On Wednesday, Citi increased its price target for Macy's (NYSE:M) shares to $22 from the previous $18, maintaining a Neutral stance on the stock.
The adjustment follows Macy's fourth-quarter gross margin and earnings per share surpassing consensus expectations, despite a 5% decline in comparable store sales. Management anticipates a further decrease in sales for the first quarter, projecting a drop between 2% to 5%.
Macy's management has outlined a strategy to close and monetize approximately 150 stores, which equates to 25% of total square footage but only around 10% of sales, over the next three years. The projected proceeds from these sales are estimated between $500 million to $650 million, translating to roughly $18 to $22 per square foot or about $4 million per store. This move has been met with mixed reactions, with some viewing the expected proceeds as modest, while others see potential in the decision to streamline the store fleet and focus on cash flow.
"We lean more positive on mgmt making moves to right-size the fleet, real estate monetization and focus on cash flow," said Citi analysts.
The company's guidance for fiscal year 2024 suggests a continued decline in EBIT margin, expected to fall by 70 to 140 basis points. This forecast underscores the ongoing challenges Macy's faces in trying to expand margins amidst falling sales.
The store closures are part of a broader initiative by Macy's to optimize its operations and improve financial performance. The identified stores for closure are reportedly less valuable in terms of sales per square foot, suggesting that the remaining stores in the fleet may hold greater value.
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