Retail

Should Macy's Have Hired 86,000 Holiday Workers?

Macy’s Inc.’s (NYSE: M) forecast sales for the current quarter were bad enough to knock its stock down by double digits. With such a gloomy outlook, does Macy’s management regret adding 86,000 holiday workers? If management does not regret the move, should it?

Macy’s management announced the job additions on September 21, almost certainly before it had good visibility about how traffic trends would be in the final two months of the year. The 86,000 was aggressive. Much larger Wal-Mart Stores Inc. (NYSE: WMT) added 60,000. Amazon.com Inc. (NASDAQ: AMZN), in much better shape than Macy’s in terms of sales growth, added 100,000. And Macy’s has only 900 stores, much fewer than most of its large competitors, and it is closing 35 to 40 of them.

The troubling part of Macy’s forward looking statement is how much it dropped from previous forecasts:

The company has revised its 2015 guidance. Earnings per diluted share for the full-year 2015 now are expected in the range of $4.20 to $4.30, excluding asset impairment charges associated primarily with previously announced store closings. This compares with previous guidance in the range of $4.70 to $4.80.

Also:

Guidance is for full-year 2015 comparable sales on an owned plus licensed basis to decrease by 1.8 percent to 2.2 percent, compared with previous guidance of approximately flat. This calculates to fourth quarter comparable sales on an owned plus licensed basis to decline by 2.0 percent to 3.0 percent.

Many analysts who looked at the numbers assume that Macy’s is being further buried by Amazon, more than by brick-and-mortar competitors. No amount of discounts or free shipping will to overcome Amazon’s effect on Macy’s. And based on what Amazon has done to hurt other retailers, like Best Buy Co. Inc. (NYSE: BBY), Macy’s efforts to get sales back on track may be hopeless. If Macy’s misses its horrible forecasts on the downside, and Amazon posts a quarterly increase of 25% for the holidays, the evidence of how broken Macy’s model is will become clearer.

Macy’s addition of 86,000 temporary workers was a mistake, and the retailer is about to find out how foolish the plan is.

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