Retail department store chain Macy’s (NYSE: M) the stock has been on a rollercoaster ride in the past two years as the stock fell this year (-32%). The iconic department store chain that brought Santa into the mainstream has emerged from the pandemic as a well-oiled machine. Polaris’ turnaround strategy is a success; however, the recession is here and it hits consumer cyclical shares including like Nordstrom (NYSE: JWN), Kohl’s (NYSE: KSS), Ross Stores (NASDAQ: ROST), and Macy’s. Macy’s had negative sales growth for the first time in the post-pandemic period, with comparable store sales falling (-1.5%) in the second quarter. Sell through e-commerce also fell (-5%) in the last quarter. Inflationary pressures affecting costs and consumer spending had a negative impact on margins, as they fell to 38.9% from 40.6% in the same period last year. Polaris’s turnaround strategy has been successful, but the economic recession has a negative material impact on both sales and profits. This has prompted Macy’s to: lower his guidance for the rest of the year. The pandemic reminded investors of the valuable asset that lies beneath many of its retail locations, the real estate.
The recession lasts a swipe
On August 23, 2022, Macy’s announced its second quarter 2022 results for the quarter ended July 2022. The company reported earnings per share (EPS) of $1.00 excluding one-time items, versus consensus analyst estimates for a earnings of $0.88, a beat of $0.12 per share. Revenues were down (-0.8%) year-over-year (year-on-year) to $5.6 billion, better than consensus analyst estimates of $5.5 billion. Same store comparable sales (SSS) decreased (-1.5%) year on year. Digital sales decreased (-5%) year-on-year and increased by 37% compared to the second quarter of 2019. Gross margins decreased from 40.6% to 38.9%.
Polaris Turnaround delivers
Macy’s CEO Jeff Gennette noted, “Our teams have consistently responded to the dynamic landscape with disciplined, data-driven actions to ensure the health and stability of our business. We believe we are well positioned to respond to changing consumer behavior. Inflationary pressures, consumers continued to buy Macy’s as a style source and leading gift destination, and Bloomingdale’s and Blue Mercury captured demand for luxury brands, resulting in both nameplates outperforming in the quarter.” He continued: “Over the past two years, our Polaris strategy has made us faster and more agile, which has been essential to navigate rapidly changing consumer trends and macro conditions. We expect to emerge from this uncertain period in a strong position with a healthy balance, new capabilities and a talented team ready to meet the renewed demand.”
Brace yourself for the Slow Down
Macy’s lowered its full-year 2022 sales and earnings forecasts to account for risks associated with macroeconomic pressures. The full-year 2022 EPS forecast was slashed to come in between $4.00 and $4.20, from $4.53 to $4.95 versus $4.58 by consensus analysts. Full-year 2022 revenues were reduced to $24.34 billion to $24.58 billion, from $24.46 billion to $24.58 billion in previous estimates versus $24.37 billion by consensus analyst estimates.
This is what the charts say
Using the gun cards on the weekly and daily timeframes provides an accurate picture of the landscape for M-stocks. Weekly gun chart peaked and set a post-pandemic swing high near $37.92 Fibonacci (fib) level. The stock plunged to the $15.85 level before triggering a reversal bounce. The weekly gun chart is making a mark or a break. The weekly downward trend is slowing due to the flattening 5-period moving average (MA) at $18.67 against the 15-period declining MA at $19.56. The 200-period weekly MA is trying to hold the support at $18.18. The weekly 50-period MA resistance is at $23.82. The stochastic bounces through the 20 band, but slows down to make or break. the weekly market structure layer (MSL) buy triggers on a breakout above $19.17. The weekly upper Bollinger Bands (BBs) are at $27.77 versus weekly lower BBs at $13.46. The uptrend of the daily gun chart turned into a downtrend with a declining 5-period daily MA at $18.80 followed by the 15-period daily MA at $19.29. The 50-period daily MA is trying to hold a support at $18.52. The daily stochastic drops towards the 20 band. The daily upper BBs are at $21.66 versus lower BBs at $16.14. Attractive pullback levels to look out for are the $17.63 fib, $16.73, $15.45 fib, $14.37, $13.34 fib, $12.52 and the $11.63 fib.
The value is below the shops
While Macy’s over 700 physical locations including Macy’s, Bloomingdales, Bloomingdales stores and Blue Mercury stores. It also owns many of those locations. Some of the highlights include Bloomingdale’s 291,000-square-foot store in South Coast Plaza. The crown jewel is Manhattan’s flagship property, a 2.2 million-square-foot Herald Square site that occupies an entire block in downtown Manhattan and is estimated to be worth between $3 billion and $4 billion. During the pandemic, it wanted to issue new bonds backed by its real estate minus the Herald Square Manhattan property. Starboard has pegged the value of Macy’s real estate at $20 billion by 2020. There was even speculation that Macy’s would turn its structure into a REIT, but management decided against it. In 2022, Cowen estimated that the Macy’s real estate alone was worth between $6 billion and $8 billion. Macy’s has a market cap of $5 billion and is trading at just 4x future earnings with a 3.3% dividend yield. Keep in mind that Macy’s has the ability to monetize its real estate holdings by pledging or selling pieces of real estate. Even if the real estate holdings matched Macy’s market cap of about $5 billion, the company itself would be free, including its e-commerce division, which was also rumored to be spun off to create more shareholder value. Stocks can become a value game on further pullbacks.