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Macy’s Stock Rises on News of Productivity Initiatives

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Jan. 11 2016, Updated 10:06 a.m. ET

Market reaction

The stock market reacted positively to the news of Macy’s (M) productivity initiatives. The company announced the initiatives after trading hours on January 6, 2016. Macy’s stock rose 2% on January 7.

We looked at the company’s productivity measures and planned workforce reduction in the previous part of this series. Macy’s will also implement other cost reduction initiatives, including bringing down non-payroll budgets in areas such as travel, meetings, and consulting services.

On January 7, the S&P 500 Index fell 2.4% due to the impact of market turmoil in China. The Consumer Discretionary Select Sector SPDR ETF (XLY) fell 2.1% on January 7. XLY has 5.1% exposure to multiline retailers, including department stores, and 0.5% exposure to Macy’s in particular.

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Stock performance in 2015

Macy’s stock price fell a significant 46.8% in 2015. The company’s sales and adjusted EPS (earnings per share) declined in each of the first three quarters of fiscal 2015. In 3Q15, which ended October 31, 2015, Macy’s reported an 8.2% decline in adjusted EPS, primarily due to a 5.2% decline in sales.

Stock prices for Nordstrom (JWN), Kohl’s (KSS), and Dillard’s (DDS) fell 36.4%, 20.0%, and 46.0%, respectively, in 2015. The improvement in JCPenney’s (JCP) performance helped its stock price rise by 5.9% in 2015. Macy’s, Nordstrom, and Dillard’s together account for 0.5% of the iShares Russell Mid-Cap Growth ETF (IWP).

Update on Macy’s real estate

Macy’s has been under tremendous pressure to monetize its real estate. In July 2015, activist investor firm Starboard Value accumulated a stake in Macy’s and urged the company to monetize its real estate. In Macy’s 3Q15 conference call on November 11, 2015, Terry J. Lundgren, Macy’s chairman, president, and CEO (chief executive officer), ruled out the formation of an REIT, as it wouldn’t create significant value for the company. However, the company is open to the idea of redeveloping or selling certain locations. In August 2015, Macy’s announced its alliance with Tishman Speyer Properties, a real estate building and operating company, for the Brooklyn store redevelopment project.

In a January 6, 2016, press release, Macy’s said it has engaged Eastdil Secured, a real estate investment bank, to approach interested parties in order to form partnerships or joint ventures. These ventures will be for the company’s mall-based properties and its flagship real estate assets in Manhattan, San Francisco, Chicago, and Minneapolis. Credit Suisse and Goldman Sachs will assist Eastdil.

Macy’s will be appointing a senior-level real estate executive to oversee and manage real estate activities.

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