The situation at Macy’s (M) is as bad as it was when I began covering the company in January of 2016.In my first publication, I offered a very cautious outlook on the retailer, but more importantly recognized the absolute disconnection between management and operational "know how". On January 15, 2016, I authored an article titled Macy's Taking Cue From Peers Who've Seen Mixed Results. Additionally, the article discusses how management has erroneously forecasted the cost of its restructuring and total metric results for some time. But most importantly and as many investors in the retailer thought real estate monetization was worth the investment risk, I warned investors this was an illogical and foolish investment thesis that has never worked for any retailer of scale. 

But within the context of multiple contraction, I would not expect monetization of real estate to provide mid-term appreciation in share price performance that is sustainable.

At the onset of 2016, Macy’s executive team outlined the closing of some 40 stores, which I understood to b a ludicrous notion.With 900+ stores the company would not be able to close just 40 stores and maintain a logistics overhead cost that would be supported by neighboring Macy storefronts. It is literally impossible given the infrastructure and why I stated the following in my original article: 

“Moreover, Macy's will be closing 40 stores and most within the 2016 fiscal year. That is what they have offered to date, but the reality is that even this number has the potential to change as results can quite easily worsen for the retailer. How many stores did J.C. Penney (JCP)  has closed since 2012 and upon its first store closure offering? How many stores did Best Buy and Target wind up closing post their initial store closing disclosures? The numbers almost always, always changes post the original planning. With Macy's operating roughly 900 stores and scheduling the closing of just 40 store units, it seems unlikely that when the company gets into the weeds with these store closures the numbers will change somewhat.”

To make matters worse, and by no means do I enjoy being accurate in my forecasts or analysis for all the wrong/capital depreciating reasons, but a major hedge fund for which I enjoy a relationship went long shares of M.Green Light Capital took a position in the beleaguered retailer at roughly $45 a share.When I became aware of the transaction I immediately emailed my associates at the firm to discuss the matter and why I believed the investment thesis was in error and would be found wanting for capital returns. With the lead analyst covering M for Green Light Capital failing to rationalize the investment thesis against the logic I presented to the firm, I couldn’t help but feel dismayed.As such, I wrote the article Macy's Shares Soar With Green Light Capital Taking Equity Interest.  Since that time Green Light disposed of their investment in Macy’s shares at a considerable loss. 

Shrink to grow has and will not likely work for Macy’s as they outlined the closing of 100 total stores through 2017.This number of store closures will not remain stagnant either as I believe another 30-50 stores will close in 2018. Sears (SHLD) more than a decade after its’ restructuring is still closing stores. What Macy’s outlined in its most recent disappointing press release has less to do with the reality of their situation than it does with maintaining a modicum of retail relevancy. Nonetheless, let’s take a look at Macy’s recent reduction in 2016 EPS expectations.  

• To close a total of 100 stores, 68 in 2017
• Cut 10,000 jobs at store and corporate level
• Expects 2017 sales to see a negative impact of $575 million.
• The company lowers it view on 2016 EPS to $2.95-$3.10 vs. $3.15-$3.40 prior.
• Comparable sales on an owned plus licensed basis fell 2.1% for the holiday period.

Having offered to many investors over the last 12 months that retail monetization would not be the key to an investment thesis in shares of M, here we are today with shares reeling from continued shortcomings from Macy’s and its executive team.My forecast for Macy’s remains unchanged. I anticipate continued struggles for the retailer with the potential for greater shortcomings from sales and earnings in 2017. Just because management has outlined several initiatives to hopefully stem the bleeding of sales and earnings, does not mean the company has addressed the greatest portion of its sales from Macy’s storefronts. It is extremely difficult, as J.C. Penney found, to turn a ship the size of Macy’s in just a few quarters. It takes years to overcome the issues a department store of scale exhibits, especially in a retail environment that is ever changing and lends itself to a variation of consumer spending options. Those options don’t increasingly include brick and mortar purchases.