Shares of Macy's (NYSE: M) Surge Back From The Dead

With a 75% pop in their shares over the past two weeks, investors looking at a 6-month chart would be forgiven for thinking that Macy’s (NYSE: M) was some hotshot tech stock starting to blow up. It’s certainly been an incredible month so far for the well-known department store and very sorely needed.

One needs only to stretch out the timeline to a year or more to quickly see the obvious characteristics of a brick and mortar based retailer who was struggling even before COVID arrived. Since hitting all-time highs in 2015 shares have walked a steady path downwards, and as the pandemic shuttered non-essential stores in March, Macy shares hit decade lows. For a while it looked like they might be filing for bankruptcy with their shares destined for penny stock status, but the Ohio headquartered stalwart hung in there over the summer.

Positive Earnings

Now as we turn the corner in the final few weeks of the year, it looks like they might have done just enough to outlast the first year of the pandemic and to give themselves a fighting chance for 2021. The company reported their Q3 earnings last week that came in far better than expected and made plenty on Wall Street sit up and take notice. For starters, though EPS was still firmly in the red at -$0.19, analysts had been expecting -$0.82. And though revenue was still down 22% on the year, it was also better than the consensus.

In tandem with the topline and bottom-line beats, digital sales rose 27%, a key indication that management is finally seeing success in their e-commerce business. They were able to enter Q4 with a clean bill of inventory as well as with solid liquidity. To that end, they reported $1.6 billion in cash and have $3 billion set aside in a credit facility should they need it.

CEO Jeff Gennette struck a bullish tone when he said; “our results were driven by disciplined cost management, strong execution by our colleagues and an early start to the holiday shopping season. We continue to watch the resurgence of COVID-19 and its potential impact on our business. Our teams are executing well and have shown the flexibility and agility to adjust plans and provide a great omnichannel experience to our customers."

With the band aid of uncertainty around the numbers ripped off as well as with the positive beat, investors were only too happy to pile in. Wall Street is also looking favorably upon retailers in general as we enter the holiday season, traditionally their busiest time, especially with a publicly available COVID vaccine closer to development than it’s ever been.

Looking Ahead

A lot will depend on the company’s ability to make the most of the coming holiday season and investors will be expecting a similar beat in their Q4 numbers, due towards the end of February. For now, Macy’s are riding a wave of positivity that has shares at their post COVID highs and, short of bad news, that momentum is likely to carry through into next year.

We’ve seen similar bids start to flow into other COVID-vulnerable industries like airlines and hotels, and now isn’t the time to be thinking of the long term value but more the short term momentum play. If this continues, there’s a good chance management will feel confident enough to reinstate the company’s dividend, which was one of the first casualties of the pandemic.

Were this to happen, it would be a clear signal to the market that management believes they have the wherewithal to bring the ship back from the brink. It might be some time yet before they can get back on track for a run towards 2015’s levels but that doesn’t mean there’s not a ton of opportunity to be found in the meantime.

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