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Macy’s Inc. (M - Analyst Report) emerged strong through the holiday season, which appeared to be a tough one. Comparable-store sales for the November and December period collectively jumped 3.6%, while including departments licensed to third parties, it rose 4.3%. Shares of this department store operator climbed 5.3% or $2.75 to $54.59 during after-market trading hours.

My Macy's localization initiatives, omnichannel integration, Magic Selling and promotional strategies were the driving factors behind the sturdy performance amid a soft economic environment. We believe Macy’s sustained focus on price optimization, inventory management, merchandise planning and private label offering are the primary catalysts driving traffic, facilitating in meeting customer-oriented demand and improving in-store shopping experience.

Surprisingly, Macy’s narrowed its comparable-store sales guidance for the second half of 2013 to a range of 2.8% to 2.9%. Earlier, the company had projected comps growth of 2.5% to 4% for the said period. Management now anticipates comps to increase between 2.3% and 2.5% during the fourth quarter, while in a band of 2.2% to 2.3% for fiscal 2013.

However, Macy’s reiterated its fiscal 2013 earnings guidance of $3.80 to $3.90 per share, giving some reprieve to investors after narrowing its comps outlook. The company also initiated its fiscal 2014 guidance, citing comps growth of 2.5% to 3%, and envisions earnings between $4.40 and $4.50 per share.

The Zacks Consensus Estimate for fiscal 2013 and 2014 currently stands at $3.87 and $4.39 per share.

In an attempt to increase sales, profitability and cash flows, the company has been taking steps such as integration of operations, consolidation of divisions as well as developing e-commerce business and online order fulfillment centers.

Concurrent with the comps results, Macy’s announced certain cost containment initiatives and changes in the organizational structure. The company is creating a North Central Region by merging the Midwest Region and the North Region. The company is also lowering the number of districts to 60 from 69 by consolidating the nine existing stores districts with nearby districts. The company also intends to eliminate district planner role for home categories. The company is also focusing on lowering expenses across central office, administrative and back-of-the-house.

Macy’s hinted that these organizational changes will result in 2,500 job cuts but added that new positions will be created for its online operations, direct-to-consumer fulfillment and new stores. The company, which currently operates 840 department stores, now plans to open five new outlets under the Macy’s brand, while 3 new stores under its Bloomingdale’s banner, and expects to shutter 5 Macy’s stores in early spring 2014.

Management believes these initiatives would result in cost savings of $100 million per year. Alongside it added that the company would incur charges of $120 million to $135 million during the fourth quarter.

Other Stocks Worth Considering

Macy’s currently holds a Zacks Rank #2 (Buy). Other better ranked stocks in the retail sector include Bon-Ton Stores Inc. (BONT) and G-III Apparel Group, Ltd. (GIII - Snapshot Report) both carrying a Zacks Rank #1 (Strong Buy), and Michael Kors Holdings Limited (KORS - Analyst Report) sporting a Zacks Rank #2 (Buy).

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