Turnarounds uncertain at Macy's, Kohl's, Nordstrom as department stores enter the holiday season

The S&P 500 is up 27% on the year.

Macy’s CEO Tony Spring is trying to turn around the business with a plan it unveiled in February dubbed “Bold New Chapter.” The playbook includes investments online and in the company’s top-performing stores. It also involves shuttering 150 underperforming stores by 2026 and more layoffs.

“If I told everyone that I had a business, that we could be in the cosmetics business, we could be in the women’s apparel business, we could be in the men’s business, we could be in the home business, we could be in the electronics business, you might call that a marketplace, and a marketplace is very attractive to people,” Spring explained at Yahoo Finance’s Invest conference earlier this month.

The results have been mixed.

The company said in its preliminary release this week that in the 50 stores where Macy’s has invested in better staffing, product assortment, and visual displays, third quarter same-store sales grew for the third straight quarter, up 1.9% year over year.

The company didn’t disclose third quarter online sales, but online sales for the second quarter fell 7% from the prior year to $1.43 billion.

Meanwhile, Kohl’s stock has crashed 46% this year.

A drop in foot traffic, a pullback in investing in private apparel brands, and the removal of fine jewelry to make room for in-store Sephora cosmetics shops have been detrimental to sales growth, Dana Telsey of Telsey Advisory Group wrote in a note to clients.

The retailer plans to reintroduce fine jewelry to 200 stores this holiday season.

Kohl’s also needs a more structured online business that was once “way too promotional,” Morningstar’s Swartz said.

The retailer said this month that Ashley Buchanan will be its next CEO, the third since 2018. He’ll take the helm in January.

Nordstrom has been performing better compared to its department store peers as it leans into e-commerce.

Jefferies analyst Ashley Helgans said that Nordstrom has benefited from “leading with brands first and price second.” The company has also focused on “improving selection and depth of customers’ favorite brands,” from Decker’s (DECK) running sneaker brand Hoka and On Holding’s (ONON) performance shoes to dressy and contemporary men’s apparel brands.

But Nordstrom is still staying cautious this holiday season.

The company noted an “uncertain” external environment when it reported earnings earlier this month and reaffirmed its full-year profit guidance.

“Across all of our businesses … we saw a slowing in the trends” starting the last week of October, CEO Erik Nordstrom said on an earnings call.

Nordstrom shares have jumped 22% to $22.62 amid a buyout proposal.

All three companies will likely go private to stay out of Wall Street’s penalizing gaze, per Swartz.

In September, Nordstrom’s founding family teamed up with retail investor El Puerto de Liverpool to take the company private. The two parties own 33% and 10% of the company, respectively, and the group is offering $23 per share or $3.8 billion for the rest. Nordstrom’s board acknowledged the offer but has not yet announced a decision.

“Given the way that the deal is structured … there’s a very good chance that it does get completed,” Swartz said.

Both Macy’s and Kohl’s have rebuffed buyout offers within the past two years, reasoning more value could be achieved by executing their turnaround plans.

But time is ticking, and industry dynamics are only intensifying. It’s plausible Macy’s and Kohl’s entertain offers in the future to get certainty for shareholders.

“Another hedge fund or private equity [firm] … is going to say, …’Wow, this is dirt cheap. I can buy this company and extract all kinds of value from it,'” Swartz said.

“That’s still the case for both Kohl’s and Macy’s,” he said. “They still have real estate. They still generate cash flow, their valuations are still extremely depressed, so they’re still attractive.”

How the holiday season shakes out may force their hands.

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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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