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Macy's (M) Down 14.5% Since Last Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for Macy's (M - Free Report) . Shares have lost about 14.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Macy's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Macy’s reported second-quarter fiscal 2023 results, wherein both top and bottom lines surpassed the Zacks Consensus Estimate. However, both metrics declined from the respective year-ago fiscal quarter’s reported figures. Comparable sales fell on an owned basis and an owned-plus-licensed basis.
Sales & Earnings Picture
Macy’s reported adjusted earnings of 26 cents per share, surpassing the Zacks Consensus Estimate of adjusted earnings of 13 cents per share. However, the bottom line declined 74% from the adjusted earnings of $1.00 per share reported in the year-ago fiscal period.
Net sales of $5,130 million came ahead of the consensus estimate of $5,057 million. The top line dipped 8.4% from the year-ago fiscal quarter’s reported figure. Comparable sales fell 8.2% on an owned basis and 7.3% on an owned-plus-licensed basis from the prior-year fiscal quarter’s figure. We expected comparable sales to decline 9.9% on an owned basis and 9.8% on an owned-plus-licensed basis.
Macy’s’ digital sales dropped 10% from the prior-year fiscal quarter’s level. Brick-and-mortar sales decreased by 8% versus the second quarter of 2022.
Net credit card revenues were $120 million, down 41.2% from the year-ago fiscal period’s level. The metric represented 2.3% of sales, down 130 basis points from the year-ago fiscal quarter’s figure.
Details by Brand
Comparable sales across Macy’s declined 9.2% on an owned basis and 8.2% on an owned-plus-licensed basis. On a trailing 12-month basis, 41.5 million active customers shopped the Macy’s brand, down 5.5% from the year-ago fiscal quarter’s level. Star Rewards program members accounted for roughly 72% of the overall Macy's brand-owned-plus-licensed sales, up about 3 percentage points year over year. Strength in beauty, mainly fragrances and prestige cosmetics, men’s tailored, women’s career sportswear and off-price with Backstage aided results.
At the Bloomingdale brand, comparable sales dropped 2.7% on an owned basis and 2.6% on an owned-plus-licensed basis. Management informed that 4 million active customers shopped the Bloomingdale’s brand on a trailing 12-month basis. Under the Bloomingdale banner, strength in beauty, shoes, women’s contemporary and designer apparel and its outlet locations drove results.
Comparable sales at the Bluemercury brand were up 5.8% on an owned basis. About 736,000 active customers shopped the Bluemercury brand on a trailing 12-month basis. Strength in the skincare and color categories drove results.
Margins
The gross margin came in at 38.1%, faring better than our estimate of 38%. The metric declined from 38.9% reported in the prior-year fiscal quarter.
Merchandise margins contracted 130 basis points due to increased levels of clearance markdowns and promotions along with unfavorable category mix shifts. Delivery expenses, as a percentage of net sales, were 50 basis points lower than the year-ago fiscal period, owing to improved carrier rates from contract renegotiations, reduced fuel costs and lower vendor direct volume.
As a percentage of net sales, selling, general & administrative (SG&A) expenses increased 300 basis points year over year to 37.5%. SG&A expenses consisted of investments in colleagues like competitive pay, incentives and benefits. Our estimate for SG&A as a percentage of net sales was 39% for the quarter under review.
Macy’s reported an adjusted EBITDA of $347 million, down from an adjusted EBITDA of $616 million in the year-ago fiscal quarter. Other Financial Aspects
Macy’s ended the quarter with cash and cash equivalents of $438 million, long-term debt of $2,997 million and shareholders' equity of $4,210 million. M’s inventories were 10% lower on a year-over-year basis.
During the first six months of fiscal 2023, Macy’s provided cash from operating activities of $271 million.
A Peek Into Guidance
Management is taking a cautious approach for the rest of the fiscal year and is reaffirming its annual sales and earnings view to reflect the expected macroeconomic impacts.
The earnings guidance consists of gains from an incremental $200 million cost savings, which is likely to impact the gross margin and SG&A expenses. Net sales are projected to be $22.8-$23.2 billion, in line with its previous forecast. Comparable owned plus licensed sales on a 52-week basis are still expected to decline 6-7.5% year over year. Digital sales are expected to be about one-third of net sales.
For fiscal 2023, it expects gross margin to be in the band of 38.3% to 38.6%, while net interest expense is projected to be $160 million. Adjusted earnings per share are continuing to be envisioned in the range of $2.70-$3.20 for the fiscal year, down from $4.48 earned in the last fiscal year. Capital expenditures are envisioned to be about $950 million for the fiscal year.
For the third quarter of fiscal 2023, management anticipates net sales to be in the band of $4.75 billion to $4.85 billion. It expects gross margin to improve by at least 140 basis points year-over-year. For the quarter, the bottom line is envisioned in the range of a loss of 3 cents per share to earnings of 2 cents per share. Inventories are expected to decline in low to mid-single digits percentage on a year-over-year basis.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -92.75% due to these changes.
