What a difference one quarter can make.
Three months ago Macy's (M) was at a crossroads. Jana Partners was urging the iconic retailer to separate its e-commerce business from the brick-and-mortar stores, a move that the activist investment firm said could double the retailer's stock price.
Jana estimated that the online business could be worth about $14 billion, double Macy's market cap at the time of $6.9 billion.
But if Macy's can complete its turnaround - and Tuesday's earnings results could be an indication that the company is on its way to doing just that -- the e-commerce business could be worth even more as part of the 163 year-old Cincinnati company.
"Our business has changed dramatically since 2019. Digital has been a particular priority for us," Macy's CEO Jeffrey Gennette said. "The actions we took have led to a stronger digitally led retail business."
Macy's Digital Plan Is Working
Macy's says this turnaround has been driven by the Polaris strategy, which it introduced two years ago when "our digital team worked as a siloed organization. Today it is fully integrated," Gennette said.
Polaris is Macy's plan to stabilize profitability in the company. Part of the strategy was to speed up digital growth and relocate its digital business to New York City, which it called the heart of the fashion industry, from San Francisco.
"We've seen the results of this work pay off throughout 2021 from increased speed of delivery to operational efficiency and to better inventory utilization," Gennette said.
"And finally we've invested in advanced technology and data science throughout our operations, enabling us to increase productivity and profitability of the entire business,"
Macy's reported adjusted fourth quarter earnings more than tripled from a year earlier to $2.45 a share, as net sales rose 28% to $8.67 billion.
Same-store sales were up 28.3% from a year earlier and up 6.1% from the comparable prepandemic period of January 2019.
To transform its digital business, Macy's is following Amazon (AMZN), the leader in e-commerce. The company said it was delaying "most of the remaining closures" it had earmarked in 2019 as it looks to turn its physical stores into fulfillment hubs.
The company envisions its stores as brick-and-mortar warehouses that support its growing digital operations as consumers buy online, pick up in-store or curbside, and request same-day delivery.
"We have modernized our digital platform and now offer an engaging and convenient experience with the power to meet customers whenever and however they choose to shop," Gennette said.
Will Macy's Recent Quarter Persuade the Activists?
While Macy's stock is benefiting from the strong quarter -- its shares were up nearly 3% at last check -- one strong quarter does not a turnaround make.
The activists that were after the company before might not be persuaded by the one strong digital quarter.
Saks Fifth Avenue, a higher end apparel retailer, recently said it planned to split off its e-commerce unit, which it said would allow Saks.com to grow stronger.
Scrutiny from Jana, which owns 4.6 million shares (about 1.5%), prompted Macy's to partner with consulting firm AlixPartners in November to review its business structure.
"(We) recognize the significant value of the market assigning to pure e-commerce businesses. And as we look at the landscape today, we are undertaking additional analysis that could help inform our long-term strategy to further unlock value for Macy's," Gennette said at the time.
