For Macy’s Inc (NYSE:M) shareholders, this was a very Merry Christmas. While Macy’s stock closed below $18 in early November, it’s fetching over $25 as 2018 opens, propelled by reports of strong Christmas season sales.
They were not alone. Vetr, which crowd sources its stock ratings from the views of many investors, now has a strong buy on the stock. A rise to $30 per share or more is now predicted. Several brokers raised their positions in the stock.
Is it time to sound the all clear on Macy’s?
Is This Sustainable?
A great Christmas is always a good story, but investors need to see a trend before they shop, and the trends at Macy’s are still negative.
Macy’s stock peaked at $26.85 on Dec. 26 and has been the S&P’s biggest loser during the year’s last week, falling 2% in the last day of trading for the year. For all of 2017, Macy’s stock was down 29%.
Macy’s has long had a strategy of combining online and offline sales, which it dubs “omnichannel,” and it hired 7,000 seasonal workers this year to handle the order flow. The National Retail Federation predicted Christmas sales could be up nearly 4% when they are calculated in February.
With the retirement of long-time CEO Terry Lundgren this month, a new Macy’s investor is betting on Jeff Gennette, whose “North Star” strategy is a cover for cutting operating expenses and delivering “experiences” to shoppers, not just products.
Macy’s “sales, general and administrative expenses,” known as SG&A, were down almost $100 million between the October quarter of 2016 and 2017, and earnings per share more than doubled as a result. But that doubling was from 5 cents per share to 12 cents. It’s hard to see how much further the company can go on cost-cutting alone.
An Unfriendly Trend for Macy’s Stock
The long-term trend remains unfriendly.
Macy’s, like other mainline department stores, depends on women shopping for clothes, jewelry and cosmetics for much of its sales. Women who work don’t have time to shop in stores. Like their husbands, they buy online.
This has been the case for some time. I turn 63 this year, and my wife has preferred catalogs and online buying throughout her career to save time for other things. In the 1980s, this was unusual. Today, it’s the norm.
Shopping malls are where people spend time. It’s not where they save time.
Most buyers prefer to either go with a list to stores like Costco Wholesale Corporation (NASDAQ:COST) or target individual shops in new outdoor “lifestyle centers” that have no anchors, unless you count restaurants and upscale groceries. These buyers park next to where they’re going, not a half mile away, and spend just a few minutes in a shop, knowing what they’re there for.
If retail is all about location, Macy’s is in the wrong location.
How to Make Money on Macy’s
There are ways to make money on Macy’s.
One way is through bonds. Macy’s is not threatened with bankruptcy, but some of its debt can now yield about 5%, which for an income investor is golden.
Another way may be through options, taking short-term advantage of the present shine on Macy’s stock, betting that it could rise more in the short term but will likely begin falling again when the snows are gone.
Macy’s problem today isn’t really the death of retail but the death of the mall. As Will Ashworth has written, it’s nostalgia. Take your young kids there so they’ll remember it when they’re older, or go with your spouse to swap stories of the good old days.
Just don’t buy Macy’s stock expecting a big gain.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance, The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares in companies mentioned in this story.