Shifts to e-commerce combined with better-priced competition in the off-price segment will continue to eat into the no-moat retailer's market share.
There weren’t many surprises in no-moat Macy's
fourth-quarter 2016 earnings report as the company announced full-year adjusted earnings per share of $3.11 versus our $3.04 estimate (slightly ahead of the $2.95-$3.10 lowered guidance the company issued after disappointing holiday sales). As we expected, 2017 isn’t looking to be much better with management guiding for a comparable sales decline (on an owned plus licensed basis) between 2% and 3%, in line with our modeled 2% decline. In our opinion, shifts to e-commerce combined with better-priced competition in the off-price segment will continue to eat into Macy’s market share. We see little change to our $37 fair value estimate outside of the time value of money and timing of real estate monetization as we continue to think that Macy’s is on track to close the previously announced 100 stores, comparable sales will be roughly flat on average annually over the next five years as product and technology initiatives bear fruit, and adjusted operating margin will remain in the current 7% to 8% range as the company recognizes expense savings from store closures and organizational changes.
Bridget Weishaar is a senior equity analyst for Morningstar.
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