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Macy's Down More Than 10% YTD: Can Efforts Aid Turnaround?

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Shares of Macy's, Inc. (M - Free Report) have lost approximately 13% so far this year compared with the industry’s growth of 2.1%. The stock slid following dismal sales from the holiday season, which coincides with the company’s fourth-quarter fiscal 2018. Although the company posted positive comps during the final quarter, results failed to live up to expectations. Net sales also declined from the year-ago quarter. Also, the company’s gross margin was affected by lower merchandise margin due to inventory clearance. Apart from these, the company’s fiscal 2019 view isn’t much inspiring.

For fiscal 2019, Macy’s anticipates net sales to be roughly flat year over year. Comparable sales (comps) on an owned plus licensed basis and comps on an owned basis are projected to be flat to up 1%. In fiscal 2018, comps on an owned plus licensed basis grew 2%. Management envisions adjusted earnings per share in the range of $3.05-$3.25 (excluding asset sale gains, EPS is expected in the $2.80-$3.00 range) for fiscal 2019, down from $4.18 reported in fiscal 2018. Moreover, management expects gross margin to be down moderately in the first half and marginally in the second half of fiscal 2019.



Efforts Well on Track

In an attempt to boost sales, profitability and cash flow, Macy’s has been focusing on price optimization, inventory management, merchandise planning, private label offering and omnichannel capabilities. Also, the company has undertaken restructuring actions, which involve streamlining the upper management teams. These efforts are likely to result in annual cost savings of $100 million starting fiscal 2019. The company is also committed to strengthening its balance sheet by reducing debt.

Moreover, the company highlighted that it will proceed with its Backstage, Vendor Direct, Store Pickup, Loyalty Program, Growth150 stores, ‘mobile first’ strategy and Destination Businesses to drive growth. It will invest in areas where it has a strong foothold, like dresses, fine jewelry, big ticket, men’s tailored, women's shoes and beauty. The company’s “Buy Online Pickup in Store” and "Buy Online Ship to Store" initiatives are also gaining traction.

Macy’s acquired STORY, a concept store, to enhance in-store customer experience. The company has added a new feature to its mobile app called Mobile Checkout, which allows customers to scan bar codes of items and pay via smartphones. Macy's is steadily expanding its virtual reality furniture gallery. The company has taken a minority stake in b8ta, a technology retailer that allow customers to try, buy and learn about new tech products. The investment is seen as an initiative to enhance customer shopping experience at The Market @ Macy's, a store-within-a-store retail concept. It plans to double the number of such stores.

Backed by the aforementioned tailwinds, we expect this Zacks Rank #3 (Hold) stock to return on its growth trajectory. We notice that in a month, shares of Macy’s have risen 8.9% compared with the industry’s growth of 5.5%.

3 Stocks to Watch

Foot Locker, Inc. (FL - Free Report) delivered average positive earnings surprise of 9.7% in the trailing four quarters. It has a long-term earnings growth rate of 9.4% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco Wholesale Corporation (COST - Free Report) has a long-term earnings growth rate of 8.9% and a Zacks Rank #2 (Buy).

Target Corporation (TGT - Free Report) has a long-term earnings growth rate of 6.3% and a Zacks Rank #2.

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