The holiday window display at Macy’s in New York in 2020. Retailers like Macy’s are bouncing back after the pandemic.
Eugene Gologursky/Getty Images for Macy’s
Investors seem to like the prospect of change at Macy’s . On Thursday, shares of the department-store giant soared 21%, to $37.37, their highest close in three years, after the retailer said it’s exploring separating its fast-growing digital business from its bricks-and-mortar stores.
Activist investor Jana Partners is pushing Macy’s (ticker: M) to spin off the online business, arguing that it could fetch a higher valuation than the retailer’s recent $11.5 billion value. “We need to complete our analysis, and we plan to provide an update after the work is complete,” Macy’s CEO Jeff Gennette said on a call with investors after the company posted Street-beating earnings for the three months ended Oct. 30.
Meanwhile, Macy’s continues to expand its online operations, with plans to create a digital marketplace next year to attract more third-party merchants. The current digital business has about $8 billion in annual revenue, and the retailer said that it expects that to reach $10 billion in 2023.
It all bodes well for the stock, which, through Thursday, was up about 232% this year. It isn’t just online sales potential that is boosting the shares. “About 50% of the stock reaction so far is from the company’s strong top- and bottom-line fundamentals that we think have staying power into 2022,” says Gordon Haskett analyst Chuck Grom, who rates the stock a Buy with a $50 target.
Excluding one-time items, Macy’s earned $1.23 a share in the quarter, on $5.4 billion in revenue, compared with a loss of 19 cents a share on $3.99 billion in sales a year earlier. Net income was $239 million, versus a loss of $91 million.
Macy’s, which also owns Bloomingdale’s, says shoppers have returned to its stores, which were hit with temporary shutdowns earlier in the Covid-19 pandemic. Sales at stores open at least a year rose about 36% in the quarter from the comparable 2020 period, and are nearly 9% above those in the corresponding 2019 stretch. The rebound is part of the broader retail revival discussed in our Nov. 15 cover story.
Analysts at Jefferies rate Macy’s a Buy, citing the potential e-commerce split and the resurgence of in-person shoppers. Macy’s now is reconsidering whether to close about 60 of the 125 stores that were on track to shut by 2023. However, 10 store closures will be announced in January.
Ahead of the crucial holiday shopping season, Macy’s now sees fiscal 2021 sales of $24.12 billion to $24.28 billion, up from previous guidance of $23.55 billion to $23.95 billion. Macy’s, like Target (TGT), Walmart (WMT), and Kohl’s (KSS), which each reported strong earnings this past week, doesn’t expect supply-chain disruptions from the pandemic.
Any split between Macy’s digital business and its bricks-and-mortar operations won’t happen quickly, says Erik Gordon, a University of Michigan professor who specializes in entrepreneurship and technology commercialization. Earlier this year, rival Saks Fifth Avenue said it aims to spin off its online business in 2022, with a target valuation of $6 billion. “It will be interesting to see if they move forward with this and what their pricing model will look like,” Gordon says of Macy’s. “Will they be competing against each other? Can the items ordered on the e-commerce site be returned in Macy’s stores?”
The focus naturally will be on the potential separation of the digital business. After Macy’s said it had hired consulting firm AlixPartners, Jana praised the board “for promptly engaging advisors to undertake a review of ways to unlock the value of its strong e-commerce business.”
Write to Logan Moore at [email protected]
