Is Macy’s, Inc. (M) Staring at the Abyss?

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It’s official: Macy’s, Inc. (M) is in a serious rut and anyone holding Macy’s stock is going to need tremendous patience waiting for the department store operator to right itself.

Macy's Stock: Is Macy's, Inc. (M) Staring at the Abyss?After all, between merchandising missteps and macroeconomic headwinds, M stock hasn’t looked this vulnerable in years. Shares have collapsed over the last 10 months and a promising start to 2016 is petering out.

Yes, Macy’s stock continues to be battered by a strong dollar, which is taking a big bite out of receipts from international shoppers at flagship locations in Manhattan and elsewhere, but there’s more to the slump than that. There’s no way around it — Macy’s just doesn’t seem to have what customers want, and hasn’t for some time.

Sales have declined for five straight quarters in a row now. The slowdown in the most recent quarter was bad enough that Macy’s had to issue a profit warning.

The bottom line is that things are going to continue to get worse before they get better. From a statement by CEO Terry Lundgren:

“We are seeing continued weakness in consumer spending levels for apparel and related categories. In particular, our sales trend relative to expectations meaningfully slowed beginning in mid-March, and first quarter results are below our original outlook. Headwinds also are coming from a second consecutive year of double-digit spending reductions by international visitors in major tourist markets where Macy’s and Bloomingdale’s are key destinations, as well as a slowdown in some center core categories — further intensifying the challenges associated with growing topline sales revenue.”

The Future Looks Black for Macy’s Stock

We’ve said before that Macy’s is overplaying the impact of a strong dollar in order to distract investors from the far more serious problem of not being in touch with what shoppers want — or where they want to shop.

Retail sales gains have had their fits and starts over the years, but one sub-category only manages to disappoint: department stores. The market has to ask if Macy’s as a retail concept is getting close to the end of the line.

The most recent results for Macy’s stock aren’t very reassuring on that point. First-quarter sales fell 7.4% to $5.77 billion from $6.23 billion a year ago. Analysts on average were looking for Macy’s revenue to hit $5.93 billion, according to data from Thomson Reuters.

Macy’s adjusted earnings per share fell to 40 cents from 56 cents a share in the year-earlier period. That beat Wall Street’s forecast by 4 cents a share, but it doesn’t matter because the company slashed its profit forecast.

For the full fiscal year, M is targeting EPS of $3.15 to $3.40 a share. That’s far less than the prior view of $3.80 to $3.90 a share.

Whether it’s a stand-alone big box location or mall-based anchor tenant, departments stores are becoming less fashionable places to shop. Throw in the fact that apparel isn’t exactly the hottest retail category these days, and Macy’s stock is facing a hurricane of headwinds.

At some point, M stock might be cheap enough to warrant a new position, but we’re nowhere close to such levels yet.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/05/macys-stock-m-stock-abyss/.

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