Bank of America Merill Lynch downgraded Macy’s (M) stock to an “underperform” from a “neutral” after the department store reported weak holiday sales and lowered its outlook for fiscal 2018 (which ends on February 2, 2019) on January 10. Bank of America Merill Lynch also cut its price target for Macy’s stock to $18 from $39. Gordon Haskett cut its rating to a “hold” from a “buy.”
Macy’s reported SSSG (same-store sales growth) of 0.7% in the holiday period (November to December) on an owned basis and 1.1% growth on an owned-plus-licensed basis. Macy’s lower-than-expected SSSG and bleak outlook disappointed investors and dragged its stock down 17.7% yesterday. Macy’s update triggered havoc and led to a fall in the stocks of other major retailers. The SPDR S&P Retail ETF (XRT) fell 1.6% on January 10.
Kohl’s (KSS), which reported holiday SSSG of 1.2%, fell 4.8% on January 10. L Brands (LB) stock fell 4.4% after reporting flat same-store sales for the five weeks that ended on January 5. The stocks of department stores Nordstrom (JWN) and JCPenney (JCP) were down 4.0% and 4.5%, respectively, on January 10.
On January 10, the 12-month price target for Macy’s stock was $29.00. However, this average price target will likely come down today, as more analysts are getting cautious about the department store’s future growth.
On January 11, RBC lowered its price target for Macy’s stock to $29 from $36. Cowen and Company revised its price target to $26 from $37. JPMorgan Chase also lowered its price target to $25 from $33 today, and Telsey Advisory Group reduced its price estimate to $28 from $35.
Challenging road ahead
Macy’s now expects its net sales to be flat in fiscal 2018 compared to its previously expected growth range of 0.3%–0.7%. The company has been taking several initiatives to boost its sales, including focusing on categories such as beauty and expanding the presence of its off-price Backstage stores within its Macy’s stores. However, rising competition from online retailers and off-price players is posing a major threat to Macy’s and other department stores.
Currently, analysts expect Macy’s sales to rise 0.7% to $25 billion in fiscal 2018. Analysts expect Macy’s fiscal 2018 adjusted EPS to rise 7.2% to $4.04.