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Macy's (M) Grapples With Several Headwinds, Declines 25% YTD
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Macy's, Inc. (M - Free Report) has been a weak performer for a while now, due to multiple headwinds that are hurting the company’s performance. Macroeconomic pressures, waning consumer confidence and a pullback in spending activity have hit the retailers, and Macy’s is not immune to the same. The company has posted soft first-quarter fiscal 2023 results, wherein both the top and bottom lines declined year over year, and comparable sales fell on an owned basis and an owned-plus-licensed basis. Management is taking a cautious approach for the rest of fiscal 2023 and thus has trimmed the annual sales and earnings view.
Driven by these limitations, shares of this Zacks Rank #4 (Sell) have plunged 25.2% in the year-to-date period, wider than the industry’s 13.8% decline. For fiscal 2023, the Zacks Consensus Estimate for Macy's sales and earnings per share (EPS) is currently pegged at $22.97 billion and $3.05, respectively. These estimates show corresponding decreases of 6% and 31.9% from the year-ago period’s figures.
Let’s Delve Deep
In addition to the aforesaid headwinds, inflationary pressures and changing consumer behavior have been weighing on the company’s performance. Markdowns to optimize inventory levels within overstock categories and elevated promotional environment have been weighing on margins. It has been witnessing higher selling, general and administrative (SG&A) expenses for a while now. The company’s digital business also remains soft.
Apart from a dull first quarter, Macy’s’ digital sales dropped 8% from the year-ago quarter’s level. Also, brick-and-mortar sales decreased 6% versus the first quarter of 2022. Comparable sales fell 7.9% on an owned basis and 7.2% on an owned-plus-licensed basis from the prior-year fiscal quarter’s tally. The metric across Macy’s brand declined 8.7% on an owned basis and 7.9% on an owned-plus-licensed basis. At the Bloomingdale brand, comparable sales dropped 3.9% on an owned basis and 4.3% on an owned-plus-licensed basis.
Image Source: Zacks Investment Research
During first-quarter fiscal 2023, SG&A expenses increased 2.4% year over year to $1,950 million, and as a percentage of net sales, SG&A expenses increased 350 basis points year over year to 37.7%. SG&A expenses consisted of investments in colleagues like competitive pay, incentives and benefits. Any deleverage in expenses, unless fully offset by sales, may have a direct bearing on margins, and in turn the bottom line.
Consequently, for fiscal 2023, management cut sales and earnings views to reflect the expected macroeconomic impacts. Net sales are now projected to be $22.8-$23.2 billion for fiscal 2023, down from the prior view of $23.7-$24.2 billion. Comparable owned plus licensed sales on a 52-week basis are expected to decline 6-7.5% versus the prior view of a 2-4% decrease year over year. Adjusted EPS are envisioned in the bracket of $2.70-$3.20 for the fiscal year, down from $3.67-$4.11 expected earlier and $4.48 earned in the last fiscal year.
For the fiscal second quarter, net sales are projected to be $5-$5.1 billion and the gross margin is likely to fall no more than 100 basis points year over year. Adjusted EPS are envisioned to be 10-15 cents.
Given the aforesaid negatives, we remain cautious about the stock in the near term. A Momentum Score of F further adds to the weakness.
Solid Picks in Retail
We have highlighted three better-ranked stocks, namely Abercrombie & Fitch (ANF - Free Report) , Urban Outfitters (URBN - Free Report) and American Eagle Outfitters (AEO - Free Report) .
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and EPS suggests growth of 3.4% and 732%, respectively, from the year-ago reported figures. ANF delivered a trailing four-quarter earnings surprise of 480.6%, on average.
Urban Outfitters, the lifestyle apparel and accessories retailer, currently sports a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 12.2%, on average.
The consensus estimate for Urban Outfitters’ current financial-year sales and EPS suggests growth of 5.1% and 57.1%, respectively, from the year-ago reported figures.
American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently carries a Zacks Rank #2 (Buy). AEO delivered an average earnings surprise of 9.2% in the trailing four quarters.
The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year EPS suggests growth of 4.1% from the year-ago reported figure.
