* Reports Q4 2018 earnings Tuesday, Feb. 26 before the bell
* Consensus EPS: $2.53
* Revenue Expectation: $8.44B
Investors are finding it hard to bet on the turnaround of Macy’s Inc (NYSE:M) in 2019, especially after the retail giant shocked the markets by cutting its full-year earnings expectations last month, citing weakening sales in categories such as women’s sportswear, fashion jewelry and cosmetics. According to the company’s revised forecast, comparable sales will grow about 2%, down from a previous outlook of at least 2.3%, while earnings are now seen at $3.95 – $4 a share, down from the previous forecast of $4.10 – $4.30.
This unexpected setback caused investors to flee, deserting Macy’s already vulnerable shares, and erasing almost all of their 2018 gains. The shares closed down 1.6% Friday, at $24.06. The stock has fallen more than 10% in the past year.
Macy’s Weekly Chart
What lies ahead for the top brick-and-mortar retailer is very much dependent on its future guidance and how quickly it is able to win investor confidence. In our view, that goal is becoming increasingly difficult for the retail chain to achieve.
We’ve become pessimistic about the sustainability of Macy’s turnaround and the retail environment in general; many of the tailwinds that were supporting retailers last year are weakening in 2019 and we see the risks to the downside growing. Tax cuts in 2018, for example, helped consumers to spend more, which in turn helped these retailers to boost their sales. We don’t expect that wealth effect to be there in 2019.
On the macro front, the economy is entering uncharted territory where wage inflation, global trade risks and political uncertainty are coming together to weaken consumer sentiment.
Is Macy’s Stock Worth Betting On?
Once these macro risks are factored in, it’s hard to make a case for taking the risk on Macy’s stock, especially when its shares remain so volatile after briefly recovering from their long slump. That said, we don’t want to downplay the company’s serious efforts to revive sales and get it ready to compete with online competition.
Macy’s has been spending to lift its digital presence, adding more local merchandise and refreshing in-store fixtures. That strategy has helped boost online sales and proven to be a great success at building in-store traffic.
The retailer expects to exceed $1 billion in online sales this year. Macy’s customers are finding its online platform — which lets customers check prices on its app, track order histories, do visual product searches and also chat with customer representatives — very useful.
Despite the recent sharp sell-off, we still view Macy’s as a good turnaround bet for investors who have the stomach to wait for the company’s turnaround efforts to produce results.
The company is on the right track and making many bold decisions, including remodeling its stores, reducing its real-estate, expanding its popular Backstage off-price concept, and growing its Bluemercury cosmetics chain.
Down almost 43% from its 52-week high, we don’t see too much further downside from here for this stock. But investors should wait and see what Macy’s management are forecasting for 2019 before taking action. The mega retailer’s future outlook will determine whether its stock has reached a bottom in the current bearish cycle.