance, it continues to post losses. The impending verdict on the legal dispute with Macy’s is likely to add to its financial woes.

Shares of Macy’s witnessed a marginal decline and closed at $53.39. J. C. Penney’s shares fell nearly 3.0% to close at $8.88. On the other hand, shares of Martha Stewart rose 8.8% to close at $4.57.

While Macy’s carries a Zacks Rank #2 (Buy), both J. C. Penney and Martha Stewart have a Zacks Rank #3 (Hold).

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