Poor Results, Store Closings Send Macy's, Inc. Stock Down

The company is closing 35-40 stores, which may be needed, but it's being seen as a sign of weakness by investors.

Daniel B. Kline
Daniel B. Kline
Oct 5, 2015 at 2:00PM
Consumer Goods

After reporting a 2.6% drop in sales during the second quarter in mid-August, Macy's (NYSE:M) kept the bad news coming for investors in a Sept. 8 press release by announcing plans to close 35-40 stores.

The company's stock began a steady move in the wrong direction after earnings were released on Aug. 12. In that report the company not only announced poor sales numbers, it also revised its guidance down for the rest of the year.

Primarily based on weaker-than-expected sales performance in the first half, the company is reducing its full-year 2015 guidance for comparable sales on an owned plus licensed basis to be approximately flat, compared with previous guidance for growth of approximately 2%. Comparable sales on an owned basis will be approximately 50 basis points lower than on an owned plus licensed basis. The company expects total sales to be down by approximately 1% in 2015, compared to previous guidance for total sales growth of approximately 1%.

That's a dreary prediction, which started the negative momentum that was cemented by the store closing announcement leading to a September during which the company's stock dropped over 12%, according to S&P Capital IQ data.

What's next for Macy's
While store closings are not positive news, this batch of shutdowns comes as the company refocuses its efforts on becoming a more digital brand. The company's CEO Terry J. Lundgren stressed that physical stores "remain absolutely vital to our omnichannel strategy," in the press release about the closing, but he also explained why the closings were needed.

"Each year, we prune some stores that are our weakest performers so that we can concentrate our resources on the best locations and maintain a strong physical presence," Lundgren said.

It's a culling of the herd in a sense that would not be seen as bad news if the rest of the company was moving in the right direction. 

It's all about digital
Cutting stores is in part necessary because going forward more sales will move to the digital world. Macy's has been pouring resources in its website and other digital sales channels and ultimately whether it returns to growth will be affected more by those efforts than its store count.

"Macy's is already one of the largest and fastest-growing digital platforms in the country," Lundgren said. "Our fast-growing digital offering, including robust apps and mobile-enhanced websites, integrate with our stores to provide an unparalleled omnichannel shopping experience for customers wherever, whenever and however they prefer to shop. As a result, we are able to attract new customers and grow sales profitably."

That sounds nice, but it's a strategy that has yet-to-be proven and in the short-term the store closings and poor results were enough to send the stock price down.


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