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Macy's (M) Steps Up Efforts to Counter Retail Headwinds

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The retail landscape has been undergoing a fundamental change, with technology playing a major role and the focus shifting to online shopping. This transition in shopping pattern is compelling retailers to rapidly adapt to the changes in the ecosystem. Retailers are left with no option but to keep pace with the changing retail scenario or get eliminated. They are now focusing more on enhancing omni-channel capabilities, optimizing store fleet and restructuring activities. Although Macy's, Inc. (M - Free Report) is not fully immune to retail headwinds, this department store retailer is leaving no stone unturned to be back on growth trajectory.

What’s Giving Macy’s a Tough Time?

Waning Top & Bottom-Lines

Macy’s waning top and bottom-line performance has been a major concern. A look at the company’s performance in fiscal 2016 unveils that net sales declined 7.4%, 3.9%, 4.2% and 4% in the first, second, third and fourth quarters, while earnings per share plunged 28.6%, 15.6%, 69.6% and 3.3% during the respective quarters. During the first and second quarters of fiscal 2017 the scenario was no different, as net sales declined 7.5% and 5.4%, while earnings per share fell 40% and 11.1%, respectively.

Soft Comps & Earnings Projection

Macy’s continues to project total sales to decline in the band of 3.2-4.3% and expects comps on an owned plus licensed basis to decrease in the range of 2-3% during fiscal 2017. The company also maintains adjusted earnings forecast of $2.90-$3.15 per share compared with $3.11 posted in fiscal 2016.

Management had warned investors that margins may continue to feel the pinch of tough retail scenario on account of stiff competition from other department store retailers such as Kohl's Corporation (KSS - Free Report) , Dillard's, Inc. (DDS - Free Report) and J. C. Penney Company, Inc. (JCP - Free Report) . Macy’s cautioned investors that its fiscal 2017 gross margin may contract 50-70 basis points.

Macy’s Action Plan

Macy’s has announced a slew of measures revolving around stores closures, cost containment, real estate strategy and investment in omni-channel capabilities to enhance sales, profitability and cash flows. Additionally, management is developing e-commerce business, Macy’s Backstage off-price business along with expanding Bluemercury and online order fulfillment centers.

Management is realigning operations and focusing on curtailing costs. It informed that these measures are likely to result in annual savings of about $550 million, and would allow the company to invest an additional $250 million in enhancing digital business, store-related growth initiatives, Bluemercury, Macy’s Backstage and China.

Macy’s recently announced the restructuring of its merchandising operations that includes combining of merchandising, planning and private brands divisions into one segment. As part of the restructuring, the company would incur one-time costs of approximately $20-$25 million in the third quarter of fiscal 2017. However, management expects to save about $30 million on an annual basis. The company anticipates saving about $5 million or approximately 1 cent a share in the final quarter.

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Macy's, Inc. (M) - free report >>

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Kohl's Corporation (KSS) - free report >>

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