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Why Macy’s and Other Department Store Stocks Fell Yesterday

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Updated

Stocks down on analyst’s view

The stocks of Macy’s (M) and its peers tanked on May 7 after Deutsche Bank analyst Paul Trussell cautioned investors of limited upside potential in the department store space.

On May 7, the stocks of Macy’s, Nordstrom (JWN), Kohl’s (KSS), and JCPenney (JCP) fell 3.8%, 2.0%, 4.3%, and 3.5%, respectively.

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Challenging market conditions

Department stores showed some hope when they reported a rise in holiday season sales earlier this year. Improved consumer sentiments helped Macy’s generate sales growth in 4Q17 after reporting lower sales for 11 consecutive quarters.

The growing strength of online retailers such as Amazon (AMZN) has hit the performances of traditional brick-and-mortar retailers. As a result, Macy’s and its peers have been enhancing their online channels and investing in several growth initiatives. These investments have had an adverse impact on their margins.

Several department stores, including JCPenney, have also been closing unprofitable stores to improve productivity. Department stores are also looking for growth in merchandise categories beyond apparel, especially in the home merchandise and beauty businesses.

Department stores are also facing rivalry from off-price retailers such as TJX Companies (TJX) and Ross Stores (ROST), which are attracting customers with their deep discounts.

YTD movement

As of May 7, the stocks of Macy’s, Nordstrom, Kohl’s, and JCPenney have risen 19.3%, 2.4%, 11.3%, and -11.7%, respectively, on a YTD (year-to-date) basis. In comparison, the S&P 500 Index is almost flat YTD.

Major department store stocks are scheduled to report their 1Q18 results next week. For an analysis of their upcoming results, you can check our Department Stores page.

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