Retail giant faces declining sales, activist pressure, and skepticism over its future strategy
Macy’s (M) unveiled its third-quarter earnings on Wednesday, delivering a mixed bag of results overshadowed by an accounting scandal that delayed the report. While the numbers were mostly in line with preliminary estimates shared last month, the retailer is grappling with declining sales, activist pressure, and questions about its Bold New Chapter strategy.
Earnings Recap
Macy’s reported adjusted earnings per share (EPS) of $0.04, narrowly beating Wall Street’s expectation of $0.03. Net sales fell 2.4% year-over-year to $4.74 billion, just shy of analysts’ $4.75 billion estimate. Same-store sales also dipped 1.3%, slightly better than the forecasted 1.39% decline.
The retailer, however, lowered its full-year profit guidance, now expecting adjusted EPS between $2.25 and $2.50, down from a prior range of $2.34 to $2.69. Macy’s attributed the revision to challenging market conditions and ongoing store closures, part of its effort to streamline operations.
Despite these efforts, Macy’s stock plummeted 10% in premarket trading on Wednesday. Year-to-date, shares are down 25%, in stark contrast to the S&P 500’s 28% gain.
Accounting Scandal Resolution
The company also concluded an internal investigation into an employee who hid $151 million in delivery expenses over several years. Macy’s confirmed that the individual acted alone and did not seek personal gain. CEO Tony Spring assured stakeholders that the company is strengthening internal controls to prevent future lapses.
Importantly, the accounting discrepancies did not impact revenues, cash, or inventory, with all vendors paid on time.
Turnaround Strategy Under Fire
Macy’s rejected a $24.80 per share buyout offer earlier this year, choosing instead to focus on its Bold New Chapter strategy. Yet, the strategy’s results remain underwhelming, with activist investors like Barington Capital Group and Thor Equities increasing pressure for change.
Activist shareholders argue Macy’s is underutilizing its valuable assets, including luxury chain Bloomingdale’s, cosmetics brand Blue Mercury, and its substantial real estate holdings valued at $5–$9 billion.
Bloomingdale’s delivered a 1% same-store sales increase at owned locations, driven by strength in apparel, beauty, and e-commerce. Meanwhile, Blue Mercury reported its 15th consecutive quarter of positive sales growth, up 3.3% thanks to robust skincare demand.
Despite these bright spots, skeptics remain. “Store closures in the past have not improved same-store sales growth or other metrics,” said Morningstar analyst David Swartz.
What Lies Ahead
Macy’s expects fourth-quarter net sales between $7.8 billion and $8 billion, a decline from $8.12 billion in Q4 2023. It also plans to close 150 stores, with 65 closures starting this year, alongside asset sales expected to generate $275 million.
CFO Adrian Mitchell expressed optimism, stating, “This gives us capital to invest in go-forward locations and return to shareholders.”
However, analysts like Neil Saunders of GlobalData remain unconvinced. “Most of their plans seem focused on short-term value rather than long-term brand protection,” he said.
As Macy’s navigates mounting challenges, including activist demands and consumer shifts toward value-oriented shopping, its turnaround strategy faces an uphill battle. The retailer’s next steps will determine whether it can stabilize its footing or become another cautionary tale in the evolving retail landscape.
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