Bear Of The Day: Macy's (M)

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Macy’s (M) has continued to disappoint shareholders and investors alike. The once retail behemoth has lost 75% of its value in the past 5 years. It is now trading at its lowest levels in over a decade. This year alone took out almost 50% of M’s value as the company fails to meet the already conservative estimates for Q2.

Sell-side analysts are progressively more pessimistic about these share’s ability to appreciate pushing M into a Zacks Rank #5 (Strong Sell).

Q2 Earnings

Macy’s Q2 results provoked a devastating blow to its share price as well as its competitors. It missed big on both top and bottom-lines illustrating its worst Q2 EPS in a decade and worst Q2 sales in 9 years. M’s share price has plummeted over 20% since its earnings release last month. Macy’s poor results was a cautionary tale to investors about the department store sector. A consumer shift is occurring, and department retailers are no longer on the front line.

The Consumer Shift

Millennials are changing the landscape in which businesses operates, with Silicon Valley leading the charge. Our world is becoming centered on the interconnected digital network we call the internet. The internet was built to hold and share data, making the transfer of data timely and seamless. Today the internet is allowing for a timely and seamless transfer of goods.

We, as millennials have grown up to recognize convenience and value as standards of living. Why go to the store when you can just make a few taps on your phone and get almost anything delivered to you? Why pay more at Macy’s when you could get the same thing cheaper at TJ Maxx? At least these were the ideals instill into me by my generation.

Department retailers like Macy’s are massive, cumbersome stores that cause anxiety to me and my cohort. Navigating these stores is a chore in and of itself. These firms have all invested in an ecommerce platform and run an increasing number of promotions to bolster foot traffic, but their core business model just doesn’t appeal to as many millennials.

Target (TGT), Walmart (WMT), and TJ Maxx (TJX) have all been able to meet the shifting consumer’s needs successfully. Target provides customers with both value and a manageable store layout that is aesthetically pleasing. Target brand products have become increasingly popular amongst millennials who see Target’s fashionably comparable clothes a deal at their lower price point. 

Walmart is the largest retailer in the world and has gained this title with its price leadership in the retail space. They have continued to invest in their online presence, which has been yielding ecom market share gains. Walmart has consistently displayed topline growth as it shifts to meet consumer needs.

TJ Maxx has seemed to weather the brick-and-mortar retail storm, being able to meet consumer needs through its brand name value proposition. As Amazon and the rest of ecommerce force more and more retailers into bankruptcy, venders have an increasing need to offloading old/unwanted inventory. TJ Maxx has been able to fill that gap while pulling in more foot-traffic. Millennials like the hunt for a great deal and TJ Maxx is one of the best places for that with name brand products sold at deep discounts.

Take Away

A consumer shift has been destroying department store stocks over the last 5 years or so, but the devastation has escalated even further this year with the retail apocalypse hitti them with full force. Macy’s has been attempting to adapt to the changing consumer, but they have been unsuccessful. They can’t get away from the archaic stigma that consumers associate with the company.

Macy’s is ostensibly trading at its lowest valuations ever it appears with no one wanting to take the chance on this dying retailer. Their still could be some value if they can make substantial systemic changes. The clock is ticking for this company as their bond rating slips into junk territory.  

 

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Walmart Inc. (WMT): Free Stock Analysis Report
 
The TJX Companies, Inc. (TJX): Free Stock Analysis Report
 
Target Corporation (TGT): Free Stock Analysis Report
 
Macy’s, Inc. (M): Free Stock Analysis Report
 
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Zacks Investment Research

2019-09-06 10:00:00

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