Can Macy’s share price hold out for a post-COVID-19 bounce back?

Macy’s [M] share price looks to be going out of style. The stock has fallen by more than 51% to $7.65 on 4 September.

On 1 April, Macy’s share price hit a low of $4.43 as the coronavirus pandemic induced market meltdown dragged down the stock.

Macy’s share price did manage to recover to $9.55 by 8 June as lockdown measures eased, however it dropped again to $6.26 on 22 August.

As US retail stalwarts continue to adapt and develop their digital expansion plans, Macy’s share price could struggle against competition.

Falling short

Macy’s share price was boosted in early August when it reported better than expected second-quarter results. Even though sales dived 36% year-over-year to $3.56bn as nervous shoppers stayed away from busy areas, it still beat analyst forecasts of $3.47bn, according to Business Insider.

It reported an adjusted loss per share of $0.81, down from a profit of $0.28 per share in 2019, but again beating expectations of a $1.77 per share loss.

Digital sales jumped 53% and luxury goods were in vogue at Bloomingdale’s – in fact, Jeff Gennette, CEO of Macy’s, noted a strong performance across all three brands including Bluemercury.

He also revealed plans to test smaller stores located outside of its traditional mall locations. “We continue to believe that the best malls in the country will thrive,” he said. “However, we also know that Macy’s and Bloomingdale’s have high potential [off]-mall and in smaller formats.”

He added that its strategy to shut 125 stores over the next three years — announced in February — would continue but that it may adjust the closure timeline.

Jeremy Bowman, wrote in TheMotley Fool that a short squeeze, following the encouraging results, also helped to lift its share price. “Short-sellers are buying back stock as Macy’s performance seems to have bottomed out,” he stated.

He added that “47% of the float was sold short as of 14 August, a substantial percentage. Performance should gradually recover as the economy normalises.”

The death of physical shopping

However, some commentators believe it could go the way of competitors such as J.C. Penney [JCP] — declaring bankruptcy because of the coronavirus pandemic and shifting customer habits.

“Do I think they will be around in five years? I am not sure they will be around in three years unless they can address the core bricks and mortar business,” Chris Versace, chief investment officer at Tematica told Yahoo Finance.

According to MarketScreener, analysts have an underperform consensus rating with an average target price of $7.27. Concerns about a second coronavirus wave, the potential of stricter lockdowns and a heavier impact on consumer spending as the recession bites were all given as reasons.

UBS analysts are bearish, with Jay Sole, an analyst at the firm, currently holding a sell rating on the stock. “We think the Street underestimates the pressure on Macy’s earnings from share loss as consumers migrate to online pureplay channels, retailers with better value-for-money propositions such as TJX and brands’ own stores and websites,” he wrote in a note to clients seen by Yahoo Finance.

Sole also expects fashion trends to continue to move away from “work, dressy and event items”, which are important areas for Macy’s.

The group expects its same-store sales to be down in the low-to-mid 20% range during the fall season, CNBCreports, but it has proven to be a survivor during these turbulent times.

Macy’s is developing its online presence, and the smaller store formats may help it meet new customer trends such as working and shopping locally.

Physical shopping will “forever be a thing”, Luke Lango wrote in InvestorPlace. “Macy’s projects to be one of the last men standing in the mall giving it a compelling opportunity to grow market share in a still vibrant category over the next few years. Over the next 12 to 24 months this stock could explode higher as prevailing survival fears ease,” he concludes.