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US economy

Macy’s: parade grounds

The Macy’s Thanksgiving Day Parade that processes down Sixth Avenue in Manhattan has little to do with religious observance or the consumption of turkey. Marching bands, floats and baton twirlers aside, it is ultimately a ploy to inspire American viewers to Christmas shop until they drop the next day — preferably at Macy’s itself.

The way those Macy’s customers shop is changing fast. A year ago, survival seemed in doubt. Sales and foot traffic were crashing across all department stores. Since last Thanksgiving, Macy’s shares are up 60 per cent. Its initiatives to allows customers to shop online or in slicker, redesigned stores have paid off. But even for a retailer that has upended its business model, ambitions remain modest.

So far in 2018, like-for-like sales growth at Macy’s has turned positive at 2.7 per cent. The chain, best known for anchor locations in large shopping malls, offers three different formats. The smallest is designed for shoppers who want to pick up what they purchased online (mobile sales will hit $1bn in 2018). Macy’s has also expanded its Backstage banner, which sells discounted apparel. The group has also shut or sold dozens of unprofitable physical locations while it revamps its property portfolio.

The quick turnround at Macy’s has been helped by a turbocharged US economy that has left consumers with ample disposable income. Still the US economy has not been able to save the likes of Sears, JC Penney and many other legacy retailers.

Macy’s has clung on. But it has shrunk. At the start of 2015, analysts expected its 2018 earnings per share to be nearly $7. That figure will ultimately be just above $4. The good news is that analysts were expecting less than $3 a year ago.

It is rare for stock pundits to revise numbers up rather than down. It is even rarer when the business is a US department store chain. But scepticism remains about the durability of the revival. Macy’s shares trade at just eight times forward earnings, just over half where they did four years ago. That is a little bit of rain on the parade.

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