Stock of the Week: Macy's

Will the struggling retailer become the new Sears?

Andrew Willis 5 October, 2020 | 1:28AM

 

 

Andrew Willis: We’re already starting to see Christmas décor in stores… Meaning that 2020 – for better or for worse – is coming to an end. Except tough realities will still be around, especially for physical retailers that were already struggling before the pandemic...

Macy’s (M) may be one of the most vulnerable. More than 600 stores, 100 million square feet of selling space – including in weaker malls that have become shells of their former selves – Too much overhead, online competition and two-thirds of the customers now prefer to peruse discount stores.

It’s becoming increasingly clear that we’re entering an era of Amazon, dollar stores and specialty stores, with equity analyst David Swartz projecting a drop in sales of 31% in 2020, and a huge operating loss. Margins have gone from 10% to 5% in the last five years, and sales growth in that period? Negligible.

The picture is bleak. The retailer hasn’t responded enough to industry disruption that happened before and during the crisis. But is the stock oversold? Going forward, it can leverage a lot of real estate it owns to free up needed cash, and they do have a plan to focus on discount brands and top-performing locations. But most importantly, investors should remember that even bad past performance doesn’t dictate future results.

For Morningstar, I’m Andrew Willis.

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About Author

Andrew Willis

Andrew Willis  is Content Editor for Morningstar.ca

 

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