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Why Macy’s Stock Rallied Then Cratered Over Q2 Earnings Report

Last Updated September 23, 2020 2:28 PM
W. E. Messamore
Last Updated September 23, 2020 2:28 PM
  • Macy’s stock rallied some 2.75% by midday Wednesday, only to pull back to 1% below the day’s opening price.
  • At issue is stronger-than-expected online sales, but massive losses in the second quarter as the pandemic raged.
  • Macy’s has to address a fundamental weakness in its competencies: Online should not be less profitable than brick-and-mortar.

Macy’s stock was among those making the biggest moves in the premarket Wednesday morning . America’s number one department store ($24 billion in 2019 sales) rallied around 2.75% by midday to $7.20 a share.

us dept store sales 2019 macys stock kohls nordstrom jc penny dillards
Macy’s 2019 sales swallow up many other major U.S. department stores. Still, Macy’s stock spent 2019 rolling downhill to nearly half its price. | Table: Statista

Meanwhile, the S&P 500 Index extended its record to 3,557 with a gain of around 0.9%. Why was Macy’s stock rallying ahead of the benchmark before turning back?

Macy’s Stock Rallies Despite $431 million Q2 Loss

Watch CNBC’s Lauren Thomas discuss Macy’s CEO Jeff Gennette’s remarks on earnings and opportunities in luxury retail:

Macy’s CEO Jeff Gennette told analysts Wednesday on the earnings call :

Retail today has been disrupted. And while that disruption creates challenges, it also holds opportunity. With many competitors closing or struggling, we see the potential to bring new customers into our brands and gain market share.

The retailer reported stiff losses in the second quarter. Macy’s confirmed Wednesday that its store closings would move forward. About 125 locations, making up around one-fifth of its stores, will close over the next few years .

Yet shares of the embattled retailer surged ahead of the index that gave it the boot on Apr 1  to make room for an air conditioning company. It was no April Fool’s joke. S&P Dow Jones Indices said in a statement:

Macy’s has a market capitalization more representative of the small-cap market space

What was it about Wednesday’s earnings call that gave Macy’s stock more verve than the S&P 500?

Bulls Flip Flop on Long Thesis

Watch Jeff Gennette explain how Macy’s reopened over quarter two:

Despite losing $431 million, or $1.39 a share, CNBC’s Lauren Thomas pointed to unexpectedly strong growth in online sales for the rally . But it’s interesting that Macy’s bulls rallied shares 4.9% (from $14.50 to $15.22)  last November, the day its third-quarter earnings reported the exact opposite. Thomas then reported the exact flip opposite quarter as the bulls’ grounds for a rally :

Macy’s online sales growth slowed. But that also means it’s more profitable

Weaker online sales, with better profits as a silver lining, boosted shares then. Massive earnings losses, with stronger online sales, are what boosted shares this morning. Because they’re contradictory, one or both of those theses must be wrong. Today, the bears seem to insist it’s the second one.

And closing down 125 locations doesn’t look like it cuts costs for Jeff Gennette if online is more expensive for Macy’s than brick-and-mortar sales. It seems like a retreat into a market where Macy’s has massive disadvantages and lower profits.

Along with Thomas, MarketWatch’s Tomi Kilgore points to Macy’s lighter-than-expected losses  for the morning’s market gains. But if markets had already priced in the losses, why did they leave out the pricing in an increase to online sales?

They already knew online sales would grow during these last few months. The stock market made enormous, correct bets on that this year, with Amazon, Zoom, and maybe even Tesla.

The bulls sure wear rose-tinted glasses on this one. Maybe some of these New York financiers are attached to this stock.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.