If you dial back the clock a year or so prior to every corporate bankruptcy, there is almost always some radical turnaround plan that didn’t work. However, Macy’s (M), Microsoft (MSFT) and CONSOL Energy (CNX)’s turnaround efforts might end up paying off handsomely for shareholders in the long run.
E-commerce retailers, led by Amazon.com, Inc. (AMZN) have hit traditional retailers like a freight train. In fact, a number of popular retailers have already fallen by the wayside. Since the beginning of 2015, Fredrick’s of Hollywood, American Apparel, Wet Seal and Pacific Sunwear of California are just a few of the retail names that have filed for bankruptcy.
Macy’s revenue in fiscal 2016 was down 2.2% from where it was three years prior, and was down 3.7% last fiscal year alone.
To combat slumping sales, Macy’s has been shutting down its least-profitable stores. It has also been investing heavily in its own e-commerce platform and “Backstage” outlet store concept. In addition, Macy’s has been expanding internationally, especially in China.
Early signs indicate that the company’s “My Macy’s” initiative, which involves customized service, marketing and merchandise for local markets, has been working. If Macy’s can find the same type of success with its other turnaround initiatives, the stock could end up being a huge bargain at current prices.
With a ship as large as MSFT, changing direction can be a slow and painful process. But overall, MSFT’s transformation from a business that revolves around on-premise software and Windows to a company with cloud and mobile services at its core has been rather impressive.
MSFT’s Azure cloud services segment has stepped in with nearly 100% Y/Y revenue growth just as the bottom has fallen out of the company’s PC software business.
Last quarter, PC shipments fell 9.6%. That quarter marked the sixth consecutive quarter of falling shipments and produced the lowest total PC shipments of any quarter in nearly a decade.
Yet somehow, PC software giant MSFT has managed to navigate the waters of change and deliver a 117% stock gain for investors in the past five years. Even after the company issued disappointing guidance for the remainder of 2016, shares are still trading closer to all-time highs than 52-week lows.
CONSOL Energy (CNX)
Fossil fuel went out of style long ago in the mind of the public. Unfortunately, it will be decades before the world’s dependence on fossil fuels could start to subside.
In the meantime, environmentalists may be stuck with the likes of natural gas and oil. But coal is by far the most environmentally unfriendly form of energy, and it has so far been the largest victim of clean energy and energy efficiency.
CNX decided early enough in the game to make the transition from coal to natural gas, and it appears to be starting to pay off.
After falling 77% in 2015, CNX’s shares are now up 81% so far in 2016. CNX has sold off all but its most profitable coal operations. In Q1 the company reported that gas production was up 36% Y/Y, while costs were down 22%. Those kinds of numbers are just what investors looking for a turnaround like to see.
Disclosure: As of this writing, Wayne Duggan was long CNX.