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Macy’s (M) to Report Q4 Earnings: What’s in the Cards?

Zacks

Macy's, Inc. M, one of the leading department store retailers, is slated to report fourth-quarter fiscal 2016 results on Feb 21. In the preceding quarter, the company recorded a negative earnings surprise of 57.5%. Barring the third quarter, the company has outpaced the Zacks Consensus Estimate in the second and first quarters by 35% and 14.3%, respectively. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The question lingering in investors’ minds now is, whether Macy's will be able to post positive earnings surprise in the quarter to be reported. In the trailing four quarters, Macy's outperformed the Zacks Consensus Estimate by an average of 1%. The current Zacks Consensus Estimate for the quarter under review is $2.00, reflecting a year-over-year decline of over 4%. We noted that the Zacks Consensus Estimate has declined by 3 cents over the past 30 days. Analysts polled by Zacks expect revenues of $8,598 million, down about 3% from the year-ago quarter.

Macy's forms part of the Retail-Wholesale sector. As per the latest Earnings Preview, total earnings for the sector are expected to decline marginally by 1%, however, revenue is projected to improve 4.8%.


Factors at Play

We believe Macy’s sustained focus on price optimization, inventory management, merchandise planning and private label offering act as the primary catalysts. In an attempt to augment sales, profitability and cash flows, the company has been taking steps such as integration of operations as well as developing its eCommerce business and Macy’s Backstage off-price business. Further, it is carrying out the expansion of Bluemercury and online order fulfillment centers.

Macy's Inc Price, Consensus and EPS Surprise

Macy's Inc Price, Consensus and EPS Surprise | Macy's Inc Quote

However, a competitive retail landscape, a mature domestic market and cautious consumer spending continue to pose concerns. The impact of these was visible in the dismal holiday season performance. Comparable sales on an owned plus licensed basis decreased 2.1% during November and December period combined, while on an owned basis, comparable sales fell 2.7%. As a result, Macy’s now envisions fiscal 2016 earnings in the band of $2.95 to $3.10, down from a range of $3.15 to $3.40, forecasted earlier.

Moreover, Macy’s dwindling top-line and bottom-line results also remain the primary concern for investors. A look at the company’s performance in fiscal 2015 unveils that net sales declined 0.7%, 2.6%, 5.2% and 5.3% in the first, second, third and fourth quarters, respectively. Maintaining the same chronological order, we note that earnings per share fell 6.7%, 20%, 8.2% and 14.3%, respectively. In fiscal 2016 net sales decreased 7.4%, 3.9% and 4.2% in the first, second and third quarters, while earnings per share declined 28.6%, 15.6% and 69.6% during the respective quarters.

Nevertheless, in a bid to calm investors’ jitters, the company has announced slew of measures revolving around stores closures, cost containment, real estate strategy and investment in omni-channel capabilities.

Zacks Model Shows Unlikely Earnings Beat

Our proven model does not conclusively show that Macy's is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Macy's has an Earnings ESP of -3.50% as the Most Accurate estimate stands at $1.93, while the Zacks Consensus Estimate is pegged at $2.00. Macy's Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Dollar Tree, Inc. DLTR has an Earnings ESP of +0.75% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Papa John's International, Inc. PZZA has an Earnings ESP of +4.55% and also carries a Zacks Rank #2.

Costco Wholesale Corporation COST has an Earnings ESP of +0.74% and carries a Zacks Rank #3.

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