Macy's Earnings: Plan Taking Shape Despite Tough Environment; Shares Attractive

Despite a tough demand environment for apparel and accessories, no-moat Macy’s posted slightly better-than-expected results in Tony Spring’s first quarter as CEO. Although (owned) same-store sales dipped 1.2% in the first quarter, this was better than our estimate for a 3% decline. As announced by Spring in February, Macy’s is closing 150 stores and implementing changes in service and merchandising in its most productive stores to move upscale. Providing some confidence in the execution of this plan, the “First 50” stores achieved 3.3% comparable sales growth in the quarter, although we think it is much too early to draw any conclusions about the strategy’s ultimate success. No update was provided on the possible sale of Macy’s to the investment group led by Arkhouse Management. The group, which has offered $24 per share, is believed to be conducting due diligence.