Santa Leaves Lump Of Coal In Macy's Stocking

Santa must not have been impressed by how nice Macy’s Inc (NYSE: M) and its shareholders were in 2016 because they have gotten a big lump of coal in their stockings this holiday season.

What Happened?

Macy’s shares are down 14.2 percent in early Thursday trading after the company reported November-December sales comps of -2.1 percent. In addition, Macy’s slashed its full-year EPS guidance from $3.15–$3.40 to $2.95–$3.10.

For investors wondering whether the latest numbers from Macy’s are reason enough to either cut losses and sell or take a chance and buy on the dip, Jefferies analyst Randal Konik is taking a wait-and-see approach.

Analyst Commentary

“Steps to rationalize its footprint, reduce costs, and monetize real estate are encouraging, but we have LT concerns around competition and investments limiting EPS upside,” Konik explained.

He specifically likes Macy’s initiative to cut costs, including reducing its workforce by 6,200 employees and selling three locations for $95 million. However, Konik feels it will be nearly impossible for Macy’s to expand its margins while also investing in growth areas such as China, digital and Bluemercury.

Konik specifically notes weakness in Macy’s watch and handbag categories, which could have major implications for Fossil Group Inc (NASDAQ: FOSL) and Michael Kors Holdings Ltd (NYSE: KORS).

Jefferies maintains a Hold rating on Macy's but has cut its price target from $40 to $35.

At last check, shares of Macy's were down 14.45 percent on the day at $30.66.