Please ensure Javascript is enabled for purposes of website accessibility

Why Macy's, Inc. Shares Jumped 16% Last Month

By Jeremy Bowman – Feb 6, 2016 at 12:13PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Value investors pounced on the department store chain last month, but performance remains weak.

What: After a dismal 2015, Macy's (M -3.24%) bounced back in January, riding a bullish wave in the apparel industry and gaining as value investors jumped in on the stock. As you can see from the chart below, the stock rose steadily throughout the month, bucking the sell-off in the wider market.

M Chart

M data by YCharts.

So what: Like many stocks that gained in January, Macy's fell sharply in 2015, indicating that the increase may be a result of an exaggerated sell-off last year. 

The biggest piece of news from the company last month wasn't a particularly good one. Macy's said that comparable sales fell by 5.2% at company-owned stores during November and December, the key holiday selling season.  The slide was a notable contrast to rival J.C. Penney, whose comparable sales rose 3.9%, indicating that Macy's is losing market share. As a result of the drop, the company lowered its fiscal year EPS guidance for the year to $3.85-$3.90 from $4.20-$4.30.

Macy's also said it would initiate a cost-savings program that would cut annual general and administrative expenses by $400 million and close 40 stores, out of a total of 770.

Following the news, calls for Macy's to leverage its real estate portfolio increased. Activist investor Starboard Value argued in a letter to the board that a joint venutre structure would be the best way for the company to capitalize on its real estate, sending shares higher. Later in the month, reports revealed that noted value investor David Einhorn had taken a stake in Macy's, pumping the stock higher once again.

Now what: Macy's real estate holdings should put a floor on the stock, but the company's operations appear to be in disarray. Just this week, the department store chain announced a management shake-up, creation of new jobs in e-commerce and innovation, and the hiring of a new chief strategy officer.  

The department store sector has been a slow grower for years now, and with a resurgent J.C. Penney biting into Macy's market share, the company may continue to struggle. Analysts project a 2% drop in revenue for the fiscal year that just began and a slight increase in earnings per share. Given the headwinds in its operations, I wouldn't be surprised to see Macy's unlock some more of its real estate value as it did when it sold the upper floors of its Brooklyn store, which resulted in a $250 million gain for the company.  

 

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Macy's, Inc. Stock Quote
Macy's, Inc.
M
$15.21 (-3.24%) $0.51
J. C. Penney Company, Inc. Stock Quote
J. C. Penney Company, Inc.
JCPN.Q

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.