Why Did Macy's, Inc. Shares Gain 13% in February?

What happened

Macy's (NYSE: M) may have found the formula it needs to survive the retail apocalypse. At least, that's what its fourth-quarter results suggest, which is happy news for the company and its investors.

Fourth-quarter sales rose by 1.8% to $8.66 billion. Comparable sales on an owned basis climbed by 1.3% and rose 1.4% on an owned-plus-licensed basis. Earnings per share (EPS) also improved coming in at $4.31 up from $1.54 in the same period in 2016.

"Consumer spending was strong in the fourth quarter, and we were ready with improved execution and great products across all categories," said CEO Jeff Gennette in the earnings release. "We were disciplined with our promotional cadence and maintained a good inventory position. We head into 2018 with an improved base business, healthy inventories, a focused and engaged organization and a clear path to return Macy's to growth."

So what

Every struggling retailer has a turnaround plan, but only a few of them appear to be working. Macy's Q4 numbers suggest that the company may have found the right mix for its business.

Shareholders were certainly happy with the results. After closing January at $25.95, shares jumped to $29.41 to close out February, a 13% gain, according to data provided by S&P Global Market Intelligence.

Now what

Macy's has shown that it can succeed, but whether it can maintain success for an extended period remains uncertain. Gennette believes the company has put the plans in place to do that.

"In 2017, we tested and iterated a number of merchandising and strategic initiatives as part of our North Star Strategy," Gennette said. "These initiatives contributed to our fourth-quarter performance, and in 2018 we are ready to scale as well as test additional revenue-driving initiatives."

In its formal guidance, the company has expressed what could be called cautious optimism. It expects comparable-store sales on both an owned and an owned-plus-licensed basis to be flat to up 1%. The chain also expects that overall sales will fall by 0.5% to 2% and EPS will come in at $3.55 to $3.75.

These are modest but attainable goals for the retailer. If it can hit them, then the company can move out of the turnaround phase into a new chapter as a stable, maybe even growing, entity.

10 stocks we like better than Macy'sWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Macy's wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of March 5, 2018

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.