Image Source: Pexels
 

Macy’s (M - Free Report)  has been struggling to find its footing for years following the explosion of e-commerce options, and it doesn’t look like it will be improving any time soon.

The top and bottom lines of the struggling retailer have experienced YoY declines in the trailing twelve months, and both are nearly flat over the last decade.

While Macy’s is currently trading near its cheapest valuation in more than 10 years, a Zacks Rank #5 (Strong Sell), reflecting falling earnings estimates, and an unclear path forward make it a stock investors should avoid.

(Click on image to enlarge)

Image Source: Zacks Investment Research
 

Plummeting Earnings Estimates

While M battles to remain relevant in a rapidly shifting retail environment, it also faces macro headwinds adding to an even more grim setup. Waning consumer confidence and a pullback in household spending have led analysts to further downgrade sales and earnings expectations.

Current quarter earnings estimates have been cut by a brutal -84% over the last two months and are expected to fall -88% YoY. FY23 earnings expectations have been downgraded by -21.6% and are forecast to decline -35% YoY.

Current quarter sales are projected to fall -9.3% YoY and FY23 sales are set to decline 6% YoY.

(Click on image to enlarge)

Image Source: Zacks Investment Research
 

Valuation

Macy’s is trading at one-year forward earnings multiple of 5.4x, below the industry average of 7.6x, and below its 10-year median of 8.5x. While this does present a considerable historical discount, the business faces a tremendous uphill battle to grow sales and earnings.

(Click on image to enlarge)

Image Source: Zacks Investment Research
 

Bottom Line

While Macy’s seems unable to end its slow demise, it isn’t from a lack of trying. Its recent three-year makeover, called the Polaris strategy has created a number of innovations to better adapt to the changing retail landscape.

Backstage locations, Vendor Direct, Store Pickup and Loyalty Program, and a focus on products where the business has a foothold like jewelry and fragrances are all attempts to gain momentum. However, trying isn’t enough and the retail sector continues to play catchup with the e-commerce industry.

More By This Author: