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Macy's Earnings Miss Estimate, Trims Outlook

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Macy’s Inc. (M - Free Report) posted lower-than-expected second-quarter fiscal 2013 results as consumers’ cautious attitude on making any discretionary purchases resulted in soft sales. Moreover, discounts offered also hurt margins. As a result, this Zacks Rank #4 (Sell) stock trimmed its comparable sales and earnings outlook.

The quarterly earnings of 72 cents a share missed the Zacks Consensus Estimate of 78 cents, thereby sending the shares down 3.6% or $1.72 to $46.78 during pre-market trading hours. However, the quarterly earnings registered a year-over-year growth of 7.5%.

Total sales of the Cincinnati, Ohio-based Macy’s edged down 0.8% to $6,066 million in the quarter from $6,118 million in the year-ago period, and fell short of the Zacks Consensus Estimate of $6,246 million. Comparable-store sales for the quarter also slipped 0.8%.

Going forward, management remained optimistic of capturing back-to-school season opportunities with its fresh inventory along with My Macy's localization initiatives, omnichannel integration and Magic Selling.

Gross profit in the quarter fell 1.2% to $2,533 million, while gross profit margin shriveled 10 basis points to 41.8%. Operating income tumbled 3.6% to $534 million, whereas operating margin contracted 30 basis points to 8.8%.

Other Financial Aspects

Macy’s ended the quarter with cash and cash equivalents of $1,424 million, long-term debt of $6,339 million, reflecting a debt-to-capitalization ratio of 52% and shareholders’ equity of $5,855 million.

Macy’s has been actively managing its cash flow, returning much of its free cash to shareholders via dividends or share repurchase activity, while maintaining a healthy balance sheet and credit ratios that are necessary for an investment-grade rating.

During the quarter, the company bought back approximately 9.2 million shares for about $446.7 million. So far in the fiscal year, the company has repurchased about 17.5 million shares of worth approximately $806.5 million. Macy’s still has $2.2 billion remaining at its disposal as of Aug 3, under its share repurchase authorization.

Macy’s generated net cash flow of $664 million from operating activities in the first half of fiscal 2013 compared with $638 million in the year-ago period.

Strolling Through Guidance

Following soft second quarter results, Macy’s now anticipates comparable-store sales growth of 2.5% to 4% in the second half of 2013. For fiscal 2013, comps growth is projected between 2% and 2.9%. Management now forecasts full year earnings in the band of $3.80 to $3.90 per share.

Earlier, Macy’s had envisioned comps growth of 3.5% and earnings between $3.90 and $3.95 per share for the fiscal year.

The current Zacks Consensus Estimate for the year is $3.95 per share. With Macy’s lowering its earnings guidance, we could witness a downward trend in the Zacks Consensus Estimate in the coming days.

Other Stocks to Consider

Until any further upgrade in Macy’s Zacks Rank, other well performing stock in the retail sector include Hanesbrands Inc. (HBI - Free Report) , Jack in the Box Inc. (JACK - Free Report) and hhgregg, Inc. , all of which carry Zacks Rank #1 (Strong Buy).

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