Macy’s (NYSE:M) is trying to reinvent itself. It’s an exciting project but one that isn’t likely to make a huge difference for M stock.
Market by Macy’s, a stripped-down version of the Macy’s shopping experience, aims to bring the troubled department store back to where the shoppers are, suburban strip malls.
The company has opened two locations so far in the Dallas-Fort Worth area, and early results are promising.
A recent Placer.ai study of foot traffic found the new store much more popular than other nearby apparel retailers, even while Macy’s main stores circle the drain.
But the stores aren’t big enough, and there aren’t enough of them to move the needle on Macy’s results (expected Feb. 23). Analysts expect net income of 13 cents per share on revenue of $6.49 billion, but the “whisper number” they’re telling their best customers on earnings is 40 cents.
The Turnaround Plan and M Stock
If Macy’s can start to make money again, M stock will look dirt cheap.
Macy’s stock will open at around $15.50 today. That’s a market cap of under $4.7 billion, on expected fiscal 2021 sales of $17 billion. Successful retailers like Walmart (NYSE:WMT) and Target (NYSE:T) have market caps close to their sales figures, but they didn’t lose $3.4 billion in a pandemic as Macy’s is expected to.
The shares are trading near the level they were at when Macy’s delivered its last dividend of nearly 38 cents per share a year ago. You can look at a one-year chart and see it as a big comeback. Or you can take it out to two years and see it’s down 40%, and more than 60% over five years.
Macy’s posted smaller losses than expected during the pandemic, thanks in part to its e-commerce effort, which grew 53% during the year. CEO Jeff Gennette had talked for years of Macy’s becoming an “omnichannel” retailer, and it finally paid off.
But online sales can’t make up for the mall’s failings. Macy’s had revenue of over $25 billion/year before the pandemic. A big Christmas will only get it back to even.
Shopping malls were dying before the pandemic, and the virus put the final nail in the coffin. That’s why the Market stores, first launched as the pandemic hit, are so important. Macy’s is continuing to close mall units and will shutter 125 of them over the next three years.
Management believes the new format can be a winner. The plan is to launch a Bloomingdale’s in a similar format, in Fairfax, Virginia, this fall. The new store will carry the name “Bloomie’s.”
The Bottom Line on M Stock
Analysts no longer believe in Macy’s. Only seven now follow it and three say “sell.” Their average price target for the stock is 30% below its current price.
Macy’s is looking at a multi-year transformation effort in a world where retailing can change with internet speed. The company remains saddled with mall real estate, its strip mall outlets can’t do the volume the old stores could, and e-commerce is constantly facing new competition.
A recent feature on the “30 best online shopping sites for women” from The Trendspotter didn’t even mention Macy’s, although it did feature rivals like JW Nordstrom (NYSE:JWN) and (of course) Amazon.com (NASDAQ:AMZN).
Macy’s, in short, is in the bargain bin for a reason. Its reinvention is smart, but it’s not moving at the market’s pace. Unless someone buys it for its infrastructure, don’t expect big gains in 2021.
At the time of publication, Dana Blankenhorn directly owned shares in AMZN.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.