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Macy's (M) Grapples With Several Headwinds, Declines 25% YTD
Macy's, Inc. (M - Free Report) has been a weak performer for a while now, due to multiple headwinds that are hurting the company’s performance. Macroeconomic pressures, waning consumer confidence and a pullback in spending activity have hit the retailers, and Macy’s is not immune to the same. The company has posted soft first-quarter fiscal 2023 results, wherein both the top and bottom lines declined year over year, and comparable sales fell on an owned basis and an owned-plus-licensed basis. Management is taking a cautious approach for the rest of fiscal 2023 and thus has trimmed the annual sales and earnings view.
Driven by these limitations, shares of this Zacks Rank #4 (Sell) have plunged 25.2% in the year-to-date period, wider than the industry’s 13.8% decline. For fiscal 2023, the Zacks Consensus Estimate for Macy's sales and earnings per share (EPS) is currently pegged at $22.97 billion and $3.05, respectively. These estimates show corresponding decreases of 6% and 31.9% from the year-ago period’s figures.
Let’s Delve Deep
In addition to the aforesaid headwinds, inflationary pressures and changing consumer behavior have been weighing on the company’s performance. Markdowns to optimize inventory levels within overstock categories and elevated promotional environment have been weighing on margins. It has been witnessing higher selling, general and administrative (SG&A) expenses for a while now. The company’s digital business also remains soft.
Apart from a dull first quarter, Macy’s’ digital sales dropped 8% from the year-ago quarter’s level. Also, brick-and-mortar sales decreased 6% versus the first quarter of 2022. Comparable sales fell 7.9% on an owned basis and 7.2% on an owned-plus-licensed basis from the prior-year fiscal quarter’s tally. The metric across Macy’s brand declined 8.7% on an owned basis and 7.9% on an owned-plus-licensed basis. At the Bloomingdale brand, comparable sales dropped 3.9% on an owned basis and 4.3% on an owned-plus-licensed basis.
Image Source: Zacks Investment Research
During first-quarter fiscal 2023, SG&A expenses increased 2.4% year over year to $1,950 million, and as a percentage of net sales, SG&A expenses increased 350 basis points year over year to 37.7%. SG&A expenses consisted of investments in colleagues like competitive pay, incentives and benefits. Any deleverage in expenses, unless fully offset by sales, may have a direct bearing on margins, and in turn the bottom line.
Consequently, for fiscal 2023, management cut sales and earnings views to reflect the expected macroeconomic impacts. Net sales are now projected to be $22.8-$23.2 billion for fiscal 2023, down from the prior view of $23.7-$24.2 billion. Comparable owned plus licensed sales on a 52-week basis are expected to decline 6-7.5% versus the prior view of a 2-4% decrease year over year. Adjusted EPS are envisioned in the bracket of $2.70-$3.20 for the fiscal year, down from $3.67-$4.11 expected earlier and $4.48 earned in the last fiscal year.
For the fiscal second quarter, net sales are projected to be $5-$5.1 billion and the gross margin is likely to fall no more than 100 basis points year over year. Adjusted EPS are envisioned to be 10-15 cents.
Given the aforesaid negatives, we remain cautious about the stock in the near term. A Momentum Score of F further adds to the weakness.
Solid Picks in Retail
We have highlighted three better-ranked stocks, namely Abercrombie & Fitch (ANF - Free Report) , Urban Outfitters (URBN - Free Report) and American Eagle Outfitters (AEO - Free Report) .
Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and EPS suggests growth of 3.4% and 732%, respectively, from the year-ago reported figures. ANF delivered a trailing four-quarter earnings surprise of 480.6%, on average.
Urban Outfitters, the lifestyle apparel and accessories retailer, currently sports a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 12.2%, on average.
The consensus estimate for Urban Outfitters’ current financial-year sales and EPS suggests growth of 5.1% and 57.1%, respectively, from the year-ago reported figures.
American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently carries a Zacks Rank #2 (Buy). AEO delivered an average earnings surprise of 9.2% in the trailing four quarters.
The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year EPS suggests growth of 4.1% from the year-ago reported figure.