Is Macy’s Comeback Real?

Although Macy’s, Inc. (NYSE:M) began as a department store chain, it has branched out to include all sorts of goods, from apparel and decoration to electronics and household items. 

The iconic Macy’s brand, which dates back to 1858, still ranks among the largest department store chains in the United States in large part because of its reputation for style and quality. Today its corporate umbrella includes 718 brick-and-mortar stores in 43 states.

But a long and tenured history isn’t necessarily enough to stand firm in the face of weakening macroeconomic conditions and consumer spending on discretionary items. Yet Macy’s stock has delivered over 50% returns over the past six months and has a market capitalization of about $5.4 billion. 

So will the stock bounce back to old highs?

Why Did Macy’s Struggle?

The challenge Macy’s constantly faces is that it must keep up with changing clothing tastes, as well as more competitive brands entering the marketplace, and evolving retail dynamics.

The threat from rivals has proven very real. Competition from large companies, such as Amazon, with better prices and convenience have also added to Macy’s woes. Online upstarts are a threat too. Everything from RentTheRunway to ThredUp are competitors lying in waiting.

Sales have come under pressure, too, from economic uncertainties, which took their toll on consumers who curbed their spending levels.

The last fiscal year saw sales declining 5.5% from 2022 to $23.1 billion, while digital sales went down by 7% and brick-and-mortar sales fell by 5%.

Macy’s reported a loss of 26 cents per share for the fiscal fourth quarter, which ended on February 3. This was a shift from the net income of the company a year ago at $1.83 per share. The bottom line was negatively affected due to a one-time impairment charge and restructuring costs.

Last year’s net income fell to $105 million as compared to the $1.18 billion of the previous year, and the adjusted net income declined from $1.26 billion to $973 million. It had an adjusted EPS of $3.50 compared to $4.48 a year ago.

Macy’s has resorted to store closures, cost-cutting initiatives, and strengthening online channels but has yet to reverse the domino of falling sales.

What Are Macy’s 5x Growth Business Strategies?

Last year, Macy’s implemented five-fold growth strategies aimed at fostering long-term sales growth. These strategies included:

1. Reimagining private brands,
2. Expanding small format locations for Macy’s and Bloomie’s,
3. Growing the digital marketplace,
4. Enhancing luxury offerings, and
5. Refining personalized offers and communication.

Principal components of the annual strategy implementation were introducing the On 34th private brand, refreshing I.N.C., opening new small format stores, expanding the digital marketplace with Bloomingdale’s and Macy’s, celebrating Bloomingdale’s 50th anniversary, and testing multi-touch communications.

Among the major successes were the growing revenues at Bluemercury, and the showcasing of the top-notch luxury stores, all of which combined to demonstrate Macy’s could adapt to consumers changing preferences.

Management has stated that the firm expects to begin scaling its tailored offers and communications in 2024, following a year of test-piloting.

“A Bold New Chapter”

Macy’s shared its new development approach, “A Bold New Chapter,” as a means of reviving its financial performance and increasing shareholders’ value.

In the following three years, the department store chain plans to consolidate its brand by closing around 150 underperforming stores and expanding the number of small-format outlets across the country.

Management also plans to refine product assortments and implement some initiatives, including the new First 50 pilot program. For the first time in 2023, the company implemented the concept of a pilot run for incubator locations and tested a few applications, such as elevated assortment, improved visual presentation, and additional staff members for certain stores.

The organization is now running a pilot across 50 locations, and the insights are expected to be broadly leveraged in more locations at the beginning of fiscal year 2025.

The company has plans to accelerate digital expansion, personalize communications with consumers, and grow media network and marketplace.

Furthermore, management is aiming to roll out new luxury segments, particularly Bloomingdale’s and Bluemercury, as well as to increase the number of locations, remodel existing ones, and promote omnichannel experiences.

The current plan is to introduce 15 new Bloomingdales stores and 30 Bluemercury locations as well as to remodel some 30 locations during the next three-years. In tandem, management has its eyes set on growing new and existing markets.

In order to improve the efficiency of processes, an eagle on supply chain issues has been cast in order to optimize fulfillment processes, and invest in scalable technological platforms.

The company is meaningfully embarking on the “A New Bold Chapter” vision, which is expected to be an important transition period in fiscal 2024, underpinned by the significant investments outlined.

Will Macy’s Stock Recover?

It’s unlikely that Macy’s stock will recover for former highs but analysts do forecast that it can still rise by as much as 11% to a consensus price target of $21.39 per share.

On a multiples basis, the company is trading at 7.24x non-GAAP forward earnings, a discount relative to its peers. In addition, the stock is currently trading at 0.23x forward sales, about 73% lower than the industry average. 

The positives include 7 analysts recently upgrades their earnings estimates for the stock and net income is forecast to grow this year.

The company’s long history of paying dividend is also a positive. Currently, Macy’s dividend yield is 3.52% but it has seen a 15% CAGR decline in dividend payouts over the last five years.

A majority of analysts rate that stock as a Hold and that seems largely due to the fact that the some bold initiatives are in the pipeline but the proof largely lies in the pudding as to whether they will prove effective, and to what degree.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.