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Here's Why You Should Avoid Investing in Macy's (M) Stock Now

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Macy's, Inc. (M - Free Report) has been bearing the brunt of tough macroeconomic trends, softness across its credit card portfolio, supply chain constraints and rising operating costs and expenses.

The current Zacks Rank #4 (Sell) player has a market capitalization of $3 billion. In the past three months, M has lost 28.2% compared with the industry’s decline of 12%.

Zacks Investment Research
Image Source: Zacks Investment Research

Let’s discuss the factors that might continue to affect the firm’s performance in the near term.

Soft Operational Performance: Macy's has been grappling with waning consumer confidence and a pullback in spending activity, which is reflected in its second-quarter fiscal 2023 performance. In the quarter, the company’s comparable sales fell 8.2% on an owned basis and 7.3% on an owned-plus-licensed basis on a year-over-year basis. Its digital sales dropped by 10% and brick-and-mortar sales declined by 8% in the same period.

Weakness in the company’s credit card segment owing to an increased rate of delinquencies within the credit card portfolio has been impacting its top-line performance of late. On its second-quarter earnings call, the company highlighted that it expects the softness to persist in its credit card portfolio throughout the fiscal year and affect its top-line performance.

Tepid Fiscal 2023 Outlook: In regard to the tough operating landscape, Macy's provided a cautious view and reaffirmed its annual sales and earnings outlook. For fiscal 2023, it anticipates its net sales in the range of $22.8-$23.2 billion, down from $24.4 billion reported in fiscal 2022. Comparable owned plus licensed sales on a 52-week basis are expected to decline by 6-7.5%. For the fiscal year, adjusted earnings per share are envisioned in the band of $2.70-$3.20, down from $4.48 earned in the last fiscal year.

For the fiscal third quarter, it expects net sales to be $4.75-$4.85 billion, down from $5.2 billion in the year-ago fiscal quarter. The bottom line is envisioned in the range of a loss of 3 cents per share to earnings of 2 cents. The metric represents a significant decline from adjusted earnings of 52 cents in third-quarter fiscal 2022.

Rising Costs & Expenses: The company has been witnessing rising operating costs and expenses over time. For instance, in the first six months of fiscal 2023, its selling, general & administrative (SG&A) expenses increased by 0.3% year over year to $3,930 million. As a percentage of net sales, the metric increased by 310 basis points to 38.9%.

Any deleverage in expenses, unless fully offset by sales, may have a direct bearing on margins and, in turn, the bottom line. For fiscal 2023, the company’s SG&A expenses are expected to be about 36.4-36.7% of net sales.

Southbound Estimate Trend: In the past 60 days, the Zacks Consensus Estimate for the company’s fiscal 2023 and 2024 earnings have been revised downward by 4.4% and 9.7%, respectively.

Key Picks

Some better-ranked stocks from the Retail-Wholesale sector are, Inc. (AMZN - Free Report) , BJ's Restaurants, Inc. (BJRI - Free Report) and Builders FirstSource, Inc. (BLDR - Free Report) .

Amazon currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AMZN delivered a trailing four-quarter earnings surprise of 41%, on average. The Zacks Consensus Estimate for AMZN’s 2023 sales and earnings per share (EPS) indicates growth of 11.1% and 214.1%, respectively, from the prior-year reported levels.

BJ's Restaurants presently flaunts a Zacks Rank #1. BJRI delivered a trailing four-quarter earnings surprise of 121.2%, on average.

The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS implies rises of 5.6% and 447.1%, respectively, from the year-ago reported numbers.

Builders FirstSource currently sports a Zacks Rank #1. BLDR has a trailing four-quarter earnings surprise of 52.2%, on average.

The Zacks Consensus Estimate for BLDR’s 2023 sales and EPS indicates a decline of 23.3% and 26.8%, respectively, from the previous year’s reported levels.

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