VGM Scores
At this time, Macy's has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Macy's has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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Macy's (M) Down 14.5% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Macy's (M - Free Report) . Shares have lost about 14.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Macy's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Macy's Q2 Earnings Surpass Estimates, Comps Sales Decline
Macy’s reported second-quarter fiscal 2023 results, wherein both top and bottom lines surpassed the Zacks Consensus Estimate. However, both metrics declined from the respective year-ago fiscal quarter’s reported figures. Comparable sales fell on an owned basis and an owned-plus-licensed basis.
Sales & Earnings Picture
Macy’s reported adjusted earnings of 26 cents per share, surpassing the Zacks Consensus Estimate of adjusted earnings of 13 cents per share. However, the bottom line declined 74% from the adjusted earnings of $1.00 per share reported in the year-ago fiscal period.
Net sales of $5,130 million came ahead of the consensus estimate of $5,057 million. The top line dipped 8.4% from the year-ago fiscal quarter’s reported figure. Comparable sales fell 8.2% on an owned basis and 7.3% on an owned-plus-licensed basis from the prior-year fiscal quarter’s figure. We expected comparable sales to decline 9.9% on an owned basis and 9.8% on an owned-plus-licensed basis.
Macy’s’ digital sales dropped 10% from the prior-year fiscal quarter’s level. Brick-and-mortar sales decreased by 8% versus the second quarter of 2022.
Net credit card revenues were $120 million, down 41.2% from the year-ago fiscal period’s level. The metric represented 2.3% of sales, down 130 basis points from the year-ago fiscal quarter’s figure.
Details by Brand
Comparable sales across Macy’s declined 9.2% on an owned basis and 8.2% on an owned-plus-licensed basis. On a trailing 12-month basis, 41.5 million active customers shopped the Macy’s brand, down 5.5% from the year-ago fiscal quarter’s level. Star Rewards program members accounted for roughly 72% of the overall Macy's brand-owned-plus-licensed sales, up about 3 percentage points year over year. Strength in beauty, mainly fragrances and prestige cosmetics, men’s tailored, women’s career sportswear and off-price with Backstage aided results.
At the Bloomingdale brand, comparable sales dropped 2.7% on an owned basis and 2.6% on an owned-plus-licensed basis. Management informed that 4 million active customers shopped the Bloomingdale’s brand on a trailing 12-month basis. Under the Bloomingdale banner, strength in beauty, shoes, women’s contemporary and designer apparel and its outlet locations drove results.
Comparable sales at the Bluemercury brand were up 5.8% on an owned basis. About 736,000 active customers shopped the Bluemercury brand on a trailing 12-month basis. Strength in the skincare and color categories drove results.
Margins
The gross margin came in at 38.1%, faring better than our estimate of 38%. The metric declined from 38.9% reported in the prior-year fiscal quarter.
Merchandise margins contracted 130 basis points due to increased levels of clearance markdowns and promotions along with unfavorable category mix shifts. Delivery expenses, as a percentage of net sales, were 50 basis points lower than the year-ago fiscal period, owing to improved carrier rates from contract renegotiations, reduced fuel costs and lower vendor direct volume.
As a percentage of net sales, selling, general & administrative (SG&A) expenses increased 300 basis points year over year to 37.5%. SG&A expenses consisted of investments in colleagues like competitive pay, incentives and benefits. Our estimate for SG&A as a percentage of net sales was 39% for the quarter under review.
Macy’s reported an adjusted EBITDA of $347 million, down from an adjusted EBITDA of $616 million in the year-ago fiscal quarter.
Other Financial Aspects
Macy’s ended the quarter with cash and cash equivalents of $438 million, long-term debt of $2,997 million and shareholders' equity of $4,210 million. M’s inventories were 10% lower on a year-over-year basis.
During the first six months of fiscal 2023, Macy’s provided cash from operating activities of $271 million.
A Peek Into Guidance
Management is taking a cautious approach for the rest of the fiscal year and is reaffirming its annual sales and earnings view to reflect the expected macroeconomic impacts.
The earnings guidance consists of gains from an incremental $200 million cost savings, which is likely to impact the gross margin and SG&A expenses. Net sales are projected to be $22.8-$23.2 billion, in line with its previous forecast. Comparable owned plus licensed sales on a 52-week basis are still expected to decline 6-7.5% year over year. Digital sales are expected to be about one-third of net sales.
For fiscal 2023, it expects gross margin to be in the band of 38.3% to 38.6%, while net interest expense is projected to be $160 million. Adjusted earnings per share are continuing to be envisioned in the range of $2.70-$3.20 for the fiscal year, down from $4.48 earned in the last fiscal year. Capital expenditures are envisioned to be about $950 million for the fiscal year.
For the third quarter of fiscal 2023, management anticipates net sales to be in the band of $4.75 billion to $4.85 billion. It expects gross margin to improve by at least 140 basis points year-over-year. For the quarter, the bottom line is envisioned in the range of a loss of 3 cents per share to earnings of 2 cents per share. Inventories are expected to decline in low to mid-single digits percentage on a year-over-year basis.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -92.75% due to these changes.
VGM Scores
At this time, Macy's has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Macy's has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.