12 BARRON’S November 22, 2021
FOLLOW-UP
The outlook looks good for the big retailer’s
stock, which closed at $37.37 Thursday,
bringing its 2021 gain to about 232%.
I
nvestors seem to like the prospect of
change atMacy’s. On Thursday, shares
of the department-store giant soared
21%, to $37.37, their highest close in
three years, after the retailer said it’s explor-
ing separating its fast-growing digital busi-
ness from its bricks-and-mortar stores.
Activist investor Jana Partners is pushing
Macy’s (ticker: M) to spin off the online busi-
ness, arguing that it could fetch a higher val-
uation than the retailer’s recent $11.5 billion
value. “We need to complete our analysis,
and we plan to provide an update after the
work is complete,” Macy’s CEO Jeff Gennette
said on a call with investors after the com-
pany posted Street-beating earnings for the
three months ended Oct. 30.
Meanwhile, Macy’s continues to expand
its online operations, with plans to create a
digital marketplace next year to attract
more third-party merchants. The current
digital business has about $8 billion in an-
nual revenue, and the retailer said that it
expects that to reach $10 billion in 2023.
It all bodes well for the stock, which,
through Thursday, was up about 232% this
year. It isn’t just online sales potential that is
boosting the shares. “About 50% of the stock
reaction so far is from the company’s strong
top- and bottom-line fundamentals that we
think have staying power into 2022,” says
Gordon Haskett analyst Chuck Grom, who
rates the stock a Buy with a $50 target.
Excluding one-time items, Macy’s
earned $1.23 a share in the quarter, on $5.
billion in revenue, compared with a loss of
19 cents a share on $3.99 billion in sales a
year earlier. Net income was $239 million,
versus a loss of $91 million.
Macy’s, which also owns Bloomingdale’s,
says shoppers have returned to its stores,
which were hit with temporary shutdowns
earlier in the Covid-19 pandemic. Sales at
stores open at least a year rose about 36% in
the quarter from the comparable 2020 pe-
riod, and are nearly 9% above those in the
corresponding 2019 stretch. The rebound is
part of the broader retail revival discussed in
our Nov. 15 cover story.
Analysts at Jefferies rate Macy’s a Buy,
citing the potential e-commerce split and
the resurgence of in-person shoppers.
Macy’s now is reconsidering whether to
close about 60 of the 125 stores that were
ontracktoshutby2023.However,10store
closures will be announced in January.
Ahead of the crucial holiday shopping
season, Macy’s now sees fiscal 2021 sales of
$24.12 billion to $24.28 billion, up from
previous guidance of $23.55 billion to
$23.95 billion. Macy’s, likeTarget(TGT),
Walmart(WMT), andKohl’s(KSS), which
each reported strong earnings this past
week, doesn’t expect supply-chain disrup-
tions from the pandemic.
Any split between Macy’s digital business
and its bricks-and-mortar operations won’t
happen quickly, says Erik Gordon, a Univer-
sity of Michigan professor who specializes in
entrepreneurship and technology commer-
cialization. Earlier this year, rival Saks Fifth
Avenue said it aims to spin off its online
business in 2022, with a target valuation of
$6 billion. “It will be interesting to see if they
move forward with this and what their pric-
ing model will look like,” Gordon says of
Macy’s. “Will they be competing against each
other? Can the items ordered on the e-com-
merce site be returned in Macy’s stores?”
The focus naturally will be on the poten-
tial separation of the digital business. After
Macy’s said it had hired consulting firm
AlixPartners, Jana praised the board “for
promptly engaging advisors to undertake a
reviewofwaystounlockthevalueofits
strong e-commerce business.”B
By LOGAN MOORE
Macy’s Takes
AFreshLook
At Digital Sales
The big retailer considers separating
its fast-growing online unit as shoppers
return to its conventional stores