Being down on Macy's (M) has been an easy bet for a while, but that is likely to change real soon.
Shares of the department-store chain have declined about 40% over the past two years for a series of reasons. The first one is the most obvious: the shift to online shopping is ridiculously disruptive. It's disruptive in the sense that online sales are less profitable than those in the store and the transition has made it apparent that cost bases for physical retailers remain out of whack.
The second thing that has tripped up Macy's is management. Long-time CEO Terry Lundgren is no doubt a retail legend, but for years he has operated the company from a merchant-only perspective that doesn't play well amidst the shift to digital buying per se.
A great example of how this management style hurt Macy's was shared during a presentation at Goldman Sachs on Thursday. Lundgren admitted he had a breakdown (he was being playful) when the company's newly hired real-estate expert suggested closing a small men's store and transitioning the offerings to a full-size store nearby. Macy's could then sell the real estate underneath the men's store and reinvest the proceeds elsewhere. Lundgren said he shops at the men's store, and took the suggestion hard.
But the winds of change are blowing at Macy's. New executives in critical spots are being hired. Incoming CEO Jeff Gennette, while a company man through and through, is impressing people with his vision for Macy's in the early going (I have been among those impressed after several chats with him).
In short, the company has pressed down halfway on the business-model reset button, and is very likely to be rewarded for it soon in terms of earnings and share price.
Here are several catalysts on the horizon.
Real Estate
Macy's is very likely nearing multiple value-creating real-estate deals. Lundgren is almost singularly focused on getting Macy's real estate right. After all, he doesn't want his legacy to read that he missed the opportunity to create a nimbler Macy's in the age of digital shopping. Moreover, Lundgren appears dead set on leaving Macy's in as good a place as possible for long-time exec Gennette, his hand-picked successor.
Something is likely coming within the next six months with regard to monetizing the iconic New York City Herald Square location, which Wall Street will naturally embrace as they are only focused on cash flow.
Fresh-Face Infusion
The next crop of CEOs -- those taking over for the baby-boomer execs -- have been fascinating to follow. From Target's (TGT) Brian Cornell to Walmart's (WMT) Doug McMillon to Clorox's CLX Benno Dorer (and soon Jeff Harmening at General Mills (GIS) ), these execs are bringing fresh ideas to the table.
While they are moving fast, and have amazing breadths of experience (better than those they replaced), there is one tie that binds most all of them in the early goings of their tenures: the willingness to cut out the dead weight among the executive team quite quickly. These CEOs want results and fresh thinking, and are taking no prisoners.
Macy's Gennette, 55, is likely to be no different. The company has made a series of key hires under the radar of late. Meantime, Macy's long, long-time head of communications abruptly retired last week (he was great, to be honest). Look for Gennette to completely remake his executive team in order to infuse a sense of urgency, which the market will embrace because it knows the company has been lacking in critical areas for years and unwilling to take super-big risks (such as aggressively going after TJX Companies (TJX) , an Action Alerts PLUS holding, in the outlet space).
Five-Year Plan
Listening to Gennette at Goldman on Thursday it became clear that he has crafted a long-term vision for Macy's, say a five-year plan. At some point next year that is likely to be articulated to Wall Street during an analyst and media day. Before then, look for the company to announce more deals to add shops in its stores (sort of like what Best Buy (BBY) has done), emphasize a new coupon strategy (kicks off in a test this fall), detail more real-estate deals, and finish closing 100 stores.
By mid-year, Macy's should have multiple positive things to share with Wall Street -- including unveiling a new executive team -- and probably, long-term profit targets (not unlike what J.C. Penney (JCP) has done under new CEO Marvin Ellison).
