Friday, January 9, 2015

Macy’s: ‘Investing to Win’

JPMorgan’s Matthew Boss says Macy’s (M) is “investing to win.” He explains:

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Macy’s announced a restructuring across both Macy’s and Bloomingdales outlining $140M of cost reductions equating to $0.26 of EPS accretion (~50bps of SG&A leverage on our math) to be reinvested back into technology, talent/business development and future growth opportunities. Breaking down the cost savings into three key buckets: (1) Merchandising Marketing – hybrid in-store and online buying to support 1 unified merchandising and marketing organization (previously assortments were purchased as marketed by separate teams at M/Bloomy). (2) Localization Optimization – management is optimizing its My Macy's localization effort eliminating district planner positions w/ reinvestment in new regional teams devoted to specific merchandise themes (weather/demographics). (3) Store/Field Organization – deep dive by store location and department to better allocate service and support (ie. instore payroll) to match business opportunity with 2-3 associates per store impacted across the chain (and consolidation to 58 from 60 store districts).

. . . w/ Reinvestment in Growth Drivers Paving Multi-Year Runway. Looking forward, management is laser focused on multi-year sustainable growth, reinvesting the $140M cost savings into technology and online/omni-channel – key primary drivers of the next leg of Macy’s growth trajectory. Four Key Buckets of Investment across merchandising, marketing and stores/field operations: (1) Technology/Omni-channel – investment in systems and IT to support growing omni-channel business, improvements in speed and customer experience of and (w/ growth in San Fran- digital tech organization of 150 people) (2) Increased Fulfillment Capacity to Support DTC Growth – capacity expanded in every store across the Macy’s/Bloomy chain and at 5 dedicated fulfillment centers (w/ new DTC fulfillment center opening in Tulsa, OK in April 2015). (3) New Store Growth – $1B of DTC shipments originated from stores in FY14 with Omni-channel (in-store + fulfillment) key store evaluation metrics (9 new store locations planned through F& w/ 14 closures announced for FY15). (4) Off-Price – creating a team to explore potential opportunities for a Macy's off-price business (noting early stage process). Importantly, with cost savings strategically reinvested we deconstructed our forward looking SSS build with our math pointing to sustainable low-single-digit comps for the next 3 years embedding negative low-single-digit brick & mortar comps (w/ online moving to 20-25% of sales by FY17).

Shares of Macy’s have dropped 2.6% to $66.05 at 3:44 p.m. today.

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