Macy's (M -5.27%) reported fourth-quarter and fiscal 2021 earnings results before the markets opened on Tuesday, Feb. 22. As part of the release, management announced a decision not to sell its e-commerce business

Macy's deliberated the segment's sale for the potential value the stand-alone business could bring but ultimately decided against a deal. 

A person looking at shoes in a department store.

Image source: Getty Images.

Digital sales leverage physical stores 

Here's what management had to say on the decision in the conference call that followed the fourth-quarter earnings release:

In every scenario, we considered, we found that the combination of our profitable digital platform with our national footprint will deliver greater value to shareholders than a separation of our digital and physical assets. This was true at both Macy's, Inc. and brand levels. Furthermore, after a comprehensive review, we found that the integrated omnichannel Macy's, Inc. with multiple nameplates from off-price to luxury continues to be the most appealing to our diverse and multigenerational customer base.

Undoubtedly, one of the critical considerations for management was the high percentage of sales coming through Macy's digital channel. In its most recent quarter ended Jan. 29, digital sales made up 39% overall. That was up from just 30% in 2019.

Moreover, 28% of those sales were fulfilled by stores. That means folks are picking up their orders at Macy's brick-and-mortar locations, or Macy's is delivering items from stores. This type of fulfillment reduces shipping expenses from online orders and makes the segment even more valuable to Macy's. Finally, digital sales for Macy's are three times higher in regions with a physical presence.

All of these factors have in common that Macy's digital and physical presence are working together harmoniously to boost sales and profits.

Perhaps the decision may have been different if Macy's were not coming off one of its most vital years of earnings in the last decade, despite the pandemic raging. The company reported earnings per share of $4.55 in 2021, comfortably higher than the previous high in the prior decade of $4.22. 

After years of struggling to adjust to shifting consumer behavior, Macy's is moving in the right direction and wants to stay on that path. 

Did Macy's leave billions on the table? 

Interestingly, Macy's targets digital sales above $10 billion in the near term. This is against the backdrop that e-commerce businesses are selling at a price-to-sales ratio of around 3.1. That could have meant that Macy's e-commerce business would fetch upwards of $30 billion in a deal.

That's an astronomical figure. Macy's market capitalization as of this writing is almost $7 billion. It would be hard to imagine management turning down such an offer if it felt it could get anything in the range of $30 billion. Even a more conservative value of $15 billion would still be over twice its current market cap. It's no surprise then that the stock fell 4.75% on the day Macy's announced the decision not to sell.