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We maintain our ‘Neutral’ recommendation on Macy’s Inc. (M - Analyst Report), with a target price of $43.00, as frugal shoppers, soft economic recovery and the impact of Hurricane Sandy still remain the causes for concern.

However, it is encouraging to note the company’s sustained focus on price optimization, inventory management, merchandise planning and private label offering, which positions it well to drive traffic, meet customer-oriented demand and improve in-store shopping experience.

Macy’s recently came up with its third-quarter 2012 earnings, wherein the quarterly earnings of 36 cents a share came ahead of the Zacks Consensus Estimate of 29 cents, and rose 12.5% year over year on the back of My Macy's localization initiatives, omnichannel integration, robust online sales and effective cost management.

Total sales grew 3.8% to $6,075 million in the quarter. Management now guides fiscal 2012 earnings in the range of $3.35 to $3.40 per share. This is the 11th straight quarter that the company has witnessed top and bottom line growth.

Following strong results, management now expects fiscal 2012 earnings between $3.35 and $3.40, up from a range of $3.30 to $3.35 per share forecasted earlier. For the fourth quarter, earnings are projected between $1.94 and $1.99 per share.

Moreover, Macy’s raised its guidance of comparable-store sales for the second half of fiscal 2012. Management now anticipates growth of about 4% in comparable-store sales compared with its earlier guidance of 3.7%. For the fourth quarter and fiscal 2012, comparable-store sales are projected to increase by 4.2% and 3.9%, respectively. Macy’s projects sales in the fourth quarter to be up 7.2%. Management expects comparable-store sales growth in November to be soft due to the impact of Hurricane Sandy.

Buoyed by better-than-expected results, the Zacks Consensus Estimates for fiscal 2012 and 2013 have been on the rise. The Zacks Consensus Estimate for 2012 increased 3 cents to $3.41 per share in the last 30 days as 11 out of 13 estimates were raised, while one was lowered.

Moreover, for 2013, the Zacks Consensus Estimate increased 3 cents to $3.88 per share, as 9 out of 14 estimates were revised upward, while two moved in the opposite direction.

Currently, Macy’s, which competes with Dillard’s Inc. (DDS - Analyst Report) and Saks Incorporated , holds a Zacks #2 Rank that translates into a short-term “Buy” rating as we remain optimistic about the company’s customer-centric localization initiative called ‘My Macy’s’ and the company’s upbeat outlook.
 

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