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Macy’s Strategic Efforts Bode Well, Stock up 12% in a Month


Macy's, Inc.‘s M shares are riding high of late, driven by previously announced measures revolving around stores closures, cost containment, real estate strategy and investment in omni-channel capabilities to improve performance. In a month, the stock has gained 11.7%, almost in line with the industry. Let’s delve deeper and find out whether the stock has the potential to gain further or not.

Hidden Catalyst

We believe that the Zacks Rank #3 (Hold) company’s sustained focus on price optimization, inventory management, merchandise planning, and private label offering are the primary catalysts, facilitating in meeting customer-oriented demand as well as improving in-store shopping experience. In an attempt to increase sales, profitability and cash flows, the company has been taking steps such as integration of operations as well as developing e-commerce business and online order fulfillment centers.

In another move, Hal Lawton has been appointed as president of Macy’s. Lawton who previously served as the senior vice president in eBay North America, will directly report to the company’s CEO Jeff Gennette. At Macy’s, Lawton will be handling merchandising, stores, operations, technology, along with consumer insights and analytics.

Recently, this department store retailer announced the restructuring of merchandising operations that includes combining of merchandising, planning and private brands divisions into one segment. As part of the restructuring, it would incur one-time costs of approximately $20-$25 million in the third quarter of fiscal 2017. However, management anticipates saving about $30 million on an annual basis. Further, it expects saving about $5 million or approximately 1 cent a share in the final quarter.

Analysts view this restructuring activity as an effort to streamline operations, make decision making process much simpler along with managing inventory and pricing more efficiently. Further, analysts believe that with Lawton on board, the company expects to take its omni-channel business to next level with better integration of technology with brick-and-mortar stores.

Hurdles to Cross

Macy’s dwindling top and bottom-line results remain the primary concern for investors and this has gravely hurt the stock's performance in the past two years. A look at the company’s performance in fiscal 2015 unveils that net sales declined 0.7%, 2.6%, 5.2% and 5.3% in the first, second, third and fourth quarters, respectively. Maintaining the same chronological order, we note that earnings per share fell 6.7%, 20%, 8.2% and 14.3%, respectively. In fiscal 2016 net sales decreased 7.4%, 3.9%, 4.2% and 4% in the first, second, third and fourth quarters, while earnings per share plunged 28.6%, 15.6%, 69.6% and 3.3% during the respective quarters. During the first and second quarters of fiscal 2017 the scenario was no different, as net sales declined 7.5% and 5.4%, while earnings per share fell 40% and 11.1%, respectively.

Macy’s continues to project comps on an owned plus licensed basis to decrease in the band of 2-3% during fiscal 2017. On an owned basis, comps are expected to decline between 2.2% and 3.3%. The company anticipates comp on an owned plus licensed basis to decline approximately 2.5% in the third quarter. Management envisions total sales to decline in the band of 3.2-4.3% in fiscal 2017. The company projects adjusted earnings of $2.90-$3.15 per share for fiscal 2017. Macy’s warned investors that fiscal 2017 gross margin may contract 50-70 basis points.

Hot Stocks in the Retail Space Worth Checking Out

Investors interested in the retail space may consider better-ranked stocks such as The Gap, Inc. GPS, The Children's Place, Inc. PLCE and Guess?, Inc. GES. These stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Gap delivered an average positive earnings surprise of 9.3% in the trailing four quarters and has a long-term earnings growth rate of 8%.

The Children's Place delivered an average positive earnings surprise of 16.3% in the trailing four quarters and has a long-term earnings growth rate of 9%.

Guess? delivered has an impressive long-term earnings growth rate of 17.5%.

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