Are Macy's (M) Efforts Enough To Counter Retail Headwinds?

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 changes in the ecosystem. Retailers are left with no option but to keep pace with the changing retail scenario or get eliminated. The retailers are now focusing more on enhancing omni-channel capabilities, optimizing store fleet and restructuring activities. Although Macy's, Inc. (NYSE:M) is not fully immune to retail headwinds, this department store retailer is leaving no stone unturned to be back on growth trajectory.

So far in the year, Macy’s shares have plunged 29.4% wider than the industry’s decline of 18.6%, however, shares have displayed signs of improvement lately. The stock has increased 19.3% in the past three months compared with the industry’s growth of 16%. It seems that the company’s endeavors are reaping results. Moreover, a solid start to the holiday season also provided cushion to this Zacks Rank #3 (Hold) stock.

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 also announced the restructuring of merchandising operations that includes combining of merchandising, planning and private brands divisions into one segment. The move is likely to save about $30 million on an annual basis. The company anticipates saving of about $5 million or approximately 1 cent a share in the final quarter.

The company’s sustained focus on price optimization, inventory management, merchandise planning, and private label offering are the primary catalysts, facilitating in meeting customer-oriented demand and improving in-store shopping experience.

Hurdles to Overcome

Macy’s dwindling top-line results remains the primary concern for investors. A look at the company’s performance in fiscal 2015 unveils that net sales declined 0.7%, 2.6%, 5.2% and 5.3% in the first, second, third and fourth quarter, respectively. In fiscal 2016 net sales decreased 7.4%, 3.9%, 4.2% and 4% during the respective quarters. During the first, second and third quarters of fiscal 2017 the scenario was no different, as net sales declined 7.5%, 5.4% and 6.1%, respectively.

Further, we note that comparable sales on an owned basis have declined 6.1%, 2.6%, 3.3% and 2.7% in the first, second, third and fourth quarter of fiscal 2016, respectively. In the first, second and third quarter of fiscal 2017, the same had tumbled 5.2%, 2.8% and 4%, respectively.

Macy’s continues to project comps on an owned plus licensed basis to decrease in the band of 2-3% during fiscal 2017. On an owned basis, comps are expected to decline between 2.2% and 3.3%. Management envisions total sales to decline in the range of 3.2-4.3% in the fiscal year.

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