At this point, the woes for department store giant Macy’s Inc (NYSE:M) have been well-known. Traditional retail is in a funk as more and more shoppers migrate to online and e-commerce sites. That fact has been persistent in Macy’s stock’s continued lower sales and rough earnings reports over the last year or so.
And that’s not going to change when Macy’s reports earnings on Friday.
But that’s OK. For Macy’s stock, it’s all about showing improvement and that its turnaround is starting to move forward in a positive direction. That’s all investors need to see at this point to send the stock moving higher. And they just may get it.
Macy’s Stock Looks for Hope
On the surface, things look pretty bleak for Macy’s stock. Brick-and-mortar retail has suffered declining sales versus online foes like Amazon.com, Inc. (NASDAQ:AMZN). But while some retailers have navigated the waters successfully, department stores haven’t been so lucky. M’s shopping mall rivals Sears Holding Corp (NASDAQ:SHLD) and J C Penney Company Inc (NYSE:JCP) seem to be knocking on death’s door.
For Macy’s, the story is similar. So far this year, M has seen its sales decline by about 4%. That follows a 3.5% decline in 2016 and 3% drop in 2015. Not only are sales dropping like a stone, but they are accelerating. This is not a good sign even in the slightest. And with that, it’s easy to see why Macy’s stock has plunged from a high of $73 down to less than $20 per share today.
To combat the problem, Macy’s has undergone a huge restructuring and transformation effort.
Macy’s closed 30 underperforming locations last year, underwent cost-containment programs, invested heavily in omnichannel and online strategies and moved Macy’s Backstage off-price business to the forefront. And this doesn’t include the firm’s forays into monetizing its vast real estate portfolio. The retailer recently sold excess space at its store in downtown Seattle for $50 million, while a similar deal at its flagship store in Chicago will fetch more than nine figures.
All of these are necessary steps to keep the venerable retailer and mall staple going. The question is whether or not, they are finally working.
A Big Fat Maybe for Macy’s Stock
The word on the street today is these efforts aren’t exactly working wonders. Macy’s EPS and revenues have been pretty lousy so far in 2017. But the key is that the sales decline moderated in the second quarter of this year. Sure it still was down. But it was only down 2.8% vs. 5.4% in the first quarter.
Analysts expect another year-over-year decline of about 5.6% to $5.31 billion this quarter. The third quarter is historically bad for retail as shoppers hold back for holiday time. However, Macy’s efforts to stem the losses could reveal themselves just in time for the critical fourth quarter. Last quarter, estimates were far worst, and Macy’s did manage to beat. Moreover, earnings are projected to improve roughly 12% to 19 cents per share from the year-ago period as cost cutting and restructuring take hold.
If Macy’s is able to come in line on EPS and even show a slight improvement to its sales and beat estimates for the quarter, the stock should fly higher. It’s a big fat if, but one that seems better when looking at trends so far this year. And it just might get there with asset sales and its new omnichannel efforts.
Macy’s Is Still a Gamble
Heading into earnings, M stock is still a gamble, albeit a calculated one. Sales loss trends seem to be mitigating, and earnings should rise when it reports. At this point, that’s what investors are looking for. We need M to kick the can one more quarter before the holiday shopping blitz is upon us. If Macy’s can keep its momentum going through the fourth quarter, then its turnaround is the real deal. If not, Macy’s stock will be regulated the dustbin of retail just like Sears and JCP.
But for right now, it seems like M stock might just be moving in the right direction.