Macy's (M) is scheduled to report results of its fourth fiscal quarter before the market open on Tuesday, February 25, with a conference call scheduled for 8:00 am EDT.
1. TURNAROUND: Last year, Macy's CEO Jeff Gennette said he was "committed" to stabilizing its brick and mortar business, and that customers had been confused by "very complex" pricing. On February 4, Macy's announced plans to shut 125 stores over the next three years and slash about 2,000 corporate jobs as it closes its Cincinnati headquarters and tech offices in San Francisco. Macy’s plans to exit weaker shopping malls, and instead shift its focus toward opening smaller-format stores in strip centers. Beginning in 2020, the company expects the Polaris strategy to generate annual gross savings of approximately $1.5B, which will be fully realized by year-end 2022. For 2020, the company anticipates gross savings of approximately $600M. The company expects to invest some savings back into the business, with a focus on the Growth treatment, Backstage, off-mall expansion and continued improvements to the digital business, as well as technology investment focused on analytics and automation that will drive further productivity improvements. "We are taking the organization through significant structural change to lower costs, bring teams closer together and reduce duplicative work," CEO Jeff Gennette said in a statement.
Cowen analyst Oliver Chen said he is encouraged by Macy's new comprehensive comeback plan which includes the closing of 125 stores, supply chain centralization, new store ecosystem model, and its digital/loyalty innovation. He thinks Macy's remains a show me story but the company has set itself up nicely by outlining achievable targets.
2. GUIDANCE: On February 4, Macy's reported preliminary Q4 net sales of $8.3B, in line with analysts' estimates, with preliminary Q4 owned plus licensed SSS down 0.5%. The company had previously cut its FY19 adjusted EPS view to $2.57-$2.77 from $2.85-$3.05 and its revenue view to down 2.5% to down 2% from approximately flat. Macy's also forecast FY20 adjusted EPS excluding asset sale gains of $2.20-$2.40 and revenue of $23.6B-$23.9B, against analysts' consensus of $2.42 and $24.36B. The retailer also forecast FY22 adjusted EPS of $2.50-$3.00, revenue of $23.2B-$23.9B and owned plus licensed SSS down 1% to flat.
On February 6, Fitch downgraded Macy's Long-Term IDR to 'BBB-' to reflect the view of a prolonged time frame for Macy's operating trajectory to stabilize on a lower EBITDA base. Fitch now expects EBITDA could modestly decline from approximately $2.2B in 2019 toward $2B over the next two to three years given increased investments to combat ongoing secular challenges, including weak mall traffic and heightened competition from alternate channels that include online and off-price. S&P followed Fitch's downgrade by cutting Macy's long-term rating to "junk" level to reflect its view that Macy's improvement trajectory is weaker than prior expectations and execution risks are elevated as the company pursues its Polaris strategic plan against an ongoing difficult industry backdrop.
3. HOLIDAY LANDSCAPE: Macy's said its November/December owned plus licensed SSS fell 0.6%, with CEO Jeff Gennette saying its performance "reflected a strong trend improvement from the third quarter." Morgan Stanley analyst Kimberly Greenberger said her checks on specialty retail and department stores' traffic showed that it decelerated to a decline of 10.7% year-over-year in the third week of December, and that while traffic appeared "solid" during her store checks at the end of December week four, a tough comparison to last year in week five left her "overall cautious" on the traffic view for the month. She said post-Christmas clearance moderated at Macy's compared to last year.
Macy's
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