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Macy's (M) Q4 Earnings Beat, Comparable Sales Increase Y/Y

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Macy’s, Inc. (M - Free Report) continued its sturdy performance in fourth-quarter 2021, despite supply chain bottlenecks, labor shortages and elevated inflation. Both the top and the bottom lines not only beat the Zacks Consensus Estimate but also increased year over year. Effective implementation of Polaris Strategy, strategic allocation of capital, robust omni-channel capabilities and solid consumer demand helped post stronger-than-anticipated results.

The department store bellwether witnessed sturdy growth across all three brands, namely; Macy’s, Bloomingdale’s and Bluemercury. Macy’s provided fiscal 2022 view that was better than analysts’ expectations. The company raised quarterly dividend as well as authorized a new $2 billion share repurchase program.

Macy’s has decided not to separate its e-commerce operation. Macy’s CEO and chairman Jeff Gennette said, “We found that the combination of our profitable digital platform with our national footprint will deliver greater value to shareholders than a separation of our digital and physical assets.”

Shares of Macy’s have risen 59.6% in the past year compared with the industry’s rally of 35.9%.

Sales & Earnings Picture

Macy’s reported adjusted earnings of $2.45 per share that surpassed the Zacks Consensus Estimate of $2.00. The bottom line showcased an improvement from adjusted earnings of 80 cents reported in the year-ago period, thanks to higher net sales and margin expansion.

Net sales of $8,665 million outpaced the Zacks Consensus Estimate of $8,450 million. The top line increased 27.8% on a year-over-year basis. Comparable sales surged 28.3% on an owned basis and 27.8% on an owned-plus-licensed basis year over year.

The company’s digital sales increased 12% from the prior-year quarter. The metric surged 36% from fourth-quarter fiscal 2019 levels. Digital penetration was 39% of net sales in the quarter under review. This reflected a 5-percentage point contraction from the prior-year period’s level but a 9-percentage point improvement over fourth-quarter fiscal 2019. Approximately 63% of digital demand sales came from mobile devices. Stores fulfilled 28% of the digital sales in the quarter.

Net credit card revenues amounted to $264 million, up $6 million from the year-ago period and $25 million from fourth-quarter fiscal 2019. The metric represented 3% of sales, down 80 basis points year on year but up 10 basis points from the fourth-quarter fiscal 2019 level.

Brand-Wise Detail

Comparable sales across the Macy’s, Bloomingdale and Bluemercury brands rose 27.3%, 37.8% and 30.9% on an owned basis year over year. On an owned-plus-licensed basis, comparable sales across these brands increased 26.5%, 37.6% and 30.9% year on year, respectively.

In the reported quarter, Macy’s brand added 7.2 million new customers, which increased 11% from the fourth-quarter fiscal 2019 level. Of the new customers, 58% came through the digital channel. The company witnessed strong growth across categories like fragrances, fine jewelry, home décor, men’s outerwear, toys, sleepwear and watches.

The company stated that Platinum, Gold and Silver customers in the Star Rewards Loyalty program continued to engage. Average customers spend rose 9% compared with fourth-quarter fiscal 2019 levels. The Bronze segment, which comprises the most diverse loyalty tier, continued to grow by adding 3.5 million members.

Management informed that about 391,000 new customers shopped the Bloomingdale’s brand, reflecting an increase of 26% from fourth-quarter fiscal 2019. Customer spend rose 41%. Under the Bloomingdale banner, growth was mainly driven by strong sales of luxury handbags, fine jewelry, men’s shoes and contemporary, fragrances and home. Meanwhile, the activation and return of customers to stores combined with sustained digital strength contributed to robust sales performance across the Bluemercury brand.

Macy's, Inc. Price, Consensus and EPS Surprise

Macy's, Inc. Price, Consensus and EPS Surprise

Macy's, Inc. price-consensus-eps-surprise-chart | Macy's, Inc. Quote

Margins

Gross margin came in at 36.5%, up from 33.7% in the prior-year quarter but down from 36.8% in fourth-quarter fiscal 2019. The year-over-year upside was driven by improved merchandise margin owing to benefits from pricing, promotion and inventory productivity enhanced by the Polaris strategy. Delivery expenses, as a percentage of sales, climbed 190 basis points from fourth-quarter fiscal 2019 levels stemming from increased digital penetration and holiday delivery expense surcharges.

