Macy’s likely to lose market share amid value, convenience concerns - UBS

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The market does not appreciate the level of pressure on Macy’s (NYSE:M) at the moment, according to UBS.

In a note to clients on Wednesday, equity analyst Jay Sole advised that downward EPS revisions should be expected with customer attrition likely to increase in coming quarters. Further, competition from off-price retailers like TJX Companies (TJX) and online retailers like Amazon that offer more attractive options to consumers is likely to keep growth constrained.

“Macy's is good at many things, but needs to be great at something important to its customers in order to differentiate and stop share loss,” he told clients. “We doubt this will change and thus expect M to fall short of the market's earnings expectations over time.”

To be sure, Bloomingdale's was cited as a “bright spot” for the company as it continues to drive sales and stock merchandise that customers are willing to return for. However, the lack of stores and inconvenient locations are likely to inhibit the growth trajectory of the subsidiary.

As a result, Sole reiterated a “Sell” rating on shares and set a $15 price target. The stock fell about 1% shortly after Wednesday’s open, edging toward the lower end of its 52-week trading range between $15.68 and $37.95.

Comments

[Allen Cooke]

It seems that Macy's is gaining market share and is good at selling 25b per year of merchandise to consumers. Discounters like TJX are being disproportionately hit by higher costs and Amazon's clothing sales are not very profitable and suffer from high returns

[Elijah01]

I would add more to why this analysis is a flaming pile of trash but it seems like everyone has covered it in the comments.

[Select 65]

Macy’s has beaten expectations for revenue and profits since the pandemic started, and they have greatly improved their financial position……….They have closed unprofitable stores, improved their digital footprint, and managed their inventory better than other retailers…………..The Polaris strategy has proven to be successful, and management, led by Jeff Gennette, has been firing on all cylinders…………Add “Toys R Us” to the mix for the coming holiday season and the return of tourists from Europe and Asia, and Macy’s is a strong buy at this bargain price………….As a bonus, Macy’s dividend pays a cool 3.75% at today’s price…….BUY, BUY, BUY!!!

[Xempler]

No mention of stock buy backs, strong balance sheet, a p/e around 4 and a yield of around 3.5%. This is the laziest "analysis " I ever read.

[Luka_1]

@Xempler Jay Sole: Success Rate: 38%, Average Return per rating: 0,4% (😂😂😂). There is a reason why an analyst (= journalist) is not the manager of a successful fund. I saw you in other comment sections. Be thankful, my friend. If Macy's did good this quarter, all these ratings will benefit us in the long term in terms of the buyback. It's a gift.

[Xempler]

@Luka_1 It is a gift. Thank you and happy returns

[billyb1980]

This means the bottom is in and its time to buy folks. Where was USB when M was 37.95 last year?

[mickeystoysz16]

This analyst is ignorant and uneducated. There is absolutely no mention of the FACT that Macy's is gaining 4-7 million NEW customers each and every last four quarters. That is called gaining market share not losing. New customer adds are in the quarterly reports, just read them before you make yourself look stupid publicly. They did no homework of this fact what so ever! T. Ignorant and Uneducated crap like this is regurgitated out into the public with out any critical thought.

[Raymond Chung, CFA]

why should we listen to analysts that have been continually wrong about Macy's, I think they will have bought back 20 percent of their shares before the year is over with, maybe even more. there are also more than 2 retailers so to simplify it down to Amazon and tjx makes no sense

[wiufan99]

@Raymond Chung, CFA Agree. Someone needs to tell this to the big crowds each weekend at my local Macy's. I don't see them going anywhere else for awhile especially with Bob Ton and Lord and Taylor gone. Plus it's a One Day Sale this upcoming weekend.

[User 31614085]

how Macy's is still in business is the interesting question...

[Raymond Chung, CFA]

if you can make $4.50+/- last year and pay down a lot of debt you can

[Xempler]

@Raymond Chung, CFA right? And your real estate holdings nearly equal your market cap doesn't hurt either

[User 56360468]

The key for Macy's is getting affluent people looking for better deals than they get at higher end stores into Macys's. Some in the middle class pressured by inflation will be going to TJ Maxx, so Macy's has to pull in wealthier people. In a high inflation recession, there will probably be rich people wanting to spend a lot less than $500 to $2000 on a single article of clothing that Macy's can attract.

Not even all of the upper middle class is going to ditch Macy's to go to a store like TJ Maxx, just as not all Starbucks customers will start buying McDonalds coffee instead. The shopping environment is still important to many. They can continue running good sales to keep the middle class interested in stopping by, otherwise they're setting themselves up for trouble in the long-term if they don't retain them.

Obviously Macy's has to adjust their marketing a little to get those more affluent customers to come into the store.