The main Macy’s (M) investment thesis is no longer valid.

For the past two years or so, Macy’s management has pitched the retailer as above the generally disastrous scene unfolding at malls across the country. That scene is characterized as an insane number of store closures at once-formidable apparel chains, terrible customer traffic amid the shift to online shopping, and higher than normal in-season markdown levels.

Macy’s has consistently tried to spin a different tale.

One of a legacy department store created through various mergers that was early to shutter unprofitable stores to cut costs and hopefully meet quarterly earnings. One that now has traffic-driving off-price outlets inside a good number of Macy’s locations. One that has about 50 stores where new growth initiatives are being tested, and then soon applied to the rest of its fleet of 680-plus department stores. One that is racking up big sales online, especially on mobile devices. One that has ample opportunities to monetize unproductive real estate, which could then be plowed into needed capital investment and god knows what else.

Unfortunately for Macy’s, its disastrous second quarter earnings release and material cut to its full-year earnings guidance on Wednesday officially kills its entire thesis. It’s dead, done, gone. Actually, Macy’s stock being down 60% this past year suggested well before Wednesday’s awful results that it was struggling — the numbers Wednesday just confirmed Mr. Market’s helpful early insights.

The problem here: Macy’s has proven to be just another retailer caught in the seismic shift in consumer shopping. That’s not a great place to be — just ask Sears, J.C. Penney (JCP) and, Payless ShoeSource.

A very disappointing quarter

Customers visit the Macy's headquarter on February 25, 2019 in New York City. (Photo by Eduardo Munoz Alvarez/VIEWpress/Corbis via Getty Images)

Macy’s badly whiffed, across the board, in the second quarter. This writer isn’t shocked — many trips to various Macy’s stores this year have yielded very lean inventory levels and a lack of associate help. In large part, this could be due to Macy’s $100 million plan to streamline costs — that has included canning at least 100 vice presidents. Morale is low in the stores, according to sources.

Whatever way one slices it, Macy’s has left itself in a position to disappoint the shoppers who do wander into its stores. Has the cost-cutting gone too far? Perhaps, but what other choice is there when you have pricey leases and weak traffic? Not many, if you want to be profitable.

At least that’s the takeaway from the second quarter:

Earnings of 28 cents a share badly missed Wall Street analyst estimates for 45 cents a share.

Earnings of 28 cents a share tanked, versus the 70 cents a share reported a year ago.

Same-store sales rose a meager 0.3%.

Full-year earnings guidance slashed to $2.85 to $3.05 a share from $3.05 to $3.25 previously.

There’s no estimate baked into guidance on the impact of apparel tariffs. But Macy’s CEO Jeff Gennette said Wednesday it would not raise prices if new tariffs are imposed.

“Rising inventory levels became a challenge based on a combination of factors: a fashion miss in our key women’s sportswear private brands, slow sell-through of warm weather apparel and the accelerated decline in international tourism. We took markdowns to clear the excess spring inventory and are entering the fall season with the right inventory to meet anticipated customer demand,” said Gennette in a statement.

Gennette did his best to sound upbeat on the holidays during a conference call with analysts. Macy’s declined to make Gennette available for an interview with Yahoo Finance.

The market is having none of it — the stock collapsed more than 15% by midday trading Wednesday. It’s the correct market reaction given the current state of Macy’s.

Much like J.C. Penney and Sears

Macy’s will probably end Wednesday’s trading session with a stock that: (1) yields more than 10%; and (2) trades on a paltry forward price-to-earnings multiple of five times. For perspective, the S&P 500’s forward P/E multiple is 16.5 times.

Calls to cut the dividend due to the waning health of the business ($463 million paid out a year in dividends... all of which could be better used elsewhere, or saved) and excess yield on the stock are likely to rise, a source tells Yahoo Finance.

All of this reflects the reality Macy’s is facing in this modern era of retail. And this could no longer be swept under the rug by investors and executives, which the department store will attempt to do at a presentation at Goldman Sachs on September 5.

Nope, Macy’s is showing that it’s barely a notch up than J.C. Penney and Sears. Better fundamentally for sure, but not by a wide amount thanks to changes in how people shop and live. The market is realizing that and is unlikely to forget it over the next year.

Brian Sozzi is an editor-at-large and co-host of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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