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'My Macy's' Is Working, But The Retailer Needs To Do More

Macy's, Inc. M 2.87% shares came under pressure after the company’s 1Q results indicated a significant slowdown in sales in March. Argus’ Chris Graja Cutting maintained a Hold rating for the company, saying that although management is making good strategic decisions, there are certain issues that need to be addressed.

Macy’s comparable sales declined 6.1 percent in 1Q, coming in weaker than the Street expectation of a 3.4 percent decline. The number of transactions, a component of comp sales, declined about 7 percent, significantly more than the 4 percent decline recorded in the prior quarter, and marking a substantial decline from the flattish trend in the first half of last year, analyst Chris Graja said.

Macy’s reduced its guidance for non-GAAP EPS from $3.80-$3.90 to $3.15-$3.40.

Initiatives By The Company

Graja expects the “My Macy’s” initiative to have continued success. The initiative, which involves tailoring service, marketing, and merchandise to fit the needs and preferences of local markets, has mostly exceeded expectations, and “we expect further benefits going forward.”

Macy’s is also investing into improving its multichannel selling capabilities. “We believe this will be an important source of future growth, and note that it also helps the company to manage inventory more efficiently,” the analyst wrote. He added that the company is likely to develop new merchandise and store formats to drive additional growth.

Issues That Need Addressing

Although management is making good strategic decisions, the issues facing Macy’s include soft brick-and-mortar mall traffic, the strong US dollar and a weaker Chinese economy, which is exerting pressure on spending by tourists.

Graja cited another issue as that while Macy’s was poised to benefit when J C Penney Company Inc JCP 1.9% alienated its core customers, the latter had returned to “offering frequent sales on good quality basics and may attract some of the shoppers who do venture to the mall.”

May 2016Morgan StanleyMaintainsEqual-weight
May 2016Northland SecuritiesDowngradesBuyNeutral
May 2016RBC CapitalInitiates Coverage onUnderperform

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