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Macy's Earnings Beats, Sales Miss

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Macy’s Inc. (M - Free Report) posted better-than-expected fourth-quarter fiscal 2013 results, wherein earnings of $2.31 per share surpassed the Zacks Consensus Estimate of $2.17, and rose 13% from $2.05 earned in the prior-year quarter.

Management cited that My Macy's localization initiatives, omnichannel integration, Magic Selling and promotional strategies were the driving factors behind the healthy performance amid a tepid economic environment. Effective cost management also provided cushion to the bottom-line. This is 16th successive quarter that this Cincinnati, Ohio-based company has registered year-over-year growth in earnings per share.

However, total sales tumbled 1.6% to $9,202 million in the quarter from $9,350 million in the year-ago period, and also fell short of the Zacks Consensus Estimate of $9,288 million.

On the contrary, comparable-store sales for the quarter rose 1.4%, while including sales generated from third party licensed departments, comparable sales jumped 2.3%. But sales during the January month disappointed when compared with November and December due to adverse weather condition and calendar shift.

Comparable-store sales for the November and December period collectively jumped 3.6%, while including departments licensed to third parties, it rose 4.3%. 

Gross profit in the quarter declined 2% to $3,738 million; however, gross profit margin remained flat at 40.6%. Adjusted operating income grew 3% to $1,437 million, whereas operating margin expanded 70 basis points to 15.6%.

Store Update

During fiscal 2013, Macy’s opened 6 outlets and shuttered 7 stores. The company opened stores in Victorville, CA, and Gurnee, IL, a replacement outlet in Bay Shore, NY, and new men’s store in Las Vegas, NV. Bloomingdale’s opened a new outlet in Glendale, CA, and a new Bloomingdale’s Outlet store in Rosemont, IL. The company shuttered stores in Mesa, AZ; Overland Park, KS; Florissant and St. Louis, MO; Irondequoit, NY; and Murray, UT.

During fiscal 2014, management plans to open new Macy’s stores in Sarasota, FL; Las Vegas, NV; and The Bronx, NY. A new Bloomingdale’s will be inaugurated in Palo Alto, CA, that will substitute an older outlet in the same shopping center.

Other Financial Aspects

Macy’s ended the quarter with cash and cash equivalents of $2,273 million, long-term debt of $6,728 million, and shareholders’ equity of $6,242 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 fiscal 2013, the company bought back approximately 33.6 million shares for about $1.6 billion. Macy’s still has $1.4 billion remaining at its disposal as of Feb 1, 2014 under its share repurchase authorization.

Macy’s generated net cash flow of $2,549 million from operating activities in fiscal 2013 compared with $2,179 million in the prior year.

Strolling Through Guidance

Macy’s reiterated its outlook, provided earlier on Jan 8. Management continues to anticipate comparable-store sales growth of 2.5% to 3% in fiscal 2014. Macy’s maintained full year earnings projection of $4.40 to $4.50 per share. The current Zacks Consensus Estimate for the fiscal year is $4.45 per share.

Management anticipates fiscal 2014 capital expenditures to be approximately $1.05 billion.

Other Stocks to Consider

Currently, Macy’s holds Zacks Rank #2 (Buy). Other well performing stock in the retail sector include Hanesbrands Inc. (HBI - Free Report) and Michael Kors Holdings Ltd. (KORS - Free Report) both carrying a Zacks Rank #1 (Strong Buy), and Columbia Sportswear Co. (COLM - Free Report) sporting a Zacks Rank #2 (Buy).

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