Macy’s Inc. (M - Analyst Report), one of the leading department store retailers in the United States, posted its second-quarter 2012 results on August 8. Here we will discuss the company’s scorecard based on the recent earnings announcement, subsequent estimate revisions by analysts as well as the Zacks Rank and long-term recommendation for the stock.
Last Quarter Synopsis
The company’s relentless endeavors to keep itself on the growth trajectory have paid off in an economy, which is still lackluster.
The quarterly earnings of 67 cents a share beat the Zacks Consensus Estimate of 64 cents, and soared 22% from 55 cents earned in the prior-year quarter on the back of My Macy's localization initiatives, omnichannel integration, robust online sales and effective cost management.
The Cincinnati, Ohio-based Macy’s reported total sales growth of 3% to $6,118 million in the quarter from $5,939 million in the year-ago period, and comfortably surpassed the Zacks Consensus Estimate of $6,100 million. Comparable-store sales for the quarter climbed 3%.
Online sales, including sales from macys.com and bloomingdales.com, continued to show growth momentum. For the quarter, online sales were up 36.1%. Online sales favorably impacted comparable-store sales by 1.7%. The company seeks to expand both Macy's and Bloomingdale's brands online.
Buoyed by Macy’s healthy results, management now expects fiscal 2012 earnings between $3.30 and $3.35, up from a range of $3.25 to $3.30 per share forecasted earlier. However, comparable-store sales growth forecast of about 3.7% for fiscal 2012 was kept unchanged.
(Read our full coverage on this earnings report: Macy’s Beats, Ups Outlook)
Agreement of Estimate Revisions
In the last 30 days, 2 out of 15 analysts covering the stock raised their estimates, whereas 8 analysts lowered the same for the third quarter of 2012. For the fourth quarter, 8 analysts made upward revisions, whereas 2 analysts trimmed their estimates.
For fiscal 2012 and 2013, 7 and 10 analysts, respectively, revised their estimates upward in the last 30 days. None made downward revisions.
What Drives Estimate Revisions
Clearly, a positive sentiment is palpable among most of the analysts, who remain optimistic on Macy’s performance. Better-than-expected results and upbeat earnings guidance impressed the analysts, who went on to revise their estimates upwards to better align with management’s guidance range.
However, some of the analysts remained concerned about management’s forecast of soft sales growth, lower credit income and an absence of any favorable tax settlements in the third quarter. Further, management hinted of lower earnings per share during the third quarter when compared with the prior-year period.
Magnitude of Estimate Revisions
The magnitude of estimate revisions by the analysts is clearly reflected through changes in the Zacks Consensus Estimates.
The Zacks Consensus Estimate for the third quarter of 2012 has moved down by a penny to 27 cents a share in the last 30 days. The Zacks Consensus Estimate for the fourth quarter dropped by 14 cents to $1.89.
For fiscal 2012, the Zacks Consensus Estimate jumped 4 cents to $3.38 in the last 30 days. For fiscal 2013, the Zacks Consensus Estimate increased by 6 cents to $3.84.
The U.S. economy is yet to recover. Amid such a scenario, Macy’s has been moving on an upbeat note. The company’s sound fundamentals across its Macy’s and Bloomingdale’s business, is mirrored through strong second quarter results and management believes that it will sustain the rhythm in 2012, as the year presents enormous opportunity to enhance market 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, customer-centric localization initiatives, as well as developing e-commerce business and online order fulfillment centers. Moreover, Macy’s continues to focus on price optimization, inventory management and merchandise planning to drive traffic.
However, the company’s expansion in regions where it already serves could cannibalize its sales performance and bring down traffic counts at its existing stores in these areas. Consequently, this may have a negative impact on the company’s overall performance. Moreover, sluggish economic recovery and erratic consumer behavior also remain the causes for concern.
Macy’s department stores sell a wide range of merchandises. Its products include men’s, women’s, and children’s apparel and accessories, cosmetics, home furnishings and other consumer goods.
Macy’s, which competes with J. C. Penney Company Inc. (JCP - Analyst Report), Dillard’s Inc. (DDS - Analyst Report) and Saks Incorporated , currently operates approximately 840 department stores in 45 states, the District of Columbia, Guam and Puerto Rico.
Currently, we have a long-term Neutral recommendation on the stock. Moreover, Macy’s holds a Zacks #3 Rank that translates into a short-term Hold rating.