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The entrance to a Macy’s department store.
Jeffrey Greenberg | Universal Images Group | Getty Images
Macy’s has watched its shares lose well over half their value in the past five years. Its market cap is more than $1 billion smaller than Kohl’s, even though Macy’s still brings in higher sales annually than its rival.
Officers of the embattled department store chain will meet with investors Wednesday at the New York Stock Exchange. During the presentation, Macy’s has to prove its plans to lure shoppers are working, and that it can return to growing sales and earnings.
While the dropoff in Macy’s 2019 holiday sales wasn’t as bad as some had feared, it was still a decline. And it came as Macy’s has been experimenting with initiatives aimed at boosting sales, such as growing Backstage, its off-price business, and getting into resale clothing. How much of a contribution these efforts are making isn’t clear.
“To me that is the big question: Are brands going to stay with Macy’s?” asked Stacey Widlitz, president of SW Retail Advisors. “You have to do something, with your stores, other than just let them deteriorate.”
Macy’s shares have fallen more than 35% over the past 12 months and are trading around $16.40. At their all-time high, shares hit $73.61 on July 15, 2015. Macy’s has a market cap of about $5.1 billion today, compared with Kohl’s $6.8 billion. Kohl’s shares have also been under pressure, dropping roughly 35% from a year ago.
People are making fewer and fewer trips to shopping malls, and that has hurt department stores. Not only Macy’s and Kohl’s — but also J.C. Penney and Nordstrom. The category saw sales fall 1.8% from Nov. 1 through Dec. 24, according to Mastercard Spending Pulse, which tracked retail spending across all payment methods.
And apparel sales are struggling. Consumers are spending less money on clothes, buying fewer items and making use of secondhand, rental or subscription services.
That means more bad news for Macy’s, unless it can tap into those new trends. Women’s apparel made up roughly 23% of its total sales in 2018.
Macy’s also faces heightened competition in the home category. Amazon and Wayfair are eating up market share of furniture online. Target and Walmart are incubating home furnishing brands — and shoppers don’t have to trek to the mall to see them.
Macy’s said same-store sales fell 0.6% at its owned and licensed stores during November and December, which wasn’t as large of a drop as analysts had anticipated.
Macy’s in November reported its first quarterly same-store sales decline in two years, casting blame on warmer weather and weak traffic at some lower-tier malls. Same-store sales track the purchases at a retailer’s stores that have been open for at least 12 months and are a key metric used by the industry to monitor a company’s health.
Now, in the new year, Macy’s has to prove it can get back to same-store sales growth.
For the fourth and current quarter, which includes this past holiday season and is expected to end this week, analysts are predicting a 1.75% decline in same-store sales, according to a poll by Refinitiv.
And Macy’s for the full fiscal year is calling for same-store sales, on an owned plus licensed basis, to drop 1% to 1.5%, with net sales falling 2% to 2.5%. It lowered those expectations after a disappointing third quarter. Profits are also supposed to drop again.
Analysts have been predicting total revenue to be down 1.7% in 2019, and down 0.8% in 2020. Macy’s hasn’t set any longer-term financial targets.
Macy’s balance sheet is still in solid shape, especially when compared with peers such as Penney, which is crippled by the overhang of debt as it stages its own turnaround.
“The company still remains very financially healthy,” Moody’s senior credit officer Christina Boni said about Macy’s. “They’ve been reducing debt in the face of earnings declines.”
But Macy’s needs to figure out “how to make its stores more productive,” Boni said.
One way it can work toward that goal is by closing weaker locations. Last month, Macy’s said it would be closing 28 Macy’s stores and one Bloomingdale’s location in 2020, wrapping up a plan it announced in 2017 to shut 100 stores. The company still operates about 680 department stores and 190 specialty stores.
Macy’s also has been leasing out space inside its stores to brands like Starbucks and Lids. It’s unclear exactly how many of these deals it has done. But the company has said it aims to do more of this.
“There will be more [closures],” Widlitz said. “I think they’ve got to close 20% of the store base. … The stores are just so big.”
Macy’s at Chula Vista Center prepares for the Grand opening of its off-price shopping experience, Macy’s Backstage, on Wednesday, Sept. 12, 2018 in Chula Vista, Calif.
Stephanie Diani | AP
Macy’s has a few different strategies in the works. It’s just a matter of them actually working, or not.
The company has ramped up the rollout of its off-price concept known as Macy’s Backstage, which it says is in more than 200 stores today, and growing. This aims to compete with the likes of TJ Maxx, Ross Stores and Burlington. While traditional department store chains have been struggling, off-price businesses that sell name brands at a discount have been thriving. TJ Maxx owner TJX’s shares are up more than 23% over the past 12 months. The retailer has a market value that dwarfs Macy’s at about $72 billion.
Macy’s CEO Jeff Gennette said on a call with analysts in November that the company “doesn’t see a limit yet” in Backstage. He also sees the possibility of opening more freestanding Backstage locations, too. The company said that Backstage stores open for at least 12 months reported sales up in the mid-single digits during the third quarter ended Nov. 2.
Macy’s has also dubbed 150 of its best department stores as “Growth” stores, where it has invested in adding new merchandise and fresh fixtures. Macy’s has said these 150 locations make up about 50% of Macy’s bricks-and-mortar sales.
CFO Paula Price said in November: “The Growth stores continue to outperform the rest of our store fleet, both validating our investments in this initiative and giving us great confidence in our outlook for this important segment of our store fleet.”
Macy’s at the end of 2019 turned all of its Story locations to have a holiday-focused theme, selling knick-knacks and giftable items.
Source: STORY, Macy’s
Macy’s acquired pop-up marketplace Story in 2018, and has started to sell secondhand clothing in some of its stores via a partnership with ThredUp. It was also reported last week that Macy’s is preparing to open a standalone beauty-focused shop, with a cafe, in Texas. But it is still unclear how this will mesh with Macy’s existing beauty business that it has by owning Bluemercury.
Macy’s declined to comment on the report.
Heading into Wednesday, however, not everyone on Wall Street is sold on these efforts being a boon to sales.
“The frustrating thing, from my perspective, is there have been some really solid initiatives they have been working on, like Growth … and Backstage,” Gordon Haskett analyst Chuck Grom said.
However, those have been in the works for numerous quarters now, Grom said. Backstage was launched in 2015. Macy’s started investing in its “Growth” stores in 2018.
“I think with Macy’s: ‘What’s new?'” Grom said. “People need to know there is some substance behind [those efforts].”
—CNBC’s Nate Rattner contributed to the data visualizations.
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