Macy’s shares jump at first sign of sales turnaround

The comparable Macy’s sales figures account for the additional week of trade, so are an accurate reflection of underlying performance. However, while we applaud the 1.3 per cent growth, it is essential to unpick how much of this is down to Macy’s strategy and how much is attributable to the general uplift in external conditions.

A simple way of assessing this is to look at whether Macy’s is gaining or losing market share. Unfortunately, on this basis, Macy’s growth is well below retail spending growth of 3.9 per cent over the same period. So, Macy’s has lost ground both at an overall level and, by our calculations, within a number of key categories like apparel and home. This view is backed by our consumer data, which shows no real recovery for Macy’s in terms of shopper share or shopper opinion about its proposition.

None of this is to suggest that Macy’s is standing still. We know that the business has many initiatives in play, and we recognise that it is making changes. However, as we have noted before, that change is not yet established enough nor is it ambitious enough to drive a step up in performance. One of the main reasons for this is that although Macy’s highlights improvements to its proposition, there are many stores where this cannot be seen or felt by shoppers. In essence, there is a long tail of shops that look dated, are in sub-optimal locations, and where the customer experience is poor. Macy’s must remedy this if it is to transform the business.

Thankfully, we believe Macy’s is in a position to make and create the more widespread change required. Finances are in a sound state, with asset and property sales are helping to provide capital for investment. Smaller divisions like Bluemercury and Backstage have potential and can become much more significant contributors to profits and sales. The refurbishment of departments such as home furnishings and footwear in some stores have shown that where Macy’s makes an effort, sales results follow. And the digital operation is still growing and puts Macy’s in an excellent position to meet the omnichannel needs of consumers.

The latest boost to performance affords Macy’s more space and time to enact its plans. Hopefully, it will also give management the confidence to be bolder and more ambitious – especially as the near-term trading environment looks positive and should cushion performance. In short, Macy’s cannot just wait around for a miracle; management needs the strength and will to engineer one.