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Macy's (M) Q3 Loss Narrower Than Expected, Sales Down Y/Y

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Macy’s, Inc. (M - Free Report) reported better-than-expected third-quarter fiscal 2020 results. This omni-channel fashion retailer posted narrower-than-expected loss. Further, the company’s net sales surpassed the Zacks Consensus Estimate. However, the top and the bottom line declined sharply from the year-ago quarter’s levels.

Markedly, management highlighted that all three brands namely, Macy’s, Bloomingdale’s and Bluemercury, delivered strong performance. Management highlighted that customers shopped across all channels during the quarter. Also, the digital business remained robust, as stores continued to recover. Customers responded well towards the company’s expanded omni-channel offerings such as curbside, store pickup and same-day delivery. The company observed that customers have shifted their spending more toward casual apparel categories, to suit their stay-at-home needs amid the ongoing coronavirus pandemic.  In fact, categories such as home furnishing, fragrances and jewelry depicted double-digit sales growth. Going ahead, management remains on track with boosting assortments as well as customers shopping experience in stores and online.

However, we note that Macy’s had previously withdrawn its guidance for 2020, owing to the economic uncertainties associated with the ongoing coronavirus pandemic. Management is apprehensive regarding the potential resurgence of the pandemic and its likely impact on its business.

Shares of this New York-based company were down 5% during the pre-market trading hours on Nov 19. Shares of the company have declined 40.1% in a year compared with the industry's decline of 39.5%.

Let’s Delve Deep

Macy’s reported adjusted loss of 19 cents a share, narrower than the Zacks Consensus Estimate of a loss of 81 cents. Notably, the company had posted adjusted earnings of 7 cents a share in the year-ago quarter.

Net sales of $3,990 million came ahead of the Zacks Consensus Estimate of $3,854 million. However, the top line declined 22.7% on a year-over-year basis. Additionally, we note that comparable sales were down 21% on an owned basis and down 20.2% on an owned plus licensed basis.

Impressively, this Zacks Rank #3 (Hold) company’s digital sales surged 27% from the year-ago quarter’s figure and represented 38% of total owned comparable sales.

Furthermore, gross margin expanded 12 percentage points to 35.6% on a sequential basis owing to improved inventory management, better sell through of full price and clearance merchandise as well as reduced clearance markdowns.

Macy’s reported adjusted EBITDA of $159 million. The company had reported adjusted EBITDA of $325 million in the year-ago quarter. Management stated that the company was able to achieve positive EBITDA earlier than expected.

Notably, SG&A expense declined 21.6% year over year to $1,726 million, thanks to improved expense management and better colleague productivity in stores. As a percentage of net sales, SG&A expense expanded 70 basis points to 43.3% compared with the prior-year quarter.

Macys, Inc. Price, Consensus and EPS Surprise Macys, Inc. Price, Consensus and EPS Surprise

Macys, Inc. price-consensus-eps-surprise-chart | Macys, Inc. Quote

Other Financial Aspects

Macy’s had cash and cash equivalents of $1,551 million as of Oct 31, 2020. Inventory declined 29% from a year ago, allowing the company to exit the quarter in a clean inventory position. The company concluded the quarter with about $3 billion of untapped capacity in the new asset-based credit facility. Long-term debt and shareholders’ equity were $4,852 million and $2,243 million, respectively, as of Oct 31, 2020.

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