New CEO Steers Turnaround at Macy's

10/05/2017 5:00 am EST

Focus: CONSUMER

George Putnam

Editor, The Turnaround Letter

Department store retailer Macy’s (M) shares remain near multi-year lows despite the company’s reasonably decent 2nd quarter 2017 results backed by fresh and more aggressive leadership, says George Putnam, editor of The Turnaround Letter.


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The market appears impatient for what will likely be a multi-year turnaround. Cash flows remain healthy and the balance sheet is improving. Valuation at 4.4x this year’s estimated EBIDTA, which understates the value of much of Macy’s real estate, assumes an overly grim outlook for the company.

Driving the turnaround is a new order in the company’s leadership. We believe the market is overlooking the potential of this change.

Jeff Gennette, a steadily-rising company veteran, became CEO in March, bringing a fresh perspective and sense of urgency to Macy’s plans. Gennette has deep knowledge of Macy’s operations and a strong reputation as an outstanding merchant.


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Macy’s retail turnaround will not be successful overnight. They must get their merchandising and distribution right, adjust to the changing consumer preferences, meet the shifting and relentless competition, and ramp up their marketing -- making the retail turnaround likely to take two or more years.

Macy’s real estate initiatives are progressing well although it is too early to foresee the exact end-game. The company has many levers to pull, including selling the Harold Square property in midtown Manhattan (that could be worth $4 billion by itself).

Importantly, the company is maintaining their capital spending plans of $900 million for the year, suggesting they are not skimping on store upkeep and overall modernization.

Overall, the company is making the right moves which seem to be working, just not at the pace of an impatient Wall Street that wants immediate changes.

The shares are remarkably inexpensive. The $1.51 dividend looks well-covered, providing a high 6.7% yield. As long as this remains solid, (we believe it will), the yield should provide a floor to the stock while we patiently wait for more traction in the turnaround.

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