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Will All That's Troubling Macy's (M) be a Thing of the Past?

A glimpse of Macy's, Inc. M share price movement reveals that it has declined 20% in the past six months, which is almost in line with the Zacks categorized Retail – Regional Department Stores industry’s fall of 19.2%. In contrast, the Zacks categorized Retail-Wholesale sector advanced 6.3%. However, management is not sitting idle and instead trying all means to bring Macy’s back on growth trajectory.

What is Hurting the Stock?

A challenging retail landscape, stiff competition from online retailers and soft store traffic has been hurting Macy’s performance. This is quite visible from fourth-quarter fiscal 2016 results, wherein both sales and earnings per share declined year over year. While net sales decreased 7.4%, 3.9%, 4.2% and 4% in the first, second, third and fourth quarters of fiscal 2016, respectively; earnings per share fell 28.6%, 15.6%, 69.6% and 3.3% during the respective quarters.

Additionally, management provided a bleak outlook for fiscal 2017. It envisions total sales to decline in the band of 3.2–4.3% and expects comps on an owned plus licensed basis to decrease in the range of 2–3%. The company also projects adjusted earnings in the range of $2.90–$3.15 per share.

Initiatives Undertaken

Macy’s has announced slew of measures revolving around stores closures, cost containment, real estate strategy and investment in omni-channel capabilities to enhance sales, profitability and cash flows. Additionally, management is developing eCommerce business and Macy’s Backstage off-price business, along with the expansion of Bluemercury and online order fulfillment centers. Also, the company has been widening operations through deals and collaborations to expand customer base.

Moving ahead, we believe the company’s consistent focus on price optimization, inventory management, merchandise planning, and private label offering are the primary catalysts, facilitating in meeting customer-oriented demand and improving in-store shopping experience.

Management is realigning operations and focusing on curtailing costs. It also said that these measures will result in annual savings of about $550 million, and would allow the company to invest an additional $250 million in enhancing digital business, store-related growth initiatives, Bluemercury, Macy’s Backstage and China.

We believe that these growth initiatives may spark a turnaround in Macy’s performance. Notably, the company carries a Zacks Rank #3 (Hold), with a VGM Score of “A” and a long-term earnings growth rate of 8.5%. However, for the time being you can focus on some better ranked stocks in the retail sector.

3 Key Picks in the Space

Investors may consider top ranked stocks such as Best Buy Co., Inc. BBY, Burlington Stores, Inc. BURL and The Children's Place, Inc. PLCE all flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Best Buy delivered an average positive earnings surprise of 27.7% in the trailing four quarters and has a long-term earnings growth rate of 10.5%.

Burlington Stores delivered an average positive earnings surprise of 26.3% in the trailing four quarters and has a long-term earnings growth rate of 15.9%.

Children's Place delivered an average positive earnings surprise of 39% in the trailing four quarters and has a long-term earnings growth rate of 8%.

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