Macy's (M) seeks to shutter 150 of its "underproductive" retail locations over the next several years into 2026, outlined in its fourth-quarter earnings report. The retail chain rebuffed a $5.8 billion buyout offer from activist investors in January. Morningstar Equity Analyst David Swartz explains the message this sends for new CEO Tony Spring — who began his role as chief executive in early February — while also examining Macy's business model.

"I would have to say this is a disappointing way to start out a new job as CEO at Macy's, having to close 150 stores and lay off a lot of people," Swartz tells Yahoo Finance. "That doesn't exactly generate a lot of excitement among investors or employees, I would imagine. And, so, at this point, it's hard to have a lot of confidence at all on Macy's turnaround plan."

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Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

SEANA SMITH: Macy's, a top-trending ticker here at Yahoo Finance. You've got shares sliding off just about 2% after reporting comp sales fell just over 4%, 4.2% decline in the fourth quarter from a year ago. Now the retail giant also announcing that new initiative that Brooke was just talking about, including plans to close 150 locations through 2026.

For more on these results, let's bring in David Swartz. He is Morningstar's Equity Analyst. Joining us now, David, it's good to have you here. So the new CEO Tony Spring really trying to engineer this comeback as our reporter Brooke DiPalma put it just a few moments ago, describing 2024 as a year of transition, as a year of investment. I'm curious to get your thoughts on his plan here, and whether or not it's really going to move the needle when it comes to stabilizing profitability.

DAVID SWARTZ: So they have a lot of confidence in it because this is not Macy's first turnaround plan at all. Macy's has been closing underperforming stores for years. And it certainly begs the question, if Macy's has closed all these underperforming stores, then why haven't its results improved?

A lot of analysts, including myself, have long argued that Macy's needed to close more stores. So really, this plan is overdue. It's really long overdue. Macy's has a lot of stores and malls that are not viable in the long-term, and this has been apparent for years. I would have to say that this is a really disappointing way to start out a new job as CEO at Macy's having to close 150 stores and lay off a lot of people. That doesn't exactly generate a lot of excitement among investors or employees, I would imagine.

And so at this point, it's hard to have a lot of confidence at all in Macy's turnaround plan.

BRAD SMITH: And so David, with that in mind, I mean, department stores have been struggling. Macy's is no different than any of the others in this kind of basket of players within the space. And looking across their portfolio, like you were mentioning, having to close stores almost, kind of, tapping into some of the early elements of the Sears playbook, how do they avoid the demise that a Sears had to go through?

DAVID SWARTZ: Macy's is still different than Sears. Sears had problems because it was primarily a hardware type of store. That's what Sears was known for. And Sears sold different stuff than Macy's sells. And so I do think there's a place for Macy's in the future. And in fact, I think the stock is undervalued. My fair-value estimate is $25.

And there's a reason why that investment group led by Arkhouse is interested in buying Macy's. Macy's does have very strong e-commerce. It does $7 $8 billion a year in online sales. It has 40 million active customers, has millions of credit card holders. So Macy's does have strengths. The problem is that Macy's is operating a business model that doesn't work anymore, and hasn't worked for years because the market no longer needs these 180,000 square foot department stores that Macy's operates. And so there's really been a transition that's been going on for probably 15 plus years, and it's really not even close to ending.