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A mixed Q4 (Jan) report keeps shares of Macy's (M) dancing around its flatline today, sinking to new 52-week lows before attempting to stay in the green. The department store chain crushed earnings estimates in the quarter, returning to its standard double-digit beat cadence. However, revenue growth remained in reverse yr/yr, with comparable sales inching lower yet again; Macy's has not reported positive comp growth since 1Q23 (Apr). Still, investors are encouraged by the company's plans to resume buying back stock since showing little repurchase activity over the past two years.

• Macy's has undergone a comprehensive transformation over the years as it looks to differentiate itself in a world where department stores are losing ground to e-commerce alternatives. Throughout 2024, Macy's focused on its First 50 locations, where it has installed noticeable changes to better align with consumer tastes. Key differences in these stores include focused staffing, enhanced merchandise offerings, and better visuals. In Q4, these stores posted positive comps of +1.2%.
• It is not just the Macy's banner receiving a makeover. The company's luxury nameplates, Bloomingdale's and Bluemercury, have also seen changes, supporting comp growth of +6.5% and +6.2%, respectively, in Q4. All in, total enterprise comp growth (owned-plus-licensed-plus-marketplace comps) was +0.2%, the company's best result since 1Q23. The trio of robust comps underpinned Macy's adjusted EPS of $1.80 in Q4, nicely above its $1.40-1.65 outlook reiterated in mid-January.
• Given the ongoing success of the First 50 locations, Macy's is continuing to shutter underperforming stores, working on closing down the approximately 150 announced last year. At the same time, Macy's is remodeling and opening additional Bloomingdale's and Bluemercury locations. During FY25, Macy's opened three Bloomingdale's stores and 17 Bluemercury locations while remodeling seven.
• Still, Macy's is not where it wants to be. For the year, it will continue to execute its ongoing strategy to help stabilize its business and move closer to profitable growth. However, the economic environment is entirely out of Macy's hands. The company mentioned that consumer health remains fragile, dealing with broad-based inflationary pressures. This dynamic is reflected by Macy's FY26 (Jan) guidance, predicting net sales of $21.0-21.4 bln and comps of negative 0.5-2.0%. The biggest hurdle will be Q1; Macy's anticipates comps to fall by 2.5-4.5%.

While there were several bright spots from Macy's in Q4, there remains plenty of concern over whether the company's turnaround initiatives can spur a return to profitable growth. At the same time, Macy's remains a target for activist investors, fending off past attempts from Arkhouse and Brigade Capital. Activist pressures can keep a fire lit under management to ensure every move it makes has a solid chance of providing long-term shareholder value. For instance, share buybacks were a focal point of activists. Still, these pressures can elevate uncertainty over Macy's fate, possibly keeping investors at bay over the near term.