Wall Street has praised Macy's for reporting quarterly results that were not as bad as its rivals, sending its stock up as much as 8 percent today.

While Nordstrom and J.C. Penney reported declines of 6.5 and 7.4 percent, respectively, in sales at stores open at least a year, Macy's sales fell a mere 2.6 percent.

Absent write-offs for its $150 million restructuring plan, the company would have had a profit of 2 cents per share for the quarter, exceeding analysts' consensus estimate by 4 cents.

But when today's euphoria wears off, investors will be faced with a harsh reality: Macy's has already lost $59 million this year, its revenue has fallen 2.9 percent, and shares have declined almost 40 percent in the span of a year.

The retailer is still struggling to integrate the May Department Stores chain (acquired in 2005) while facing one of the toughest consumer environments in recent memory—especially for mall-based stores, where traffic has fallen 10 to 12 percent this year alone.

Three months into the restructuring, investors should be asking themselves whether Macy's turnaround plan is all that it's cracked up to be.

After a few years of trying to build a single nationwide identity, Macy's has scrapped that idea and reversed course to pursue a localization strategy called My Macy's.

My Macy's aims to tailor merchandise assortments, size ranges, and marketing efforts to individual store locations, requiring the company to roll out new technology while roughly doubling management talent at the local market level.

Under the new plan, locally based executives overseeing Macy's 800-plus stores will be empowered to make more decisions, allowing stores to react better and faster to changing trends—mimicking companies like Zara and H&M that have had success with that structure.

"With such a large number of stores, the challenge is how you be big and unique all at the same time," says Dana Telsey, chief executive and chief research officer of retail consulting firm TAG. "Localization really is an effort to do just that."

While Telsey is optimistic about Macy's progress and potential, analysts like Britt Beemer, chairman and founder of America's Research Group, have serious concerns about the department store chain's ability to deliver on the promise.

"Localizing stores to the marketplace is extremely valuable, and it gives you a competitive advantage if it's done right, but I see nothing in their organization that shows they have that capability," Beemer says.

Kelly Tackett, a senior consultant at TNS Retail Forward, agrees that localization is a step in the right direction for Macy's; but she also believes that getting more sophisticated technology and more capable local management is a process that is longer and more arduous than the retailer may realize.

"It will probably take a while to realize benefits, and won't move the needle in the short term mainly because they have such a large store base," Tackett says. "Wal-Mart Stores has been in the process of shifting to localization for years, and one of the problem areas for them has been apparel."

While Macy's today affirmed an optimistic outlook for 2008, Charles Grom, an analyst with J.P. Morgan Chase, expressed worries that the company's 2008 guidance was too rosy.

"Complicating matters, in addition to today's macro headwinds, we think the divisional merge will create more disruption than management is anticipating," Grom wrote in a May 12 note.

And Beemer believes that Macy's problems extend well beyond the localization issues, to everything from staffing levels to employee morale to lack of attention to male shoppers, none of which are overtly addressed in the restructuring plan.

"My personal opinion is that Macy's is in huge trouble," Beemer says. " The only way Macy's will make it is for someone to take it private and spend a few billion dollars re-merchandising the store."