Stock up 5% on speculation
Macy’s (M) stock surged 5.0% to $30.72 on February 2, 2017, in reaction to a report in the New York Post that the company’s CEO, Terry Lundgren, is open to the idea of a possible sale of the iconic department store chain. Lundgren, Macy’s CEO since 2003 and chairman since 2004, plans to relinquish his CEO position to Jeff Gennette in 1Q17.
Macy’s has been under pressure from value investor Starboard Value LLP amid persistent weakness in its performance. Since 2015, Starboard Value LLP has been insisting that Macy’s should monetize and enhance the value of its real estate.
Stock price movement
In 2016, Macy’s stock price was up 2.4% while the stock prices of Kohl’s (KSS), Nordstrom (JWN), and JCPenney (JCP) rose 3.7%, -3.8%, and 24.8%, respectively. With the exception of JCPenney, Macy’s and other department stores underperformed the S&P 500 Index, which was up 9.5% in 2016.
Macy’s stock price fell 13.9% on January 5, 2017, following a poor holiday sales report on January 4. Macy’s also lowered its earnings outlook for 2016 following its weak 2016 holiday sales. Through February 2, Macy’s stock has fallen 14.2% since the start of 2017.
Other department store stocks have also disappointed investors this year. Through February 2, the stock prices of Kohl’s, Nordstrom, and JCPenney have fallen 19.4%, 9.2%, and 19.1%, respectively, on a YTD (year-to-date) basis.
Macy’s has been looking for several ways to enhance the value of its real estate. The company has been focusing on strategic deals involving its flagship assets: Herald Square in New York, Union Square in San Francisco, State Street in Chicago, and the company’s downtown Minneapolis store.
On January 4, Macy’s disclosed an agreement to sell its downtown Minneapolis store to the 601W Companies. Macy’s expects this sale to close by the end of fiscal 2017.
The company has also announced the closure of about 100 stores. Macy’s is also looking for better opportunities for its remaining real estate portfolio. On January 4, Macy’s announced the sale of its Stonestown Galleria store in San Francisco, California, to General Growth Properties (GGP).
However, enhancing the value of its real estate is not a solution to the bigger problem that Macy’s is facing—declining sales. We’ll discuss the company’s weak sales in the next part of this series.