The year 2019 has not been a smooth one for Macy's, Inc. M. The stock, which was once traded around $40 in 2018, is now hovering around $16 — close to its 52-week low of $14.11. Year to date, shares of this Zacks Rank #3 (Hold) company have lost 45.6%, compared with the industry’s decline of 31.8%. Let’s see as to why investors abandoned the stock and find whether it holds any promise going into 2020.
A Close Introspection
This department store retailer has been in a spot of bother for quite some time, thanks to soft mall traffic due to increasing online shopping, stiff competition from discount retailers and threat of tariffs on consumer goods. Industry experts even pointed that Macy's scrambled to keep pace with the fast-changing fashion trends and scored lower in offering customers with a better bargain option.
With fewer consumers visiting shopping malls and spending more time on e-commerce platforms, some of the brands sold within Macy’s stores started preferring their own standalone stores and making investments to reach consumers directly. All these have been taking a toll on the company.
We note that Macy’s top and bottom line have been declining for a while now. In the last reported quarter, net sales decreased 4.3% from the year-ago period. Moreover, comparable sales on an owned plus licensed basis fell 3.5%. Earnings per share of 7 cents a share, displaying a sharp fall from 27 cents reported in the year-ago period.
Management highlighted that late arrival of cold weather, softness in international tourism and lower-than-expected performance in lower tier malls hurt the top line. Also, comparable sales slid after seven straight quarters of growth. These compelled management to trim fiscal sales and earnings guidance.
Further, analysts pointed that Macy’s has been struggling to generate sufficient cash flow raising speculation whether the company may go for a cut in dividend in the near future. Experts believe that if sales continue to decline and turnaround efforts do not yield desired results, management would have to rethink of strategies to avoid dividend cut.
Can the Stock Stage a Comeback in 2020?
From revamping stores to bringing in loyalty program and from embracing new technologies to providing fast delivery options on online purchase or via apps, Macy’s has been looking at every nook and cranny for solutions to stay afloat. In an attempt to increase sales, profitability and cash flows, management has been taking every step.
We believe that the company’s sustained focus on price optimization, merchandise planning and private label offering should facilitate in meeting customer-oriented demand. Macy's off-price Backstage locations, Vendor Direct, Store Pickup, Loyalty Program and Growth150 stores, are the primary growth drivers.
The company also introduced STORY, a concept store and partnered with thredUP, a fashion resale website for consumers to buy and sell secondhand clothing online. The company has added a new feature to its mobile app such as My Wallet, My Store and My Stylist.
From above its quite evident that Macy’s is leaving no stone unturned to lift performance. However, it remains to be seen how far these strategic endeavors aid the company in countering the challenges.
3 Hot Picks
Target TGT has a trailing four-quarter positive earnings surprise of 8.6%, on average. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Boot Barn Holdings BOOT has a trailing four-quarter positive earnings surprise of 22.7%, on average. It sports a Zacks Rank #1.
Best Buy BBY, which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 8.7%.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2020?
These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Best Buy Co., Inc. (BBY) : Free Stock Analysis Report
Target Corporation (TGT) : Free Stock Analysis Report
Macy's, Inc. (M) : Free Stock Analysis Report
Boot Barn Holdings, Inc. (BOOT) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research