Macy’s (M) shareholders recently rejoiced over the retailer’s rather underwhelming results, which found Macy’s beating on the bottom line and narrowly missing on the top line. Macy’s beat the average analyst EPS estimate by $.04 a share, reporting $.23 per share in earnings. The company missed top-line results by roughly $30mm, which was a net sales decline of 6.2% year-over-year. Total net sales reported were $5.28bn for the Q3 2017 period. The worst part of the reporting metrics for Macy’s was their continued deterioration in comp sales.In the 3rd quarter, the company reported a negative 3.6% same-store sales comp, worse than previous guidance and worse than analysts had expected. But where there is bad news there is also good news in that the company did manage to increase gross margins by roughly 10 basis points to 39.9% in the quarter.  

Macy’s admits that its sales results were worse than expected and blames a portion of the undesirable results on the hurricanes that ravaged Texas and Florida during the quarter, forcing store closures. The retailer offered about 70 total basis points of sales losses due to hurricanes, unseasonably warm weather and international tourist spending during the quarter, which if added back to the sales comp would still find the retailer missing sales estimates by 30 basis points in the quarter. Again where there is bad there is also good and the good sales news continues to come from Macy’s online sales growth. The retailer grew its e-commerce sales by double-digits for a 33^rd consecutive quarter. While that is certainly good news, given the scope of the 3-year long sales decline it also highlights the insignificance of the retailer’s online business when compared to where greater than 85% of its sales are captured, in store. 

When we analyze the decline in the Macy’s retail business over the last 3+ years we continue to look for a bottoming of results.Such a bottom would likely be spirited by previously positioned sales initiatives. But by and large the sales initiatives put forth by Macy’s during this extended decline have been proven of little to no significance. As such it remains illogical to expect future sales growth beyond low bar expectations and momentary growth that only finds additional sales declines thereafter. And what are the positioned sales initiatives Macy’s has in place?

Macy’s Backstage has been a bright spot for the company over the last several quarters, proving to add sales to those 38 plus stores the concept is currently operating.Unfortunately, scaling this merchandise and brand concept takes ample time and comes at a cost.Macy’s has over 700 storefronts for which the cost to implement Backstage across the chain would cost millions of dollars and likely curtail gross margins at the onset.Having said that, Macy’s has offered to scale Backstage at an accelerated pace in 2018. My assessment of the Backstage sales initiative is that the treasure hunt concept of goods is obviously nothing new and while it may provide initial sales lifts within the stores it operates, it will not be able to offset the declines in Macy’s greater category of sales, apparel.Simply put: Backstage has no possibility of proving incremental to the totality of sales. It can help, but it can’t offset!

Another sales initiative put forth by Macy’s is their Loyalty program that launched in the latest quarter. What makes this initiative so unique is… well nothing! Unfortunately, this is Macy’s attempting to play catch up with most of its competitors that already have an established loyalty and rewards program like Kohl’s (KSS), J.C. Penney (JCP), Target (TGT) etc. There is just nothing unique or differentiating about a loyalty program and as such it will prove extremely difficult for Macy’s to gain market share with this initiative. At best Macy’s can possibly extrapolate that much more spending from its already loyal customers.And of course, Macy’s articulated that very assertion on its most recent conference call with regards to its loyalty program. 

And just to remind everybody, our overall goals for the loyalty program: number one, we wanted to strengthen our relationships with our best customers, and that’s about 10% of our customer base that currently account for about half of our sales. Second, within our existing customer base, we wanted to migrate customers up to higher spending levels. And third, we wanted to use the loyalty program to attract new customers to Macy’s and encourage those infrequent Macy’s shoppers to come to us more often.

It’s right there in the verbiage folks. 10% of Macy’s customers account for nearly 50% of its sales. Now management desires investors to assume this means there is a great opportunity given how much market share there is presently to capture, but after oh so many years and oh so many attempts, I would caution investors to align with management assumptions that have consistently failed even their forecasts and objectives. An investor would truly have to believe that the Macy’s loyalty program is unique, is differentiated from its peers and is the “GOLD” the company has been in search of to return to sales growth long-term. An investor would also have to ignore the fact that the existing loyalty programs in place from its peers that have not found long-term sales growth were all anomalies. All of them, they were all anomalies, which is obviously an oxymoron and more obviously illogical. That’s a lot of hope and ignoring of past results that one would have to align for as an investment thesis in Macy’s.