Macy’s Inc (NYSE:M): Hopelessness Prevails

Macy’s Inc (NYSE:M) is having a very bad year. The stock is down more than 43% since the start of 2017. Surveys show that Macy’s is becoming obsolete as a shopping hot spot, as shoppers and especially millennials don’t feel the need to go the department store because they can shop online. In the fiscal third quarter, Macy’s missed revenue forecasts, however profits beat analysts’ expectations due to inventory controls and cost cutting. Macy’s reaffirmed its full year outlook heading into the fourth quarter, whose results will get a boost from the holiday season. Margins in the quarter were also solid, over 39%. But things are expected to get worst for Macy’s Inc (NYSE:M) in the future. For the full fiscal year, Macy’s expects its sales to decline by 2.2%-3.3%, while revenue is forecasted to decline by 3.2%-4.3%.

Macy’s Inc (NYSE:M) shares rallied after third quarter results for no strong reason. Analysts think that the primary reason for the optimism was the recently introduced tax reform plan in the Senate. The tax reforms will help companies like Macy’s to save millions in corporate tax.

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Can Real Estate Assets Save Macy’s?

Analysts were hopeful that Jeff Smith’s Starboard value will be able to force Macy’s Inc (NYSE:M) management to get serious about raising capital and increasing digital presence. But the activist investor recently sold his stake in the company. One of the strongest points of Macy’s is its real estate assets, which have a net worth of $21 billion, but these assets cannot help the company get a sustainable growth trajectory.

Macy’s is Trying Hard for a Digital Transformation

Macy’s Inc (NYSE:M) is trying hard to make a digital transition. The company is focusing on “omnichannel” retail models. The company has drastically improved its loyalty program, rewards and discounts program and online platform. Macy’s is closing a lot of its physical stores. Earlier this year, the company announced to close 68 of its 880 stores. In September, the company announced to close 100 more stores to focus on digital transformation.

Is Macy’s a Turnaround Story?

Macy’s Inc (NYSE:M) cash flow has seen a slight improvement in 2017. The company has generated about $380 million in cash from operations year to date. Cash flow will get a boost in the holiday season.

But Macy’s Inc (NYSE:M) is still not a turnaround story. The stock will continue to lose value well into 2018 until the market sees a tangible catalyst. But these assets won’t help the company in the short term. In October, Citigroup downgraded Macy’s stock to Sell and reduced its price target to $16.