Takeaway: Golf clap to M CEO for transparency at GS. BUT, it highlighted so many challenges inherent to his successor, AND the KSS/JWN’s of the world.

Macy’s is always salient when the company presents at a conference – especially when it sends Terry Lundgren, who rarely makes Wall Street appearances unless he has fires to extinguish (like when he had to jump on the 3Q15 (Nov) conference call to tell activist investors that he wasn’t going to do a REIT deal).  No big bombshells from today’s GS conference, but we had a few takeaways [in italics].

Store Closures

-America has too much real estate - way out of proportion on real estate per capita [Not exactly a NEWSFLASH, but nice when CEOs admit it. Note to Kohl’s and Nordstrom.]

-some rationalization has to happen, and M is taking the first step in getting ahead of the curve. [Our sense is that he’s further defending his decision not to pursue the REIT structure. Note though, that Macy’s progress is slower than he’s intimating as it relates to impact on the P&L]

-others will probably follow [But not fast enough. Let’s be clear, KSS needs to close 400 stores and shrink box size by 30%. Not close 5 stores at a time].

-all of the 100 stores closing are cash flow positive. [This might be the most interesting factoid of all. Traditional standards for anchor tenants has been to keep money-losing stores open so long as they are cash flow positive. Kudos to Macy’s here].

-refocus talent and capital on smaller base [Definitely things we like to hear. Too bad this is not a company in an industry that is investable. But if they follow through on this, it could be a good long – espec at the start of the next eco cycle].

Strategy/Math

-restart Macy's all over again - where stores are critical to omni-channel retail [While omni-channel is a buzzword that has to go away, we get the point. Nothing new, but nice to note.]

-amalgamation of deals over time, companies had overlapping real estate [Terry, this was clear in 2005 when you bought May Department stores].

-don't need density of current foot print, need to drive dot.com sales, which he seems confident he can do. [Nicely said. But he’s leaving. Promises are easy to make when left for successors. Karen likely not far behind. #accountability].

Omni-Channel

-misperception that e-commerce not profitable [No, but there’s a misperception about the capital structure/allocation needed to succeed and take share in this day and age. Also – it is definitely dilutive to margins. We don’t think people assume it is unprofitable.]

-can no longer ‘meaningfully’ leverage store-level fixed expenses. [Obvious, but a big statement from CEO. Golf Clap on his clarity and transparency].

-on the flip side, variable cost structure of online doesn't provide that risk Macy’s sees at retail [Not sure we agree. That’s only true under the current cost structure, which is not right in order to compete and win. The right cost structure will be harder to leverage, but in fairness, should result in higher revenue].