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Macy's (M) Stock Gains on New Digital, Restructuring Initiatives

Madeleine Johnson
On Tuesday, shares of department store Macy's Inc. (M) are gaining, up over 4% in late-morning trading after the company announced a major restructuring plan that could be exactly what the struggling retailer needs.

On Tuesday, shares of department store Macy’s Inc. M are gaining, up over 4% in late-morning trading after the company announced a major restructuring plan that could be exactly what the struggling retailer needs.

Macy’s said it will be cutting 100 jobs as part of a consolidation plan to unite its merchandising, planning, and private brands operations into one department. The company also said the plan will save Macy’s an estimated $30 million a year, including roughly $5 million, or a penny per share, for the fourth quarter of 2017. But, the change will also mean one-time costs of approximately $20 million to $25 million, taking effect mostly in the third quarter, according to Macy’s.

The company has also named a new president, bringing in former eBay EBAY executive Hal Lawton. Lawton has previously worked for The Home Depot HD and McKinsey & Co., a management consulting firm; he will begin his tenure on September 8.

Macy's CEO Jeff Gennette commended Lawton's "deep expertise at the intersection of retail and technology, a diverse set of business experiences that give him a unique perspective, and a track record of successfully driving a change agenda at scale.

"This is a key step," Gennette added, "as we look to further transform the business and work through the volatility of today’s retail landscape."

At eBay, Lawton was in charge of marketing, merchandising, and consumer selling, and has a strong background in technology and digital expertise, all things that will be vital to Macy’s has the department store giant makes big moves to revitalize its business.

Additionally, Macy’s is getting ready to roll out its off-price division, Macy’s Backstage, in more of its store locations, as well as strengthen its beauty business, leveraging its recent acquisition of Bluemercury, notes CNBC. The company launching a new loyalty program that will officially hit the market in October.

Macy’s In-Depth

Macy’s is currently a #3 (Hold) on the Zacks Rank, with a VGM score of ‘A.’ Though its industry, Retail-Regional Department Stores, has lost almost 36% year-to-date, it sits in the top 43% of all 265 industries ranked on the Zacks Industry Rank.

This past quarter, Macy’s surpassed analyst expectations on both the top and bottom lines, though the company still expects comparable sales for the full year to decline by 2.2% to 3.3%. Looking ahead, earnings are expected to grow about 7% for the current year, while sales are projected to decline nearly 4% in the same time frame.

From a value perspective, Macy’s is very cheap, with a P/E of only 5.85. The stock has depreciated over time too, losing about have its value over the last 12 months—its P/E a year ago was around 10.5—and demonstrating the brutal environment of traditional brick-and-mortar retail.

Macy’s value story also reflects the so-called “perceived value” among retailers. Nordstrom JWN, for instance, has a P/E right now of 14.9. Macy’s and Nordstrom are in the same industry and arguably have suffered many of the same problems. The only difference is that investors have always been willing to pay more for JWN because of the company’s perceived high-status among retailers, a factor that has worked in their favor with shareholders and customers.

Right now, people don’t equate “high-end” with Macy’s. But bringing in executives like Mr. Lawton, and working to utilize acquisitions like Bluemercury, and rethinking what it means to do retail in the twenty-first century may help Macy’s reach that icon status once again.

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