Topline: Macy’s—the largest department store in the U.S.—has struggled in recent years thanks to a declining retail industry and now global trade pressures. Although the outlook going forward is far from rosy, the company is cutting costs and updating its stores in a bid to become relevant again.
- Macy’s stock is down 50% in 2019, markedly lagging the rest of the S&P 500 since January. In fact, Macy’s is one of the worst performers in the index so far this year. The stock currently trades near $15 per share, down from its $40 high in 2018. The 160-year-old company’s valuation has almost halved since then, falling from $8 billion in January to $4.8 billion now.
- Last August, Macy’s second-quarter earnings fell way below analysts’ expectations: Profits took a big hit after the company was forced to take heavy markdowns to clear the rest of its spring inventory. The company also reported that sales had risen only 0.2% from a year earlier and cited “fashion misses” and a “decline in international tourist spending” as other reasons for the declining earnings.
- While CFO Paula Price said on a call with analysts that “consumer spending continues to be healthy,” the lowered forecast for the rest of the year was due to macroeconomic uncertainties like global tariff pressures and a declining retail sector—things Macy’s “cannot control.” Macy’s did not immediately respond to Forbes’ requests for comment.
- The slow death of traditional retailers—particularly department stores—has certainly hit Macy’s, which have closed more than 100 stores and cut thousands of jobs as mall traffic falls and customers increasingly switch to online shopping. This trend has also hit other retailers, which have similarly struggled and lowered their outlooks this year. Macy’s earnings triggered a broader sell-off among retail stocks like Nordstrom, JCPenney and Kohl’s earlier this summer. Shares of those companies are down 33%, 27%, and 28% for the year, respectively.
- Despite a grim outlook, there are some signs for optimism going forward. Macy’s identifies women shoppers younger than 40 as a key growth “opportunity” to improve its sales. The company has also spent heavily on updating and remodeling its stores, making more of a switch to digital features and an online business.
What’s more, earlier in September, the department store giant announced a new cost-savings plan from targeted promotions and better pricing, through which it aims to save $400 million to $550 million annually for the next two to four years.
Further reading: Wall Street analysts are cautious about Macy’s stock, with two “buy” ratings, ten “hold” ratings, and five “sell” ratings, according to Bloomberg data.
- In a recent note, JPMorgan analyst Matthew Boss puts the stock’s price target at $16; he writes that Macy’s remains “constrained by declining brick-and-mortar sales” and tight margins, especially as there is “no visibility toward a less pressured U.S. wholesale environment” in the near term.
- Credit Suisse analyst Michael Binetti, on the other hand, sees slightly more upside, putting the stock’s expected price at $19. While he identified the benefits of the new long-term cost savings plan, he wrote that “we remain concerned around Macy’s ability to raise prices to help offset recent cost pressures and the persistent tariff threat.”