Macy’s Stock – Macy’s, doing a “turnaround twirl”

by Peter Hunt (peterhunt.com)

With a history that spans from 1858 to the present day, a portfolio of 800 stores that spans the nation, Macy’s can rightly be considered by many as “America’s department store.” The business is comprised of both Macy’s and the premium brand Bloomingdale’s – the enduring slogan, “a store like no other”, both stores have well-established web platforms. Beyond department stores, the company includes Bluemercury, widely recognized as “the nation’s largest and fastest growing luxury beauty products & spa chain,” to quote the company. Additionally, there are licensed operations including Macy’s – Abu Dhabi with Bloomingdale’s in Kuwait and Dubai.

Macy’s seem to have got a lot right in recent years, one factor and a big plus for Macy’s being, Jeff Gennette, CEO & Chairman, who joined the company in 1983. It’s probably fair to say that Mr. Gennette leads the business with a genuine understanding of the company from the ground up. With around 130,000 employees and a business influenced by the customer experience – the last few yards are where retailers win or lose, this is no place for an aloof hands-off financial engineer.

Macy’s evolution of the department stores, physical retail and online presence are driven by radically changing consumer whims. Contrast this to JCPenney, where former Apple retail chief Ron Johnson was appointed in 2011 and a rather different strategy and outcome ensued. The impact of the 2008 financial crisis hurt many retailers as consumers became increasingly price sensitive with many shifting their reduced spending power towards discount retailers – never to return. With retail malls in decline and online spending posing an ever larger threat, these concerns cannot be overlooked, Already at least 5,600 retail stores have closed in 2019 alone. This puts into perspective how hard the battle is for bricks and mortar retailers to survive. They’ve got to fight back and fight back hard.

Macy’s in Numbers (26-3-2019) Yahoo Finance 

•  Market Capitalisation $7.36 billion
• P/E 6.72
• Dividend Yield 6.33 (Ex-dividend 14-3-2019)
• Number of Employees 130,000 (seasonal fluctuations apply)

Dividend Yield

Like many a bricks & mortar retailers, Macy’s have sought the sale and leaseback strategy of premises to pay down debt. Activist investors are predictability applying pressure for the company to unlock cash. This is a well-trodden path, but you can only sell-off real-estate assets once. Aside from spinning-off assets to free-up capital, stores have been culled from the portfolio as the business attempts to adapt to the changing landscape. Paying a dividend of 6.33% might on the face of it seem attractive. (Yahoo Finance). But, playing the sale and leaseback card, means sustainability of the dividend is the question investors must consider, that depends on revenues and growth.

North Star Strategy

The company has embraced a North Star Strategy heading into 2019. Macy’s is focused on cost-cutting rather than investment online as a priority. The Motley Fool summarised the conundrum of strategic direction in a recent article highlighting that digital Macy’s platforms have seen sales grow for 38 quarters at double-digit levels. This contrasts with major competitors such as Target and Walmart who are upgrading digital and delivery platforms in an attempt to keep pace.

The North Star Strategy aims to save $100 million dollars. Retail Drive published that Macy’s cut roughly 100 VP’s in Q1, not just aimed at reducing costs but also at speeding up decision making. The business seems to be committed to a lean and mean future. But, you can only strip out costs so far before the business is negatively impacted. Where is the growth? A turnaround can turn into a tailspin without a clear path to execute a growth strategy.

Looking Forward into 2019 

100 stores targeted for refurbishment.

Backstage stores, Macys overstock and factory outlet brand is scheduled to launch 45 new stores to supplement the 165 already in operation. Backstage is expected to boost revenue when applied to that of the regular Macys and Bloomingdales stores.

Store pick-up, Macys click & collect service now accounts for 25% of sales.

Mobile development – Macy’s is placing a priority on the App sales environment introducing an upgraded App. this year.

Growth – 5 segments have been identified as areas for potential growth; fine jewellery, big-ticket men’s tailored clothing, women’s shoes, and beauty products.

Who owns the customer is rather important. Many a retailer has been a victim of “comparisonitis” as the computer browser influences buying trends and price dissolves brand and customer loyalty. Perhaps the Macy’s vision of high-quality well-merchandised stores will win new loyalties? Time will tell.

“Worst Day in History” 10th January 2019

On 10th January 2019, CNN Business stated that Macy’s had “its worst day in history” with the stock plunging 18% after the company reported sluggish sales in November and December 2018. It is clear that the holiday season, particularly Black Friday and Cyber Week has become critical for retailers. Macy’s CEO Mr. Gennette alluded, that weakness in areas like women’s sportswear and jewellery were in part responsible. Facing the macro headwinds of e-commerce and the decline of malls coupled with signs of a slowing economy will have a lot of fingers crossed hoping that consumers will still appreciate Macy’s and keep the tills ringing. But is a hopeful attitude and crossed fingers going to serve Macy’s shareholders?

US Economic Outlook 

For those in work, wages are reported as rising, gas prices and interest rates are cheap. The fly in the ointment is unemployment and it’s quite a bone of contention. Although official statistics reports low unemployment, the how the statistic derived is open to question. “Roughly 95 million Americans are not employed”; CNN Business – Patrick Gillespie reported in January 2018. At that time, this number was made up of 44.5m retired, 14.5m in some form of education or training, 12.8m carers and 15.8m sick or disabled, with a further 7.4m unaccounted for. Depending on Millennial spending is a notoriously difficult ask, with a difficult demographic balance. The consumer segment of the economy is far from predictable and will not be underestimated by any retailer large or small and gaping spaces of shuttered retail sites are there to testify to a very challenging market.

Footnote 

Reviewing various analysis commentary and company statements together with a range of media, one name was strikingly absent when evaluating Macy’s competition – net-a-porter.com. Almost as if the last 20 years hadn’t happened, “who owns the customer”, remained a question without an answer. Perhaps the answer to this question is; could it be that the “shop-front” has moved irreversibly towards the likes of Instagram and Pinterest? From high street to eye street.

This blog is not investment advice. It is based entirely on personal opinion, and is not a solicitation or offer of investment advice of any kind.  Consult a professional investment advisor before making any investment decisions.

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