Is There Still Magic At Macy's? Shares Rally As Cost Efficiency Plans Outweigh Warning

Macy's, Inc. M shares are seeing some notable after-hours volatility Wednesday following a number of notable news items. The stock initially plunged about 4.6 percent to a post-market low at $34.35 as traders and investors digested news of drastically reduced fourth-quarter and fiscal-year guidance. But shares were soon in rebound mode; the company issued a separate press release discussing numerous cost-efficiency and process-improvement plans. Shares of Macy's rebounded about $3.50 to notch a nearly 5 percent after-hours gain. Below is a quick break down of the news highlights.

The Cost-Efficiency Efforts

• Will consolidate grouping of existing stores from seven regions and 58 local districts to five regions and 47 local districts;
• listed 40 store closings out of around 770 total stores;
• said continues to pursue creation of shareholder value through real-estate initiatives, including a search for a senior-level real estate exec; and,
• efforts expect to cut selling, general and administrative expenses by about $400 million.

The Outlook

• Fourth-quarter EPS reduced from $2.54-$2.64 to $2.18-$2.23 versus analyst consensus estimate of $2.53, and
• fiscal-year 2015 EPS lowered from $4.20-$4.30 to $3.85-$3.90 compared to the Street estimate of $4.24.

Additionally, the company reported same-store sales for the November and December period tumbled 5.2 percent. Macy's Chairman and CEO, Terry Lundgren, said, "The holiday selling season was challenging, as experienced throughout 2015 by much of the retailing industry. In the November/December period, we were particularly disadvantaged by the historically warm weather in northern climate zones where both Macy's and Bloomingdale's are especially well-represented. About 80 percent of our company's year-over-year declines in comparable sales can be attributed to shortfalls in cold-weather goods such as coats, sweaters, boots, hats, gloves and scarves. We also continued to feel the impact of lower spending by international tourists as the value of the dollar remained strong." On the efficiency efforts, Lundgren commented, "In light of our disappointing 2015 sales and earnings performance, we are making adjustments to become more efficient and productive in our operations. Moreover, we believe we can operate more effectively with an organization that is flatter and more agile so we can pursue growth and regain market share in our core Macy's and Bloomingdale's omnichannel businesses faster and with more intensity. We will continue to invest in strategic initiatives that anticipate emerging customer needs and create shareholder value. "The cost efficiencies represent more than two-thirds of our goal of annual SG&A expense reduction of $500 million, net of growth initiatives, from previously planned levels by 2018. In some cases, there will be short-term pain as we tighten our belt and realign our resources. But our eye is on a long-term vision of Macy's, Inc. as a dynamic retailer that serves existing customers and acquires new ones through innovative approaches to the marketplace," Lundgren concluded.