Macy's is bouncing back in 2021 by 'bringing in newer customers' with digital presence: Analyst

Christine Short, Wall Street Horizon VP of Research, joins Yahoo Finance Live to break down Macy's earnings and the outlook for the retailer as it invests in its digital presence and battles depressed foot traffic.

Video transcript

JARED BLIKRE: Welcome back. Macy's is having its best day ever. I just did the calculations, up over 20%, and that's after reporting great expectations for the holiday season. And we want to bring in Christine Short to help break it down. She is a Wall Street Horizon vice president of research.

And when you dig through this report, and I didn't listen to the call, but I got some notes off of it, a lot of this buzz, I think, has to do with the new curated digital marketplace. And it kind of ties in with their activist investor, JANA Partners, only recently buying about 1 and 1/2% of the stock. They want to eventually flip the digital business from macys.com and bloomingdales.com. What do you-- break this down for us. What do you see the potential in this new direction here?

CHRISTINE SHORT: Yeah, I think, as you said, that's really why we're seeing this big pop in Macy's today. Yeah, it's great they blew out earnings expectations, but we've seen a lot of companies do that this quarter. And they don't necessarily get the pop from investors that we're seeing here at Macy's. But it's that they tease this digital marketplace that they're spinning out, ready to launch likely second half of 2022, and as you mentioned, really brought on by activist investor JANA Partners. They have been pushing for them to spin out their e-commerce unit, looking to get a higher valuation.

So it's very similar to a plan from Saks earlier this year. And they're really seeing value in the e-commerce business. And I think it's smart. If you see where their sales came in last quarter, that's where the attention is. And so, I think they're shifting appropriately. What I think is amazing is, you know, not too long ago, every article we saw about department stores was that they were dead, and Macy's was sort of leading the charge there.

But the CEO has actually been able to cater to younger consumers who don't typically shop at department stores. So they were able to add about 4 and 1/2 million new customers, younger millennial customers, which isn't usually their target. And so they're doing a great job at not just, you know, going where they have strength, going towards e-commerce where everything is trending, but also bringing in new customers.

AKIKO FUJITA: Yeah, Christina, I'm thinking back to right when the pandemic hit, and we were talking about retailers struggling. There were questions about whether Macy's would survive and be on the other side of this pandemic. The digital marketplace specifically, I mean, yes, Macy's is starting to steer in that direction. But you could argue they're kind of a little behind the ball, compared to some of its competitors. How do you think they need to deliver on this? What do they need to build out in order to stay in the game when there are so many other retailers who are well ahead in their digital plans?

CHRISTINE SHORT: Yeah, it's a good point. I mean, even well before the pandemic, foot traffic at malls was way down. So this isn't necessarily a COVID issue for Macy's for traffic to malls, which is where you find Macy's. It has been down for a decade. And then it doesn't help that you have the pandemic. I think to help steer the digital platform, sure, this seems like a last ditch effort. They are well behind in their omnichannel and their digital presence, but the fact that they're investing money towards it certainly helps, the fact that they are bringing in newer customers, and they're taking advantage of the economic environment.

So I think it helps that people are back out there, ready to spend again. And so, rather than buy back shares or whatever else they could be doing with the cash they have on their balance sheets, they are investing in this business. They said they've hired AlixPartners as a consultant. So they are serious about investing in their digital marketplace.

JARED BLIKRE: And then let me just follow up on that and ask you, if there were some kind of spin-out of its digital business, we might be looking at, once again, a Macy's that's only brick and mortars, as it probably was about five, 10 years ago for the most part, and then another digital business. How does that fit together? How does that work and unlock value?

CHRISTINE SHORT: Yeah, I think you've got to look at the example that Saks, possibly IPO-ing their e-commerce business, which is a rumor right now, and then Saks being a completely different brick and mortar. I think Macy's will maybe see how that goes. But that might be seen as the model going forward.

And yeah, there will be different ways that they handle each of those businesses, but I think they're looking to Saks and to see how that situation goes, because then, again, like you said, then you still have the brick and mortar side, and how do you prop that up? But I think right now and the reason JANA Partners got involved is because they see valuation increasing on that e-commerce side. And that's really the focus.

AKIKO FUJITA: Christine Short, Wall Street Horizon vice president of research, it's good to talk to you today. Appreciate the time.