EC What Is Weighing On Macy's (M) And Other Department Store Stocks?

The earnings focus shifts to the Retail sector this week as traditional brick-and-mortar retailers come out with their quarterly results. Most of these stocks have struggled this year, with Macy’s (M - Free Report) underperformance particularly notable.

Macy’s shares are down -25.2% this year, lagging the S&P 500 index’s +14% gain. The stock has underperformed the Zacks Department Store industry as well as peers such as Nordstrom (JWN - Free Report) , as the year-to-date performance comparison chart below shows.

The issues plaguing Macy’s outlook are longstanding and not new. These include the company’s struggles with adjusting to the changed retail landscape characterized by consumer dollars steadily shifting to the online medium. Macy’s and other department stores have made good progress in recent years through their so-called omni-channel offerings that integrates the brick-and-mortar infrastructure with the digital offering. For Macy’s, store pickups accounted for 7% of total online sales in Q4, reflecting consumers’ growing embrace of the company’s omni-channel capabilities.

The challenge for Macy’s and other department stores is to hold onto their revenues and margins as they bring their operations in-line with the changed ground realities. But transitions are never smooth, easy or cheap. It is the inherent difficulties of this transition that explains the performance challenge facing Macy’s and other department store companies.

Q1 estimates for Macy’s, which reports quarterly results before the market’s open on Wednesday May 15th, have steadily come down. The company is expected to earn 36 cents on $5.5 billion in revenues, down -25% and -0.21% from the year-earlier period, respectively. The current 36 cents estimate is down from 37 cents a month back and 49 cents three months back.

Given Macy’s recent underperformance and these lowered estimates, the bar is likely fairly low for the company to surprise to the upside. The stock was up in response to the last quarterly release on February 26th, which followed two back-to-back releases that pushed the stock lower.

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For an in-depth look at the overall earnings picture and expectations for Q1, please check out our weekly Earnings Trends report  more

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