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Citi Thinks Macy's Management Now Understands The New Retail Environment

Macy's Inc M has announced the closure of 100 stores. This strategic decision indicates that management is taking steps to “adapt to the new retail environment,” Citi’s Paul Lejuez said in the report. He maintained a Neutral rating on the company, while raising the price target from $30 to $44.

Management has taken the decision to close 100 stores, despite these stores recording a profit. The move would make Macy’s “more nimble and less exposed to every market in the country, taking some of the risk out of the business if a downturn should occur,” Lejuez mentioned.

Takeaways From Discussions With Management

Lejuez enumerated the following takeaways from Macy's conference call and discussions with management:

  • Comments about the company’s back-to-school performance was related to July sales and not quarter-to-date sales.
  • Asset sales could total $185 million, versus the previous $235 million, with Brooklyn gain of $50 million shifting to fall in FY17.
  • The stores being closed contribute to EBITDA, albeit not significantly. “Most stores being closed are in less attractive locations, though a handful are being closed because the company can sell them for a higher value if repurposed.”

The EPS estimate for FY16 has been raised from $3.24 to $3.37 to reflect better sales and margins. The EPS estimate for FY17 has been raised from $2.97 to $3.23, despite lower sales from store closures, on expectations of margin expansion.

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Aug 2016CitigroupMaintainsNeutral
Aug 2016MacquarieDowngradesOutperformNeutral
Aug 2016Goldman SachsAssumesNeutral

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