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Macy’s (M) Stock Rises on Q1 Earnings Beat, FY18 View Up

Zacks

Macy’s, Inc. M delivered the fourth straight quarter of positive earnings surprise, when it reported first-quarter fiscal 2018 results. Total sales also came ahead of the consensus mark after falling short of the same in the preceding two quarters.

The company highlighted that impressive performance across Macy’s, Bloomingdale’s and Bluemercury brands boosted results. Management hinted that North Star Strategy, comprising merchandising and marketing activities, bode well for the company.

Sturdy results prompted this US department store chain to lift sales and earnings view for fiscal 2018, thereby sending shares up roughly 6% during pre-market trading hours. In fact, in the past six months, the stock has rallied 47% compared with the industry's gain of 40%.

Let’s Delve Deep

Macy’s posted adjusted earnings of 48 cents a share, excluding impairment and other costs, compared with 26 cents reported in the year-ago period. Also excluding gain from sales of assets, earnings came in at 42 cents, up from 12 cents delivered in the prior-year quarter. We note that the bottom line comfortably surpassed the Zacks Consensus Estimate of 36 cents.

This Cincinnati, OH-based company generated net sales of $5,541 million that beat the Zacks Consensus Estimate of $5,444 million and increased 3.6% year over year. Comparable sales (comps) on an owned plus licensed basis jumped 4.2%, while on an owned basis comps rose 3.9%. Strategic investments across stores, technology and merchandising are likely to cushion comparable sales growth.

In an attempt to augment sales, profitability and cash flows, this Zacks Rank #3 (Hold) company has been taking steps such as cost cutting, integration of operations as well as developing its e-commerce business. The company registered double-digit growth in digital business.

Moreover, as part of the store rationalization program, the company plans to shut down underperforming stores. These are seen as part of the company’s endeavors to better withstand competitive pressure from both brick-and-mortar discount stores and online retailers, such as Amazon AMZN.

Coming back to the results, adjusted operating income surged 17.4% to $257 million, while adjusted operating margin increased 50 basis points to 4.6%.

Macy's, Inc. Price, Consensus and EPS Surprise

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


Other Financial Aspects

Macy’s, which reached an agreement to end the joint venture with Fung Retailing Limited, ended the quarter with cash and cash equivalents of $1,531 million, long-term debt of $5,857 million, and shareholders’ equity of $5,821 million, excluding non-controlling interest of $20 million.

FY18 View

Macy’s now projects comps on an owned plus licensed basis to increase in the band of 1-2%, while comps on an owned basis are expected to be 20-30 basis points lower than the same. Total sales are anticipated to range from 1% decline to 0.5% increase in fiscal 2018.

Management now envisions adjusted earnings in the range of $3.75-$3.95 per share for fiscal 2018, up from prior view of $3.55-$3.75. The Zacks Consensus Estimate for the fiscal year is pegged at $3.64, which is likely to witness upward revision in the coming days.

Interested in Retail? Check these 2 Trending Picks

Nordstrom JWN delivered an average positive earnings surprise of 16.8% in the trailing four quarters. The company has a long-term earnings growth rate of 6% and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Best Buy BBY delivered an average positive earnings surprise of 19.1% in the trailing four quarters. It has a long-term earnings growth rate of 14.6% and carries a Zacks Rank #2.

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