Macy’s Inc (M, Financial), the Cincinnati-based superstore, has been an American retail giant since time immemorial, but lately, it has been in the news for all the wrong reasons. The company announced that it has decided to shut 14 foundering stores across America. This in turn will lead to approximately 1,350 retail jobs being made redundant throughout the country. Store closures always have the potential to attract negative responses from customers – especially in communities it has served for years – but in the current framework, the move may be inevitable to ensure sustained growth.
The company makes a point that, if it is to survive in today’s competitive market, it has to respond swiftly to the ever-changing retail landscape. More and more customers are avoiding the brick-and-mortar stores and moving to the online, mobile and digital channels for purchases. From a business point of view, it makes incredible economic sense that any good retailer looks ahead by reducing their real estate overhead costs to concentrate on their online businesses.
Is the Macy’s restructuring plan a good move?
It may be worth observing that these planned 14 store closures represent a small fraction of the 840 stores of the company in 45 American states, including Bloomingdales. Macy’s reorganization plans are expected to yield over $140 million in annual savings. The company has plans to invest these annual savings in specific growth and technological initiatives, while seeking to enhance the overall customer Omni channel experience – with a specific focus on the online medium.
Over the period of the last five years, Macy's has already invested close to $2 billion on e-commerce and IT projects to contend with online e-retail giants like Amazon. The company plans on using this money to focus on higher expenses in healthcare of employees and funding the retirement costs of an ageing workforce.
The company’s 2014 performance
Macy’s stock is currently trading around the $65 mark, which is just short of its 52-week high of $68.30. It’s earning per share (EPS) stands at around $4 and it Price to Earnings (P/E) ratio stands at approximately 15 – proof of a solidly performing company over the years.
Macy’s has reported improved earnings per share by approximately 30 percent to 61 cents in the 2014 third quarter ended November 1, 2014, compared to the same quarter a year ago. Macy’s stock has been going up over the last year and has clearly outperformed the rise in the S&P. The company’s net income rose by 22.6 percent compared to the corresponding quarter in the previous year at $217.00 million versus $177.00 million.
Macy’s has demonstrated positive earnings per share growth in the last two years. In the 2014 fiscal year, the bottom line earning was $3.90 versus $3.29 in the previous year. The gross profit margin stood at 39.21 percent, while the net profit margin is approximately 3.50 percent above the expected industry average.
What do the experts predict?
Most of the brokerage houses have recommended a BUY rating on Macy’s. Credit Suisse (CS, Financial) gave an outperform rating to the company’s stock price – raising the target to $68 from $60. Goldman Sachs (GS, Financial) has issued a BUY rating targeting a stock price of $67. TheStreet (TST, Financial) ratings also maintained a BUY indication for Macy’s. This is based on many positive measures undertaken by the company that is expected to boost the price of the stock in the longer run. Most brokerage firms agree that the company has delivered a solid performance – offering impressive growth in earnings per share, along with a net income increase and enhanced profit margins.
Moving to the future of Macy’s stock price – the company still has a good upward potential, despite the current downward trend. Although there may be a short-term reduction in the stock price due to reduced consumer sentiment on the backdrop of this news, the restructuring may be viewed positively by long-term investors.
