Shares of Macy's (NYSE:M) recently plunged after the department store chain missed first-quarter estimates on both the top and bottom lines. Revenue fell 7.5% annually to $5.34 billion, missing estimates by $130 million. Comparable-store sales fell 4.6%, well below the consensus forecast for a 2.7% decline. Its earnings plunged 40% to $0.24 per share, missing expectations by $0.10.

Those awful headline numbers explain why Macy's stock fell nearly 40% this year. Yet some investors believe that Macy's is now a compelling value play at 12 times earnings, while its forward yield of 6.3% is more than triple the S&P 500's current yield of 2%. But before you buy Macy's as a contrarian play, you should understand why the bears might be right about this ailing department store chain.

A Macy's store in Cincinnati.

Image source: Macy's.

Nine straight quarters of revenue declines

Macy's revenue has fallen year over year for nine straight quarters. That drop is also accelerating, with its 7.5% slip last quarter marking its biggest to date. Macy's blames that slowdown on the usual headwinds: slower foot traffic in malls and brick-and-mortar stores, tough competition from e-commerce retailers, fickle consumers, and the "overretailed" state of the U.S. market.

However, Macy's brick-and-mortar footprint is also clearly overextended (based on its comps declines), its stores are too big to generate streamlined and focused growth, and multiple reports reveal neglected and disorganized stores that resemble discount retailers instead of high-end department stores. That's why analysts expect Macy's revenue to fall 4% this year.

Rising inventories, plunging profits

These problems cause inventories -- which rose 4% sequentially but fell 2% annually last quarter -- to remain at uncomfortably high levels. In a bid to clear out that inventory, Macy's employs big discounts, both through its namesake chain and Bloomingdale's. Yet that strategy isn't boosting its top-line growth, and it's utterly wrecked its year-over-year earnings growth:

Quarter

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Year-over-year EPS growth*

(28.6%)

(15.6%)

(69.6%)

(3.3%)

(40%)

Data source: Macy's quarterly reports. EPS = earnings per share. *Excludes non-cash settlement charges from retirement plans.

Wall Street expects Macy's adjusted earnings to rise 6% this year, but that boost relies heavily on its anticipated fourth quarter sale of its Union Square Men's building in San Francisco, premiums from debt repurchases, and other one-time gains. Excluding those gains, Macy anticipates a 7% decrease to 1% growth in earnings for the full year.

It's following Sears Holdings' doomed path

Speaking of its sale of the Union Square building, much of Macy's turnaround plan involves selling off its valuable real estate and leasing it back. It booked $68 million in gains with that strategy last quarter.

Macy's Union Square store.

Macy's Union Square store. Image source: Macy's.

Activist investor Starboard Value previously encouraged Macy's to spin off its real estate operations as a separate business. Starboard sold off its entire stake in Macy's earlier this year, but there are still rumors that the company could follow through with that idea.

Unfortunately, we've seen Sears Holdings (NASDAQOTH:SHLDQ) do the same thing before. Sears spun off its real estate business as Seritage Growth Properties (NYSE:SRG) back in 2015. That IPO gave Sears a brief bottom-line boost, but it didn't halt the retailer's downward spiral. If Macy's does the same thing, it could end up putting its most valuable assets in a separate company while allowing its retail operations to go down in flames.

Its inability to counter Amazon

Macy's reported that its digital revenue grew by "double digits" last quarter. Unfortunately, that growth clearly couldn't offset its top- and bottom-line declines. That's because its e-commerce strategy simply can't counter digital heavyweights like Amazon.com (NASDAQ:AMZN) yet.

Wal-Mart (NYSE:WMT), for example, made sweeping changes to fight Amazon. It matched Amazon's prices, added new features to its mobile app, announced free shipping plans, promoted in-store and curbside pickups, turned its retail locations into "fulfillment centers," and even asked employees to deliver packages on the way home. But even with all those initiatives, Wal-Mart continues to struggle to match Amazon's torrid growth.

Macy's has made much less progress on that front than Wal-Mart. It offers discounts on in-store pickups, but it hasn't aggressively challenged Amazon in additional ways.

Macy's is cheap for a reason

Macy's is fundamentally cheap, but that discount is justified. The company's only real path forward is to close stores to cut costs and inject more capital into e-commerce efforts, but that echoes the strategy of dozens of legacy retailers that face the same headwinds.

Unless Macy's gets more aggressive with its turnaround plans, it could fall into the same trap as Sears Holdings -- shuttering stores and monetizing its real estate to prop up earnings as its core business crumbles. If that's Macy's future, then the stock could still have plenty of room to fall.

Leo Sun owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.