Time New York: Wed 11 Dec 04:41 am  |  Save 15% on H&R Block Online


Macy’s (M) Stock Down on Q2 Earnings Miss, FY19 View Cut


After delivering eight straight quarters of earnings beat, Macy’s, Inc. M reported negative earnings surprise during the second quarter of fiscal 2019. Net sales also fell short of the Zacks Consensus Estimate for the third quarter in row. Moreover, both the top and the bottom line continued to decline year over year. Following the results, management kept its fiscal 2019 sales guidance intact but slashed its earnings forecast.

Lower-than-expected performance and trimmed view gravely hurt investor sentiment. As a result, shares of this Cincinnati, OH-based company were down roughly 15% during the pre-market trading hours. We note that this Zacks Rank #3 (Hold) stock has slid 11% in the past three months compared with the industry's decline of 17%.

Management highlighted that results came below expectations due to inventory challenges in Spring on account of “fashion miss in key women’s sportswear private brands, slow sell-through of warm weather apparel and the accelerated decline in international tourism.” Nonetheless, the company resorted to markdowns to clean the excess inventory and enter Fall season with right size.

Looking at the brighter aspect, Macy’s pointed that its Growth50 stores initiative and Backstage is aiding its brick-and-mortar performance. The company continued to register positive comparable sales, albeit at a slower rate and witnessed double-digit growth in the digital business for fortieth successive quarter.

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

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

Macy's, Inc. price-consensus-eps-surprise-chart | Macy's, Inc. Quote

Let’s Delve Deep

Macy’s posted adjusted earnings of 28 cents a share, including a gain of 1 cent from sale of assets. This is sharply down from adjusted earnings of 70 cents, including a gain of 11 cents from sale of assets, reported in the year-ago period. The quarterly figure fell short of the Zacks Consensus Estimate of 45 cents. Inventory cleaning process and markdowns hurt the bottom line to an extent. Fall in earnings can also be attributed to higher cost of sales and increased SG&A expenses.

The company generated net sales of $5,546 million that missed the Zacks Consensus Estimate of $5,628.7 million and decreased marginally by 0.5% year over year. Given its strategic endeavors, the company anticipates sales growth in the back half of the fiscal year with improvement in gross margin.

Comparable sales (comps) on an owned plus licensed basis rose 0.3%, while on an owned basis, the metric improved 0.2%. This marked the seventh straight quarter of comps growth for the company. Strategic investments across stores, technology and merchandising are aiding comparable sales growth.

Adjusted EBITDA declined 29% to $402 million, while adjusted EBITDA margin contracted 300 basis points to 7.2%.

Other Financial Aspects

Macy’s ended the quarter with cash and cash equivalents of $674 million, long-term debt of $4,680 million, and shareholders’ equity of $6,315 million.

FY19 View

Macy’s continues to anticipate fiscal 2019 net sales to be roughly flat with both comps on an owned plus licensed basis and comps on an owned basis projected to be flat to up 1%. Management now envisions adjusted earnings between $2.85 and $3.05, down from the prior view of $3.05-$3.25 per share for fiscal 2019. The company had reported earnings of $4.18 in fiscal 2018. The Zacks Consensus Estimate for the fiscal year is pegged at $3.11, which is likely to witness downward revision in the coming days.

Check These 3 Trending Picks

Target TGT, with a Zacks Rank #2 (Buy), has long-term earnings per share growth rate of 7.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Burlington Stores BURL, also with a Zacks Rank #2, has long-term earnings per share growth rate of 17%.

PriceSmart PSMT with a Zacks Rank #2, has delivered an average positive earnings surprise of 31.3% in the trailing four quarters.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

Zacks Investment Research
<-- You can share this post with your network,
or give us your opinion and leave a comment.
Be sure to check our RSS feeds for updates.