SG&A expense increased 18.8% year over year to $2,429 million. However, as a percentage of sales, SG&A expense contracted 220 basis points year on year to 28%. This can be attributed to effective expense management and improved productivity resulting from Polaris Strategy, including the permanent cost savings realized in fiscal 2020.

Macy’s reported adjusted EBITDA of $1,247 million, up considerably from adjusted EBITDA of $789 million in the year-ago quarter. We note that adjusted EBITDA margin expanded 280 basis points to 14.4% from the prior-year period.

Other Financial Aspects

Macy’s, which currently carries a Zacks Rank #3 (Hold), ended the quarter with cash and cash equivalents of $1,712 million, long-term debt of $3,295 million and shareholders' equity of $3,621 million.

The company exhausted its $500 million share repurchase program in the final quarter of fiscal 2021. It repurchased a total of 20.5 million shares in the fiscal year. Following the completion, the company’s board of directors authorized a new $2 billion share repurchase program. The company raised its quarterly dividend by 5% to 15.75 cents a share. The dividend is payable on Apr 1, 2022, to shareholders of record at the close of business on Mar 15, 2022.

During fiscal 2021, Macy’s generated cash flow from operating activities of $2,712 million and incurred capital expenditures of $597 million. It generated a free cash flow of $2,279 million for the fiscal year. Management expects capital expenditures of approximately $1 billion for fiscal 2022.

Sneak Peek into Guidance

Macy’s expects fiscal 2022 net sales in the bracket of $24,460 million to $24,700 million. This suggests flat to up 1% growth versus fiscal 2021. It guided comparable owned-plus-licensed sales three-year CAGR of approximately 1.1-1.4%. Management forecast digital sales to be about 37% of net sales and credit card revenues, net, to be roughly 2.9% of net sales.

The company projected fiscal 2022 gross margin rate in the band of 38.1-38.3% (versus 38.9% in fiscal 2021) and SG&A expense rate in the range of 33.7-33.9% (versus 32.9% in the prior year). It estimated an adjusted EBITDA margin between 11% and 11.5% compared with 13.6% in fiscal 2021.

Macy’s envisions fiscal 2022 adjusted earnings between $4.13 and $4.52 per share. This compared favorably with the Zacks Consensus Estimate of $4.02. However, the current view indicates a decline from adjusted earnings of $5.31 per share reported in fiscal 2021.

For first-quarter fiscal 2022, management anticipates net sales between $5,270 million and $5,370 million. This indicates an improvement from net sales of $4,706 million reported in the year-ago period. It guided first-quarter adjusted earnings in the band of 77-85 cents a share. This suggests an increase from 39 cents reported in first-quarter fiscal 2021. The Zacks Consensus Estimate for first-quarter earnings per share is pegged at 47 cents.

Pick These 3 Stocks

Here are three better-ranked stocks — Capri Holdings (CPRI - Free Report) , DICK'S Sporting Goods (DKS - Free Report) and Tapestry (TPR - Free Report) .

Capri Holdings, a global fashion luxury group, flaunts a Zacks Rank #1 (Strong Buy). The company’s bottom line has outperformed the Zacks Consensus Estimate by a wide margin in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Capri Holdings’ current financial year sales and EPS suggests growth of 37.1% and 215.8%, respectively, from the year-ago period. CPRI has an expected EPS growth rate of 30.9% for three-five years.

DICK'S Sporting Goods, which operates as a sporting goods retailer, sports a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 104.2%, on average.

The Zacks Consensus Estimate for DICK'S Sporting Goods’ current financial year sales and EPS suggests growth of 27.6% and 151.6%, respectively, from the year-ago period. DKS has an expected EPS growth rate of 11.7% for three-five years.

Tapestry, owner of Coach, Kate Spade, and Stuart Weitzman brands, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 28.2%, on average.

The Zacks Consensus Estimate for Tapestry’s current financial year sales and EPS suggests growth of 17.6% and 22.9%, respectively, from the year-ago period. TPR has an expected EPS growth rate of 12.3% for three-five years.