Macy’s Inc (NYSE:M) has suffered as the retail landscape has been undergoing a fundamental change. But will a new M stock turnaround plan succeed in rejuvenating the troubled merchant?
With digital transformation in shopping and consumers splurging online, store and mall traffic has been hit hard. As a result, most retailers, including big-box, are struggling to compete with the e-commerce channels of Amazon.com Inc. (NASDAQ:AMZN) and are being forced to trim store count to focus more on an online model. Macy’s and M stock, which is not fully immune to these retail headwinds, is leaving no stone unturned to be back on growth trajectory.
So what’s Giving Macy’s and M stock such a tough time?
Macy’s waning top and bottom-line performance has been a major concern. A look at M stock performance in fiscal 2016 unveils that net sales declined 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 quarter of fiscal 2017, the scenario was no different, as net sales and earnings per share declined 7.5% and 40%, respectively.
Additionally, management at its first quarter conference call had stated that it expects total sales to decline in the band of 3.2–4.3% and expects comps on an owned plus licensed basis to decrease in the range of 2–3% during fiscal 2017. This Zacks Rank #3 (Hold) company also projected adjusted earnings in the range of $2.90–$3.15 per share compared with $3.11 posted in fiscal 2016.
Further, this department store retailer warned investors that its margins may continue to feel the pinch of tough retail scenario. Management now envisions fiscal 2017 gross margin to contract 60–80 basis points, while for the second quarter it expects the same to shrivel by 100 basis points from the year-ago period. We noted that gross margin in the first quarter had contracted 100 basis points to 38.1%.
A glimpse of M stock price movement reveals that it has plunged 23.7% in the past three months compared with the Zacks categorized Retail – Regional Department Stores industry’s decline of 15.2%.In contrast, the Zacks categorized Retail-Wholesale sector has advanced 4.6%.
Macy’s Action Plan – Can it Save M Stock?
Macy’s has announced a slew of measures revolving around stores closures, cost containment, real estate strategy and investment in omni-channel capabilities to enhance sales, profitability and cash flows. Additionally, management is developing e-commerce business, Macy’s Backstage off-price business along with expanding Bluemercury and online order fulfillment centers.
Management is realigning operations and focusing on curtailing costs. It informed that these measures are likely to result in annual savings of about $550 million, and would allow the company to invest an additional $250 million in enhancing digital business, store-related growth initiatives, Bluemercury, Macy’s Backstage and China.
If you are interested in the retail space you can consider better-ranked stocks such as G-III Apparel Group, Ltd. (NASDAQ:GIII), Tilly’s, Inc. (NYSE:TLYS) and The Children’s Place, Inc. (NASDAQ:PLCE). All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
G-III Apparel has a long-term earnings growth rate of 15%.
Tilly’s delivered an average positive earnings surprise of 120.4% in the trailing four quarters and has a long-term earnings growth rate of 13%.
Children’s Place delivered an average positive earnings surprise of 36.6% in the trailing four quarters and has a long-term earnings growth rate of 8%.
